Building Community Resilience Through Smarter Oil and Gas Revenue Policy

RFF’s findings show that New Mexico, Texas, and Pennsylvania take very different approaches to taxing oil and gas production, but they share one core weakness: None of them provides consistent and predictable revenue protection for local governments.

• In New Mexico, the state has built strong long-term savings funds and pioneered some innovative uses of funds, but counties and municipalities still face highly unstable annual revenue streams.
• In Texas, property tax rules create a one-way ratchet—rates fall during booms but are extremely difficult to raise during downturns—forcing communities to absorb deep losses when prices fall.
• In Pennsylvania, communities rely heavily on drilling-dependent fees that swing sharply with market cycles, with no permanent savings or smoothing mechanisms.

These shortcomings matter because oil and gas markets remain inherently volatile. Boom-bust cycles are not a hypothetical future; they are the defining characteristic of the industry’s past and present. Yet frontline communities—those providing labor and emergency response, maintaining the roads damaged by heavy truck traffic, and funding schools—have the fewest tools to manage it.

Extraction often occurs in rural counties with limited fiscal reserves and high infrastructure needs. These communities experience a cascade of effects:

• Increased air and water pollution
• Higher demand on emergency services
• Road deterioration from heavy truck traffic
• Housing-market spikes during booms
• Associated needs (e.g., schools) to accommodate a population that can rapidly swell and then shrink
• Sharp revenue losses during busts

And yet, as the RFF report illustrates, none of these top-producing states has designed its revenue system to prioritize stability or resilience for the communities facing these impacts.

Simply put: The people living closest to extraction carry all the environmental, health, and fiscal risks.

International and U.S. examples show that it is possible—and prudent—to collect more revenue from extraction and channel it into long-term community benefits.

Norway offers perhaps the most well-known model. The government has long ensured that “a large share of the value creation accrues to the state,” and upstream petroleum activities face a marginal tax rate of 78 percent (combining its corporate tax and special petroleum tax). 

Revenues are invested in the country’s sovereign wealth fund, the Government Pension Fund Global, which was created “to shield the economy from ups and downs in oil revenue” and to ensure that both current and future generations “benefit from our oil wealth.”

North Dakota demonstrates how a U.S. state can apply similar principles. Its constitutionally created Legacy Fund receives 30 percent of oil and gas production and extraction taxes—automatically saving a meaningful share of revenue “for the benefit of future generations.” The fund not only preserves wealth but also channels part of its capital into in-state investments such as infrastructure loans, community bank deposits, and equity investments in emerging local businesses.

While the scale of resources differs, the core lesson is the same: Higher revenue capture paired with long-term savings leads to greater stability and greater community benefit.

States and local governments must modernize oil and gas revenue systems so that local communities are not left exposed to unpredictable swings in global energy markets. Three priorities stand out:

1. Stabilize local revenue streams

States can create smoothing mechanisms, baseline minimum payments, and local stabilization funds that ensure communities receive reliable annual funding, regardless of short-term booms or busts.

2. Ensure communities receive a fair share

Producing counties should consistently receive commensurate revenue, given the long-term impacts of extraction on their land and communities, from abandoned wells to road maintenance to health impacts to emergency response and beyond.

3. Establish or expand long-term savings funds

Permanent funds—whether statewide or designed to benefit producing regions—can transform volatile revenue into durable, intergenerational support for education, infrastructure, and economic development.

The RFF research provides a clear, objective grounding for what frontline communities have long understood: Oil and gas revenues are unstable, and without intentional policy design, that instability lands hardest on those living closest to extraction.

States have the tools to do better. They can plan for volatility, save more, protect more, and ensure that the communities that have powered our energy economy for decades are equipped not only to weather the next price cycle but to thrive beyond it.