Falling Oil Prices Raise New Concerns for States

Kilian Melloy READ TIME: 4 MIN.

Plummeting oil prices may add a little jingle in the pockets of holiday shoppers and travelers but are raising financial worries in some states that had been tapping into surging oil tax revenues to pay for roads and other government services.

With oil prices now around a five-year low, budget officials in about a half-dozen states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels.

How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues. Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by.

"I think we'll be able to weather these depressed prices for six to eight months," said Oklahoma Finance Secretary Preston Doerflinger, whose state is among several where concerns are growing. But "there's no question at some point, if they remain depressed, they begin to have an impact on the budget."

U.S. crude oil prices that topped $100 per barrel this summer have plunged to barely $60 this week, the result of high supplies globally and expanded domestic production. Some analysts expect prices to remain around that level, or dip further, throughout 2015.

For many U.S. residents, lower oil prices translate to lower gasoline prices or lower winter heating costs. That can free up cash for consumers to spend on other things, potentially generating sales tax revenues for states.

"Quite frankly, it bodes well for consumers. It probably isn't terrific for Texas or Oklahoma (oil) investors or North Dakota investors," said Tom Kloza, the chief oil analyst at the Oil Price Information Service. "But we're not quite sure where the point of extreme pain is."

As their stock prices have bene falling, some energy companies have been scaling back plans for future oil drilling and exploration. An economist in Oklahoma recently predicted that lower oil prices could cost the state 1,000 jobs next year.

North Dakota and Kansas already have lowered their oil tax revenue projections.

Alaska officials on Wednesday projected a $3.5 billion budget deficit this year, due largely to slumping oil prices. Gov. Bill Walker, who took office Dec. 1, warned of lean times ahead.

Louisiana Gov. Bobby Jindal announced spending cuts last month to road maintenance, public school testing and youth mentoring programs to help close a $180 million shortfall created partly by slumping oil revenues.

New Mexico, which relies heavily on energy taxes and royalties, recently cut is projected revenue growth in half for the upcoming budget. That could send officials in Gov. Susana Martinez's administration scrambling to revise their spending requests before the Legislature convenes in January. But there are no plans for tax increases, said Tom Clifford, head of the New Mexico Department of Finance and Administration.

Others are more alarmed. Kentucky produces a comparatively small amount of oil but links its motor fuel tax rate to wholesale prices. It's forecasting an annual $129 million loss for its highway fund, which Transportation Secretary Mike Hancock described as "crippling."

Some states have stockpiled savings from the oil boom to guard against busts and no longer rely as heavily on oil revenues to finance basic operations.

Texas, the nation's leading oil producer, was getting about one-quarter of its revenues from oil taxes when prices crashed in the mid-1980s, resulting in a real estate and banking crisis and a multi-billion dollar state budget shortfall.

Now Texas now has a more diversified economy. Its projected $6.5 billion in oil tax funds comprise just 7 percent of its total two-year revenues. Although a portion of that still helps pay for such things as public schools and Medicaid, most Texas oil revenues now are directed to a savings account and a newly approved transportation fund.

No state spending cuts are anticipated during the remainder of the budget year, said Lauren Willis, a spokeswoman for Texas Comptroller Susan Combs.

North Dakota, the second-ranked oil producer, also has been stockpiling oil revenues. Its "Legacy Fund" is expected to climb to $6.4 billion over the next two years and can't be spent by lawmakers until at least 2017. Officials there seem unfazed by falling oil prices, even though the state has shaved its projected oil tax revenues by 15 percent from an August forecast. Gov. Jack Dalrymple this month outlined an "ambitious" two-year budget that would boost spending on infrastructure, cut taxes and still have a multi-billion-dollar surplus.

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Associated Press writers Becky Bohrer in Juneau, Alaska; Susan Montoya Bryan in Santa Fe, New Mexico; Melinda Deslatte in Baton Rouge, Louisiana; John Hanna in Topeka, Kansas; James MacPherson in Bismarck, North Dakota; Sean Murphy in Oklahoma City; and Will Weissert in Austin, Texas, contributed to this report.


by Kilian Melloy , EDGE Staff Reporter

Kilian Melloy serves as EDGE Media Network's Associate Arts Editor and Staff Contributor. His professional memberships include the National Lesbian & Gay Journalists Association, the Boston Online Film Critics Association, The Gay and Lesbian Entertainment Critics Association, and the Boston Theater Critics Association's Elliot Norton Awards Committee.

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