The future of school funding in Texas could be in jeopardy if instability in the energy markets continues over the next 15 years — possibly costing the state billions in lost revenue earmarked for education.
The report was produced by the nonprofit group Texas 2036, which works to provide solutions for the state’s long-term growth. In a 60-page report released Wednesday, the group said that the declining energy prices could result in a 31% drop in revenue that is collected from oil and gas royalties to help fund kindergarten through 12th grade education.
About one-quarter of the state’s $32 billion in annual education spending comes from oil and gas royalties and taxes. The state also draws from a $47 billion endowment that benefits Texas schools. That AAA-rated fund also helps school districts across the state guarantee bonds — a critically important tool for the state’s fastest-growing districts.
On May 1, the Royse City Independent School District will ask voters to approve a $230 million bond initiative that would help fund new schools, the construction of an events center and other upgrades. Under state law, the district would be eligible for the Permanent School Fund to guarantee a portion of the bond.
However, the Texas 2036 report says that the guarantees from oil and gas revenues are something that needs to be evaluated if prices continue to decline.
“While world oil prices could rebound, this research focuses on those scenarios intended to provoke thoughtful evaluation of potential actions that Texas might take to better insulate its economy, state government and school funding mechanisms, such as the Permanent School Fund, from possible negative consequences if world oil prices decline,” said A.J. Rodriguez, executive vice president of Texas 2036. “No one has a crystal ball to predict exactly how the next 15 years unfold, but bringing together experts and data now, we can help the state build in the resilience that will allow us to weather a world oil price decline if it happens.”
The nonprofit, which produced the report in cooperation with the Center for Houston’s Future, found that if world oil prices experience a steady decline between 2021 and 2036 and reach $30 per barrel:
• Texas’ economy could shrink by an aggregate of $1.6 trillion during that 15-year period, compared to maintaining constant at 2019 levels. Gross state product linked to oil and gas exploration and production in 2036 could be $155.6 billion less than a 2019 baseline of $281 billion, which reflects a more than 55 percent decline.
• Texas state and local tax collections, including taxes and royalties derived from oil and gas exploration and production, could shrink by an aggregate of $128.9 billion during that 15-year period, compared to remaining constant at 2019 levels. Annual revenues, including taxes and royalties linked to oil and gas exploration and production in 2036, will be $9.7 billion less than a 2019 baseline which was 13.4 billion, which reflects a 73 percent decline.
• Texas K-12 education funding derived from oil and gas exploration and production could shrink by an aggregate $29.0 billion during that 15-year period, compared to maintaining constant at 2019 levels. Annual K-12 revenues, including taxes and royalties linked to exploration and production in 2036, could be $1.8 billion less than a 2019 baseline, which was $5.8 billion or a decline of 31 percent.
If oil prices remain at $60 per barrel, as suggested by one of the scenarios evaluated in this study, energy production is expected to generate about 1.9 percent more per year for public school finances through 2036.
That’s slightly above the anticipated student enrollment growth each year.
But under other less favorable scenarios examined by this study, revenue for public education would fall steeply. For example, if oil prices decline from $40 to $30, contributions to K-12 education would fall by 31 percent — or $1.8 billion a year— from 2019 levels.
The impact will be greater in areas such as the Permian and Eagle Ford Basins, where the economy relies heavily on energy production.