Full text of District Highlights : September 1983

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DALLAS
Federal Reserve Bank of Dallas

September 1983

Gas Market Slump Reflected in State Revenues
In 1979, revenues from taxes on
natural gas production accounted for
about 10 percent of total tax receipts in
each of the Eleventh Federal Reserve
District states (Louisiana, New Mex­
ico, Oklahoma, and Texas). Since 1979,
the price paid for natural gas produced
in each of these states has risen while
production has declined. Because the
four states have used different
methods for taxing natural gas, the
response of natural gas tax revenues
to changing market conditions has
varied across the states.
From 1979 to 1982, increased
revenue from natural gas taxation
eased the revenue required from other
sources in New Mexico, Oklahoma,
and Texas. In Louisiana, a decline in
revenue from natural gas taxes
deepened the revenue required from
other sources. In 1983, however, de­
mand for natural gas has weakened,
reducing the revenue from taxes on
natural gas production in New Mexico
and Louisiana and slowing its growth
in Texas and Oklahoma.
State taxes on gas production fall in­
to two broad categories. Oklahoma
and Texas rely on a value tax, assess­
ing taxes at rates of 7.0 and 7.5 percent
of wellhead value, respectively. Most
natural gas produced in Louisiana, on
the other hand, is taxed at a unit rate of
7.0 cents per thousand cubic feet (Mcf).
Gas from less productive wells is taxed
at 1.3 or 3.0 cents per Mcf. Although
New M exico mixes the taxing
methods, assessing rates of 8.7 to 13.9

cents per Mcf and 2.73 to 3.35 percent
of wellhead value, more than 50 per­
cent of its natural gas tax revenue
comes from the unit tax.
When gas prices rise, states with
value-based taxes a uto m atically
receive increased revenue per Mcf
marketed, while states with unit-based
taxes receive higher revenues per Mcf
only if the legislature increases the tax
rates. Despite declining production of
natural gas in Oklahoma and Texas,
sharply increased prices boosted

revenues from natural gas taxation
(Table 1). Furthermore, in these two
states, revenues from gas taxes in­
creased at a faster rate than revenue
from other tax sources (Table 2).
In Louisiana, where the state govern­
ment does not share in increased gas
values, revenue from natural gas taxa­
tion has declined with production. Dur­
ing this same period, New Mexico in­
creased its revenue from natural gas
taxes largely by raising the unit tax
(Continued on back page)

Texas Border Benefits From Maquiladoras
The Texas-Mexico border has been
hard-hit by the 1982 peso devaluations.
This is particularly true for cities
dependent upon retail purchases from
Mexicans. Nevertheless, the border is
beginning to attract increased indus­
trial investment resulting from deval­
uation-induced reductions in Mexican
labor costs. Increased job oppor­
tunities from a widening industrial
base should reduce unemployment
along the border.
The Texas border typically has had
high rates of unemployment. Moreover,
jobless rates have been higher in cities
with less diversified economies (see
overleaf). The peso devaluations ex­
acerbated this problem. The labor
market impact was greatest in cities
with high concentrations of retail
em ploym ent. The largest p o s t­
devaluation rise in unemployment was

in Laredo. More than 35 percent of all
nongovernment jobs in Laredo are in
the retail sector, while fewer than 10
percent are in manufacturing. El Paso,
by contrast, was the border city least
affected. El Paso has the most diver­
sified and largest economy along the
Texas border. Its share of retail
employment, albeit higher than the
Texas average, falls second to its
share of manufacturing employment.
Cities along the border have started
to see the longer-term effects of the
peso devaluations. There is growing in­
terest among American firms to locate
plants on the Mexican side of the
border to take advantage of the decline
in Mexican labor costs. These plants,
called “ maquiladoras,” mostly assem­
ble goods for shipment to the United
States. Producers pay U.S. duties only
(Continued on back page)

Table 1

Table 2

STATE TAX REVENUES FROM
NATURAL GAS PRODUCTION

REVENUES FROM
NATURAL GAS TAXATION

M illio ns of Dollars

Percent of State Tax Receipts

Fiscal Year

1979
1980
1981
1982
1983

Louisiana

New Mexico

Oklahoma

Texas

198
174
161
159
142e

85
103
162
188
172

124
181
222
344
352p

554
734
902
1,057
1,085e

Fiscal Year

1979
1980
1981
1982
1983

Louisiana

New Mexico

Oklahoma

Texas

10.2
8.2
7.2
5.7
na

10.1
11.1
14.3
15.9
na

9.2
11.3
10.9
14.2
na

10.3
11.6
11.6
12.2
12.7e

p = preliminary, subject to revision.
e = estimated, projection based on less than 12 months of data
na = not available
SOURCES FOR BOTH TABLES: Controller for the Department of Revenue, State of Louisiana.
New Mexico State Taxation and Revenue Department.
Office of the Controller and Office of State Finance, State of Oklahoma.
Texas State Comptroller of Public Accounts.
Federal Reserve Bank of Dallas.

