No surprise that a good chink of revenue comes from taxes on oil and natural gas. And no surprise that the lower the price of a barrel of oil, the less is collected in revenue. This matters in a state - like Texas - that has to run a balanced budget. The effects of the reduction in price is beginning to be felt. This might include a reduction in the state's credit rating.
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Several states that are dependent on energy revenue are facing strained budgets due to low oil prices, and at least three — Alaska,Louisiana and New Mexico — are at risk having their credit ratings lowered, according to a report from Standard & Poor's Ratings Services.
"In short, the more aggressive a state was with regard to its assumptions and use of oil-related revenues during the oil boom, the more acute its fiscal pressures now, in the oil price bust," according to S&P. "For states with greater budgetary reliance on oil-related revenue, the unrelenting decline in prices places a larger budget on state lawmakers to identify and enact corrective fiscal measures."
The report, entitled "Collapsing Oil Prices Seep Into State Credit Profiles," suggests that as state lawmakers head into session in the next budget season, their true fiscal situation "could be more intense than what their official forecasts currently anticipate." The report surveys the situation in eight major oil-producing states: Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas andWyoming.
S&P pointed out that all of the states in the survey forecast a higher price for oil than what the ratings agency expects in 2016 ($40 per barrel). For example, Alaska has a fiscal 2016 price assumption of $49.58 per barrel, according to S&P, while Louisiana's is $48.02 per barrel and Texas is $49.48 per barrel. Looking ahead to fiscal 2017, just one state (North Dakota) is identified as having a forecast in line with S&P ($45 per barrel).
