When Louisiana, one of the nation’s biggest energy-producing states, decided how much tax money the government would have to spend this year, it forecast that the price of oil would be almost $50 a barrel. It has since tumbled to below $32, casting economic ripples that helped create a $750 million budget shortfall.
Bloomberg News reports the price of crude, which is recovering from a 12-year low, has emerged as a major source of fiscal strain on the nation’s oil-patch states, none of which predicted how swift or deep the drop would be. That has prompted a reversal-of-fortune in capitals that once reaped revenue windfalls from America’s energy-industry renaissance and are now racing to adjust.
“They’re playing catch-up in getting their estimates in line with what’s happening with spot prices,” says Gabriel Petek, a municipal bond analyst in San Francisco for Standard & Poor’s who’s been tracking the fiscal impacts, speaking of energy states revising price forecasts. “It doesn’t look like prices are coming up soon, so if the prices stay low it could pressure their budget positions.”
A report released Thursday by S&P says the energy rout is a main culprit in at least five of the 11 states that are facing financial pressure this year as jobs and counted-on tax collections disappear. The price of oil, which traded for more than $100 less than two years ago, has been cut in half since June amid concerns about the slowing pace of overseas economies, even with a rally Friday that pushed it up more than 7%.
Besides Louisiana, it’s being felt largely in Alaska, New Mexico, Oklahoma and North Dakota, the credit-rating company said. But it’s also cropping up elsewhere: In Texas, the largest producer, the impact has crimped sales-tax collections and increased the cost of public-assistance programs for those out of work. In states with the big energy industries, payrolls expanded by 0.9% in the year through November, less than half the rate for the U.S., according to S&P.
