Texas and Its Cities Get More Unwelcome News in New Moody's Fiscal Report
Austin, Texas f11photo / Shutterstock.com
It might not be the “fiscal apocalypse” Alaska is facing but the drop in global oil prices presents big challenges for the Lone Star State to tackle.
It’s no secret that the big decline in global oil prices is worrying budget officials in states with drilling-reliant economies.
In a National Public Radio feature on Tuesday, officials in Alaska, in particular, warned of a “fiscal apocalypse” in the coming years.
As GovExec State & Local has previously pointed out, those worries extend to Texas, though the situation there may not be as grim.
Although the state’s champions like to point out that the Texas economy is diversified, the nation’s second-most populous state has been preparing itself for the economic impacts of a lackluster energy sector after years of high growth, which helped the Lone Star State weather the Great Recession better than other states.
In January, the state’s comptroller, Glen Hegar, released a report projecting a 14.3 percent decrease in revenues from oil production and energy regulatory taxes.
On Monday, Moody’s Investors Service released a report titled “Tough State and Local Government Budget Decisions Ahead as Oil Sector Slows,” predicting that the Texas state government and some municipalities “will encounter difficult budget decisions during the remainder of this fiscal year and the next biennium owing to lower oil prices.”
According to Moody’s' announcement:
Despite having a robust and diverse economy, output and revenue growth will slow due to the steep price drop in oil. Budgetary priorities will therefore vie against lower revenues amid the slowdown.
“The state comptroller expects tax revenue growth to slow considerably and for growth to remain low during the next few years,” said Moody’s Vice President – Senior Credit Officer Nicholas Samuels. “The price drop is occurring while Texas considers how to spend more on schools, increase transportation funding, bolster its pensions and a political desire to cut taxes,”
The Texas general fund budget is not as directly exposed to oil and gas severance taxes as other states.
Oil and gas taxes comprise 11.2% of Texas’ general revenue fund, compared with sales tax, which constitutes 53% of general revenue. While state revenue growth will slow in the next few years, because of the drag of lower oil prices, the lower oil prices could also boost consumer sentiment and buying power, which could positively impact sales tax receipts.
Texas cities like Dallas, Austin and San Antonio are less susceptible to the shifting oil prices, according to Moody’s because their economies are more diversified. But cities that are more dependent on oil production, like Odessa and Midland, “will slow and see significant contraction.”
Moody’s points out that some school districts are also more exposed to the impacts of declining oil prices.
(Image by f11photo / Shutterstock.com)
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