Oklahoma Hiring Freeze Shows No Letup in Oil States’ Fiscal PainElizabeth Campbell
Oklahoma, the fifth-largest oil-producing state, froze hiring and salaries and is considering tapping reserves with crude prices down almost 60 percent since June.
Revenue projections dwindled by more than $300 million from December to February, more than doubling to $611 million the budget deficit that Republican Governor Mary Fallin and lawmakers have to plug for the year starting July 1, state documents show.
While Oklahoma isn’t as vulnerable as some states to tumbling oil prices, it’s increasingly reliant on energy. The industry generates about 14 percent of household earnings, the most in data going back to 1969, said Mark Snead, president of RegionTrack, which provides analysis to the state tax commission.
“Oil is a big factor in Oklahoma’s budget because of the effect it has on the rest of the economy,” Shelly Paulk, deputy budget director, said in an interview. “So when you lose jobs out on an oil rig out in western Oklahoma, that’s income tax that’s not coming in. That’s sales tax that’s not coming in.”
Crude slumped to a six-year low of about $42.20 a barrel Wednesday, from about $105 at the end of June, in part as U.S. shale-oil production surged. The spillover from the tumble underscores how municipalities that thrived as crude soared are now getting pinched. Mineral-rich states are considering slashing spending on education and transportation, raiding reserves and raising taxes.
Alaska, which gets about 90 percent of general revenue from oil production, has proposed eliminating more than 300 government jobs. Louisiana, where proceeds from oil and gas account for 13 percent of revenue, halted travel spending for agencies. New Mexico in February cut revenue projections by $223 million for this fiscal year and next.
In Oklahoma, oil-production taxes generate about 4 percent of revenue, according to Moody’s Investors Service. Oil and gas together account for 8.6 percent of personal income, most among the biggest energy-producing states, Moody’s data show. The company grades the state of about 3.9 million people Aa2, the third-highest level, with a stable outlook.
Municipal debt from Oklahoma has earned 2.4 percent in the past six months, in line with the gain for the entire market for city and state debt, Barclays Plc data show.
Oklahoma is also home to Cushing, the nation’s largest oil-storage hub and the delivery point for the U.S. benchmark West Texas Intermediate oil futures contract.
About half the budget gap is from falling energy-tax revenue, Treasurer Ken Miller said in a March 3 interview.
Gross production collections from oil and natural gas in February tallied $53.09 million, down 24 percent from a year earlier, data from the treasurer’s office show.
A state board certified last month that lawmakers would have $6.6 billion to spend in the fiscal year starting July 1, about 8.5 percent less than this year.
To deal with the budget shortfall, Fallin, a 60-year-old in her second term, has proposed cutting agency appropriations and redirecting money from about $535 million of rainy-day funds to government services such as education. Fallin also issued an order Feb. 6 that froze hiring, raises and bonuses for state employees, unless an exception is approved.
“Fifty dollar a barrel oil prices and a $611 million budget shortfall certainly qualify as challenges, even setbacks, but they are ones that we can overcome,” Fallin said in a statement this month.
An income-tax cut that takes effect Jan. 1, 2016, accounts for less than 10 percent of the shortfall, according to John Estus, a spokesman for the Office of Management and Enterprise Services.
Michael McNutt, the governor’s press secretary, declined to comment on the fallout from declining oil prices.
Softening the blow, consumers are paying less at the pump. Sales-tax revenue rose 5.3 percent in February from a year earlier, signaling that people used money saved on gasoline to buy other items, said Miller, the treasurer.
Yet job losses from the oil slide have already begun. Chaparral Energy, the third-largest producer in Oklahoma, cut 121 positions last month at its Oklahoma City headquarters. Tulsa-based Helmerich & Payne Inc., the biggest rig operator in the U.S., said in January that it may cut at least 2,000 positions in its oil fields.
The number of rigs targeting oil and gas in Oklahoma dropped to 134 as of March 13, the lowest since 2010, according to data from Baker Hughes Inc., a Houston-based field-services company.
While the stress may be greater in states such as Alaska, Oklahoma is “sort of like the second shoe to drop,” said Julius Vizner, an analyst at Moody’s.
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