Monday, February 22, 2010

Has it Really Been Two Years?

The Shreveport Times published a long article in the Sunday paper reflecting on the past two years of Haynesville Shale development.  At the same time the ST noted increased sales tax collections in certain parishes, especially DeSoto and Red River.  DeSoto numbers are summarized below on a table from another ST article earlier this month.

Over the course of writing this web site, I've gotten a number of caustic comments from north Louisiana residents criticizing the abilities of local officials to judiciously administer these newfound gains.  (I'm trying to be diplomatic here.)  I have high hopes with the newfound prosperity, but I've got a sinking feeling that we one day might be sporting bumper stickers like those we saw in the 1980's: "Please God, Just Give Us One More (Gas) Boom. We Promise Not to Blow It Next Time."

As the Haynesville Play continues to grow, how the newfound gains are invested should be a major concern for all of us, especially in Louisiana.  I grew up in Louisiana in the 70's and 80's and remember how the state squandered its gains from the energy industry during the boom periods.  This should never be repeated.

Energy by its nature is a cyclical business, and there are always ups and downs in the cycle.  But probably the best place in the business food chain to be is land owner (or sales/property/income tax recipient).  You may not make the biggest bucks, but you are insulated from the significant business risks that the other participants must take.

But for everyone who receives a check, either royalty or tax, you have to keep in mind that it will not last forever.  You must take the money you receive and invest it prudently.  That goes from the guy who buys a new car but neglects to put money aside to pay income taxes to the local government that funds a bunch of boondoggle projects that don't leave the community better off, or worse line the pockets of political cronies.

The windfall from the Haynesville Shale has the opportunity to be transformative to places like DeSoto and Red River Parishes that were not exactly hubs of prosperity two years ago.  In addition to increased sales and property tax collections, the parishes (and especially the school boards) own significant chunks of resource-rich land that will pay off in spades in the coming years. 

Unfortunately, perhaps the worst thing for fiscal discipline is an ample supply of cash, and that goes for both politicians and you and me.  But before local elected officials go and buy the equivalent of the shiny new Cadillac, we as citizens must require accountability from them on how they spend newfound gains.  If, for example, a casino comes to town generating lots of tax money and the best public works project the community can point to is a freshly paved highway leading to the casino, the public was screwed.

Here is my suggestion (as if anyone asked me) for how to deploy a windfall:
  1. Fix existing problems.  There likely are long lists of deferred maintenance items on buildings or underpaid teachers, for example.  (Also in that category is fixing the damage caused by the boom - such as roads - something for which E&P companies should bear responsibility.) 
  2. Invest, don't spend.  Money should be invested intelligently on projects that make the community a better place for everyone and diversify the economic base to create a stable platform for future economic growth.  
  3. Plan for the future.  Officials need to dedicate a portion of future earnings to reserve funds, both for ongoing operations and support as well as a stash for a rainy day.
Citizens need to hold officials accountable and not just bitch and moan about the "same old, same old."  The Haynesville Shale is a golden goose, and the biggest crime imaginable would be for this golden opportunity to be squandered.

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