The recent decline in global oil prices benefits Ohio drivers and will continue to do so for the near future. However, the governor and state legislators need to now acknowledge how dependency on tax revenue derived from oil production leaves the state of Ohio susceptible to international political and economic forces that it cannot control.

Any budget dependent on a severance tax on “fracking” will be vulnerable to the capricious, if not whimsical, vagaries of the global oil market. If “fracking” is to alter the fiscal landscape of Ohio, politicians need to understand that the revenue stream is neither constant nor guaranteed. Pooling severance tax revenue in a trust fund creates a revenue stream that will serve the residents of Ohio long after the shale is depleted of the black gold many have come to see as salvation. Global oil prices are in decline for many reasons, none of which anyone in Columbus affects. The effect of a surging U.S. dollar reduces the price of oil, which is priced in dollars. When the dollar appreciates, U.S. dollars buy more foreign goods. The most notable import is oil. So while Americans are enjoying the benefits of cheaper oil and gasoline, the rest of the world is paying more. There are many explanations for the improving dollar, but all that matters here is that no one in Columbus is able to affect global currency markets. In addition to a stronger dollar, global demand for oil is in retreat. More efficient cars in the United States permit Americans to use less gasoline, which adversely affects demand for oil. Economic weakness in Europe and China further reduces demand and dampens the price of oil. Again, I see no way that politicians in Ohio can affect these powerful determinants of global oil demand. To be sure, politics is involved in lower oil prices, albeit not domestic politics. No, the federal government did not release oil from the strategic reserves to cajole voters shortly before the November elections, and it is unlikely that the U.S. government is able to influence a particularly major oil producer to ramp up production to flood the market to suppress the price. Saudi Arabia controls the oil market. If the Saudis want the price to rise, production would be reduced until the desired price is achieved. While the United States deploys ships, planes, drones and troops to affect global events, the Saudis manipulate oil prices. I contend that the Saudis are using oil to adversely impact oil-producing countries with interests opposed to Saudi Arabia. Both Russia and Iran depend on oil revenue to finance political unrest and wars. ISIS sells oil to generate revenue to wage its war. Saudi Arabia reduces the ability of these actors to wage their battles by limiting access to essential financial resources. Instead of bombs and bullets, the Saudis turn off the faucet. Saudi Arabia is flush with reserves and able to withstand a long period of low oil prices. In contrast, Putin, Iran and ISIS need the proceeds of oil sales. Again, Columbus has little influence in crafting foreign policy in Saudi Arabia. In contrast to consumers, oil producers are harmed by lower prices. If the price falls below the cost of production, producers will shut off the wells. No production, no severance tax revenue. If Ohio's budget is dependent on severance tax revenue, then the state will find itself facing a deficit. As unpopular as raising taxes is, raising taxes and reducing spending is less popular. The solution is to apply common sense. Rather than pretend that oil production is predictable and that severance tax revenue will exist forever, representatives of the citizens of Oho (and their progeny) can establish a trust fund into which the sporadic revenue stream resulting from “fracking” is deposited. Conservative investment of the funds can generate income long after the oil and gas are gone and regardless of the price of oil. At issue is whether to seize the opportunity to create a mechanism to fund state government in perpetuity. Fiscal stability is predicated on the reliability of tax collections. Oil production is not reliable. Pretending that severance tax revenues will always be available is not just ignorant, it is irresponsible. Ohioans deserve better.

McClough is an associate professor of economics at Ohio Northern University.