For state and local governments, ongoing budget problems are leading to divergent approaches to energy policy with an overall focus on fiscal neutrality. While states disagree on whether existing climate and clean energy programs are essential to growth, there is a broader consensus on shale gas as a revenue source and a creator jobs, even as regulatory questions remain. In this Brief, Garten Rothkopf examines the fiscal difficulties state and local governments are dealing with, and how they will the affect the development of energy policy for the near term.

With at least 46 states experiencing ongoing budget shortfalls and a new tranche of funding from Washington for fledgling renewable and climate policies increasingly unlikely, states are now under an imperative to create jobs and raise revenue without dipping into state coffers. In this environment, some states are looking to roll back existing energy and climate programs on the theory that they are either too costly or place too great a regulatory burden on the economy.  Others, however, see climate and clean energy programs as vital to attracting investment and increasingly, as an additional source of tax revenue.  Meanwhile, states with significant shale gas reserves are eyeing development as a potential revenue stream and opportunity for job creation.  However, disagreements over tax structure, permitting, and regulatory scope have resulted in two very different approaches.  In this Brief, Garten Rothkopf will examine how sharply constrained budgets are pushing states to adopt different job creation and revenue generation strategies.

The Fiscal Situation for States and the Need for Jobs and Growth

In dealing with their fiscal problems, states are setting the standards for how officials throughout the US will be developing energy and promoting economic growth in a tight fiscal environment. Virtually every US state is facing massive budget deficits and high levels of unemployment in the near term: according to the nonpartisan Center on Budget and Policy Priorities, states collectively face a $125 billion deficit for fiscal year 2011, which for most states began on July 1 of this year. Compounding the states' problems is the winding down of the federal government's economic stimulus package, which to a large extent is composed of aid to state and local governments. About $135 to $140 billion from the American Recovery and Reinvestment Act to help states maintain current activities is being distributed over the next period of 30 months. Beyond this, however, federal aid to states is not expected to materialize, particularly with the Republican takeover of the House of Representatives. 

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