States like Texas and Oklahoma that rely on oil and gas development to boost their revenues could struggle to grow their economies in 2016 as crude prices have remained stubbornly weak, according to a Fitch Ratings report released Tuesday.
Fitch said most of these state budgets include price forecasts for crude in 2016 that aren’t supported by a much-watched federal government projection for next year.
In its most recent Short-Term Energy Outlook, the U.S. Energy Information Adminsitration said it expected WTI to average just $53.57 per barrel, an almost 25 percent reduction from its forecast in January 2015 of $71.
In its Biennial Revenue Estimate, the Texas state comptroller’s office said it anticipates crude prices in 2016 to average $64.52, nearly $11 more than the EIA forecast. Oklahoma’s state budget assumes oil prices around $57. And Alaska and Colorado have the least conservative forecasts at about $65 and $68, respectively.
The impact of cheap crude, as well as natural gas prices that Fitch said “remain remarkably low,” will vary greatly for all of those states depending on how much they rely on oil and gas taxes to fund their budgets.
Already in 2015, Texas saw a huge chunk of revenue from oil and gas production taxes wiped out by low commodity prices — oil production taxes fell 26 percent year-over-year, and natural gas tax revenues fell 32.6 percent. In Oklahoma, revenues overall were 5.3 percent below projections.
But Fitch also noted that most of these states are financially flexible enough to adjust quickly to lower than expected commodity prices. As State Impact Texas reported in July, missing the mark on an oil price estimate for next year won’t necessarily trash the Lone Star State’s finances, with sales taxes and other revenue boosters making up the difference. As Fitch said in its report, Texas sales tax revenue was only down 0.4 percent year-over-year despite the industry crash.
Texas is likely weathering the slump better than most because of its increasingly diversified economy. Though thousands of oil and gas workers in Houston and other cities have likely lost their jobs, they represent a much smaller slice of the economy than they did in previous oil crashses.
But in states like Alaska, where oil taxes represent 90 percent of the general fund and where citizens have the lowest sales tax burden in the country, the prospects for continued economic growth are much cloudier. The state is looking at a projected budget deficit of $3.2 billion for 2017, and has already had to discuss changing a payout that every Alaskan gets from a state fund based on oil revenue.