DEPOSITS-ALL MEMBER BANKS

BANK CREDIT—ALL MEMBER BANKS

Eleventh Federal Reserve D istrict
i— 40 PERCENT CHANGE'

Eleventh Federal Reserve D istrict

1. P ercent cha n g e fro m sam e q u a rte r in previous year.

DISTRICT BRIEFS
The recovery is well underway in the District, but the energy sector still lags.
• Industrial production in Texas rebounded from
its low point in November and has been stable
since March. Production of nondurable goods
and housing-related durable goods is up
significantly, but output of energy-related
durable goods is still declining.
• Employment growth in Texas this year has
been slow. This is typical in the early stages of
a recovery as employers increase hours worked
by their existing staffs before hiring additional
workers.
• The rig count in Texas hit a low of 669 rigs in
June, but increased to 752 rigs in the week of
August 22. The U.S. rig count has risen steadily
since its trough in April largely because of in­
creased drilling in California and Alaska.
• Department store sales exceed year-ago levels,
and are particularly strong in Austin, San An­
tonio, and Dallas-Fort Worth.

UNEMPLOYMENT RATE
r-

• Nearly 3,000 permits for residential con­
struction were issued in June, an all-time
record.
• S&Ls in Texas closed nearly twice the volume
of mortgage loans in the first six months of this
year as in the same period last year.
• Year-over-year increases in bank credit at
District member banks have been slowing
since the middle of 1982 because of weak
business loan demand. The slowdown in loan
growth has been partially offset by increased
security holdings.
• The consumer price index increased 3.1 per­
cent in Dallas-Fort Worth, 2.4 percent in
Houston, and 2.6 percent in the U.S. in the year
ending June 1983. Larger increases in housing
costs in the Dallas-Fort Worth area explain
most of the difference in price gains in that
area.

HOUSING PERMITS: TEXAS

12 PERCENT -----------------------------------------------------------------------------(SEASONALLY ADJUSTED)

1. Louisiana, New Mexico, Oklahoma, and Texas.
SOURCES: Texas Employment Commission.
U. S. Department of Labor, Bureau of Labor Statistics.

SOURCE: Department of Commerce, Bureau of the Census.

CONSUMER PRICE INDEX

TEXAS INDUSTRIAL PRODUCTION INDEX

i-

20 PERCENT’ -----------------------(SEASONALLY ADJUSTED)

1. Percent change from same month in previous year.
SOURCE: U. S. Department of Labor, Bureau of Labor Statistics.

Gas Market Slump(cont.)
rate an average of 3.7 cents per Met in
1981. The data in Table 1 indicate that
from fiscal year 1979 to fiscal year
1983, revenues from natural gas taxa­
tion rose 184 percent in Oklahoma, 102
percent in New Mexico, and 96 percent
in Texas, while falling 34 percent in
Louisiana.
In addition, for each of the four
states, the data in Table 1 reveal either
a slowing of the rate of growth or an
absolute reduction in revenues from
natural gas taxes during fiscal year
1983. Reduced gas demand and a slow­
ing in the growth of gas prices have
pushed revenues from gas taxation be­
low previously anticipated levels, even
in those states with value-based
natural gas taxes. Given expectations
of continued weakness in the natural
gas market, all four District states can
be expected to face increasing pres­
sure to raise tax rates on natural gas,
to increase revenue from other

sources, or to restrain the rate of
g ro w th
in s ta te
g overnm ent
expenditures.
—Stephen P. A. Brown
—Ronald H. Schmidt

Texas Border (cont.)
on the value added in Mexico. These
duties are small relative to savings in­
curred from using low-cost Mexican
labor. Firms usually build a more
capital-intensive plant on the U.S. side
of the border to link the U.S. market to
the Mexican plants. These plants
widen the industrial base along the
border. Border cities also benefit be­
cause maquiladora workers spend part
of their income in the United States.
The surge in maquiladoras appears
to be occurring in most cities on the

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Mexican side of the border. The in­
crease has been largest in Ciudad
Juarez (across the border from El
Paso), which has a large number of ma­
quiladoras and offers prospective
firms the most developed industrial
parks. Still, the broad-based nature of
the maquiladora increase suggests
that most Texas border regions will ex­
perience industrial growth.
The increase in economic diversifi­
cation resulting from this industrial ex­
pansion is likely to lead to reductions
in average unemployment rates along
the Texas-Mexico border. Because
most of the maquiladora expansion is
recent, however, significant employ­
ment gains resulting from industrial
growth will probably not be seen until
1984. High unemployment rates, re­
flecting the depressed economic con­
ditions in Mexico, are likely to continue
this year.
—Alberto E. Davila

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