DALLAS – While the key oil production states of Oklahoma, North Dakota and California have all been hit hard by the drop in crude oil prices, the impact varies in each state.
That’s what Moody’s Investors Service analysts wrote in a report this week.
In Oklahoma and North Dakota, state and local governments’ budgets have seen a more profound impact from the decline in crude oil prices than California, according to the report, released Tuesday.
In California, the impacts are limited to Kern County, where the bulk of the state’s production takes place, according to Moody’s.
In Oklahoma, which carries an Aa2 rating and negative outlook, revenues that go to the state and local government from severance taxes on oil production have tumbled by 51% in the 12-month period ending in March compared to the previous year. Oil taxes flowing to the state's general revenue fund are down 98% fiscal year-to-date.
“Low oil prices have already caused sharp declines in revenues collected by Oklahoma and its local governments, but more pain is on the horizon as the rest of the economy slows down due to muted drilling activity,” said Moody’s analyst Julius Vizner.
The drop in oil production has caused a $1.3 billion state budget gap. Over the last two years the state has drawn $254 million from its rainy day fund, bringing it down to $306 million.
The impact has trickled down a decline in sales tax revenue collections for local governments, much of which is tied to energy production in those cities.
In March, Moody’s placed the Aaa rating on the state’s largest city, Oklahoma City, on watch for a downgrade citing the decline in sales tax revenue, which accounts for more than 50% of the state capital city's revenue.
Oil production and related economic activity in North Dakota has slowed enough to put the state’s economy into a recession. Production decreased approximately 10% to 1.12 million barrels per day in January 2016 compared to a peak of 1.23 million in December 2014, according to Moody’s.
In February, the state, rated Aa1 with a negative outlook, dipped into its $572 million budget reserve for $497 million to help cover a $1 billion shortfall in revenue for the 2015-2017 biennium that was triggered by falling crude oil prices. The state also implemented across-the-board budget cuts of 4.05% to make up for the shortfall in a $6 billion general fund budget for the current two-year cycle that began in July 2015.
“Job losses and resulting revenue declines opened a $1.07 billion state budget gap, equivalent to 22% of North Dakota’s biennial budget,” said analyst Baye Larsen.
The cities of Williston, Dickinson, Minot and Mandan derived over 14% of their 2014 revenues from the oil and gas production tax.
Williston, the most dependent on oil and gas production tax, derived 65% of its 2014 revenue from oil and gas tax revenues. In March, Moody’s downgraded the city’s credit two notches to the junk-level Ba1, and lowered its sales tax-backed bonds four notches to Ba3 as collections declined 13.5% compared to fiscal 2014 collections. January 2016 collections have fallen by 65% compared to January 2015, and February receipts were down 46% year-over-year.
In California, the impact of lower oil prices and a decline in oil production has been mostly limited to local governments in Kern County, whose certificates of participation are rated A1 with a negative outlook.
“The drop in oil prices in January 2015 resulted in the oil assessed valuation dropping to $17.2 billion in fiscal 2016 from $26.8 billion in 2015, and we expect another $6.8 billion decline for fiscal 2017,” Moody’s analyst Lori Trevino said. “The county government is anticipating a loss of over $61 million in property tax revenues from fiscal 2015 to fiscal 2017.”
