http://www.nytimes.com/2014/12/27/us/falling-oil-prices-have-ripple-effect-in-texas-louisiana-oklahoma.html?emc=edit_th_20141227&nl=todaysheadlines&nlid=56381892&_r=0
By MANNY FERNANDEZ and JEREMY ALFORDDEC. 26, 2014
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Gas prices have fallen below $2 a gallon in Houston. The Texas economy is more diversified than in the past, but a gloomy forecast includes a warning about a drop in the state’s home values. CreditMichael Stravato for The New York Times
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HOUSTON — States dependent on oil and gas revenue are bracing for layoffs, slashing agency budgets and growing increasingly anxious about the ripple effect that falling oil prices may have on their local economies.
The concerns are cutting across traditional oil states like Texas, Louisiana, Oklahoma and Alaska as well as those like North Dakota that are benefiting from the nation’s latest energy boom.
“The crunch is coming,” said Gunnar Knapp, a professor of economics and the director of the Institute of Social and Economic Research at the University of Alaska Anchorage.
Experts and elected officials say an extended downturn in oil prices seems unlikely to create the economic disasters that accompanied the 1980s oil bust, because energy-producing states that were left reeling for years have diversified their economies. The effects on the states are nothing like the crises facing big oil-exporting nations like Russia, Iran and Venezuela.
But here in Houston, which proudly bills itself as the energy capital of the world, Hercules Offshore announced it would lay off about 300 employees who work on the company’s rigs in the Gulf of Mexico at the end of the month. Texas already lost 2,300 oil and gas jobs in October and November, according to preliminary data released last week by the federal Bureau of Labor Statistics.
On the same day, Fitch Ratings warned that home prices in Texas “may be unsustainable” as the price of oil continues to plummet. The American benchmark for crude oil, known as West Texas Intermediate, was $54.73 per barrel on Friday, having fallen from more than $100 a barrel in June.
In Louisiana, the drop in oil prices had a hand in increasing the state’s projected 2015-16 budget shortfall to $1.4 billion and prompting cuts that eliminated 162 vacant positions in state government, reduced contracts across the state and froze expenses for items like travel and supplies at all state agencies. Another round of reductions is expected as soon as January.
And in Alaska — where about 90 percent of state government is funded by oil, allowing residents to pay no state sales or income taxes — the drop in oil prices has worsened the budget deficit and could force a 50 percent cut in capital spending for bridges and roads. Moody’s, the credit rating service, recently lowered Alaska’s credit outlook from stable to negative.
States that have become accustomed to the benefits of energy production — budgets fattened by oil and gas taxes, ample jobs and healthy rainy-day funds — are now nervously eyeing the changed landscape and wondering how much they will lose from falling prices that have been an unexpected present to drivers across the country this holiday season. The price of natural gas is falling, too.
“Our approach to the 2016 budget includes a full review of every activity in every agency’s budget and the cost associated with them,” said Kristy Nichols, the chief budget adviser to Gov. Bobby Jindal of Louisiana. “Nothing is off the table at this point.”
A study published in 2013 by the Council on Foreign Relations suggested that job losses from a sharp decline in oil prices would be largest in Wyoming, Oklahoma and North Dakota.
But Louisiana, which has a smaller and less diversified economy than Texas, is already feeling the sting of the price downturn because it relies on more oil and gas money for its operating budget. Louisiana loses $12 million for every $1 in decline in the annual average price of a barrel of oil, according to Greg Albrecht, the state’s chief economist.
“From a strictly budgetary perspective, Louisiana is more sensitive to all of this,” said James A. Richardson, a Louisiana State University economist who serves on the state’s Revenue Estimating Conference, which estimates how much money will be available for the budget. “It shows up in our house much sooner.”
Gifford Briggs, vice president of the Louisiana Oil & Gas Association, said some sections of the industry were beginning to scale back as reality set in and prices dropped. Though production in existing wells is expected to continue apace in the coming months, companies are already shrinking their drilling and exploration activity, he said.
“Landmen say they’re laying off everyone they have right now until things pick up,” he added, referring to the independent firms that provide services to exploration and drilling companies.
In the mid-1980s, as oil prices sank below $12 per barrel, bumper stickers and signs in Louisiana asked those leaving the state for jobs elsewhere to “please turn off the lights.” Houston lost 221,000 jobs from 1982 to 1987, and people in West Texas still talk about Black Friday — Oct. 14, 1983 — when the First National Bank of Midland closed, in what was then the second-largest bank collapse in United States history.
“I remember one of my supporters was driving a Rolls-Royce, and he was flying a jet airplane,” said Mark W. White Jr., the governor of Texas from 1983 to 1987. “Within 90 days, he was renting a Ford, and he went from a Learjet to Southwest Airlines. When that bank went out, he went out.”
Experts say the situation today could have been far worse if oil-producing states had failed to diversify their economies, remaining as dependent on oil and gas tax revenues as they were 30 years ago.
The portion of the state budget in Louisiana linked to oil and gas revenue is about 13 percent, compared with 45 percent in the 1980s. The Houston region’s projected job losses in the energy industry are likely to be offset by the nearly 63,000 jobs that it is expected to add in construction, retail, health care, food services and other industries in 2015.
But in Houston, one energy job has the purchasing power of three non-energy jobs, according to the Greater Houston Partnership, a regional business association.
The scale and duration of the anticipated budget woes in oil-rich states remain uncertain. Economists and industry analysts say it is unclear how low oil prices will drop and for how long.
In North Dakota, which the Bakken shale field has made the second-highest producer among oil states behind Texas, officials said a major blow to the state’s oil and gas revenues could delay onetime expenditures for highway improvement or water projects, but the state’s general operations would be relatively unscathed, since only a small portion of its oil and gas money goes toward operations.
In Texas, oil and gas loom as a defining characteristic, but the role they play in the state economy, while sizable, has diminished in recent years as other industries, such as health care, biotechnology and software, have grown. Oil and gas jobs make up only about 3 percent of nonagricultural jobs in Texas, a far lower share than government (16 percent) and education and health services (13 percent).
“I foresee Texas being the economic magnet that it is, continuing to grow and diversify its economy, so that any drop in the price of oil will be minimized,” said Greg Abbott, who will be sworn in as the governor of Texas next month.
Still, the economic forecast in Texas has become a shade gloomier for the first time in years. The drop in oil prices over the last six months has amounted to a loss of $83 million per day in potential revenue for the industry in Texas, the Greater Houston Partnership said in a recent report.
To some Texans, the volatility and uncertainty are a routine part of life in an oil state.
“We have these cycles,” said Jerry Patterson, the Texas land commissioner and a former state senator who recalled being laid off from a job as a salesman in Houston during the oil bust of the 1980s. “I can remember 30 years ago when $40 oil was a big-time plus. And it went down to, I think, under $10, and you would see bumper stickers that said, ‘Dear Lord, please bring back $40 oil. I promise I won’t screw it up this time.’”
Manny Fernandez reported from Houston, and Jeremy Alford from Baton Rouge, La. Kirk Johnson contributed reporting from Seattle.
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