State Budget Shortfalls and Oil and Gas Revenues

This is really quite an interesting article that I finally got around to reading, after I had it in one of my many browsers' tabs in the last month.


It focuses on Oklahoma, which is dealing with budget shortfalls due to the decline in oil and gas prices. However, it points out that Oklahoma production taxes (I assume they really mean royalties) have actually declined over the last several years despite substantial increases in drilling activity. What the Reuters article doesn't note though, is that Oklahoma is mostly a gas-producing state, which has been in a longer and more severe bear market than oil. But the logic is the same.

Now that crude and natural gas prices are in the tank, how is the state dealing with this? Well, if you are a small city that is now receiving less funding from the state, one of the biggest expenditures in your budget that you can cut is likely education - and as a result, some school districts are shortening weeks, planning to lay off staff, and...well you get the point.

Is it a big deal that school funding is lower?

Data shows that "dollars per student" is actually not a good metric of how effective school systems are. I would personally measure effectiveness by math/science/literacy international test scores, dropout rates, and post-secondary admission - and you may be surprised at how some even low-income neighbourhood schools can effectively teach students at lower-than-average costs per student!

But when it is forced dramatic cuts, my opinion is yes it is very likely bad, especially when you're shortening school hours. It is disheartening to also note that Oklahoma is probably one of the states that can least afford to do this. It ranks #43 among other States in math proficiency (interactive map in

Ok, so Oklahoma doesn't have the best school system, but you can't blame them for lower commodity prices! Right?

The Reuters article shows that Oklahoma had a very small rainy-day fund on an absolute and per-capita basis compared with North Dakota. On top of that, Oklahoma lawmakers still voted in favour of making permanent what was supposed to be a temporary tax break on oil/gas wells' early-life production.

Admittedly this is a very complex subject, and I don't know what the right solution is. As a Canadian though, it is good to see Alberta has not dramatically reduced education spend (but with a $10 billion deficit for 2016 some might say it is unclear what the long-term plan is). That said, while Alberta loves to brag that it has one of the highest funding-per-student in Canada, it does not publicize how it has one of Canada's highest high-school drop-out rates. I guess the conclusion is that, the best thing for Oklahoma and Alberta to do is to seek ways to achieve more with lower funding-per-student, because data shows they aren't necessarily correlated.