Wall Street flags fiscal health as concern
There’s a visible reminder of the twists and turns of the oil business in South Texas — a new $22 million swim center just south of the Eagle Ford Shale oil patch that sits unopened.
But things have slowed. The service company Baker Hughes last year closed its operations in Alice. The city’s sales tax collections have dropped 55 percent, down from $4 million in the first four months of 2015 to $1.8 million so far this year, according to the state comptroller. The number of drilling rigs working in the Eagle Ford is at 43, down from 204 at the start of 2015.
What the oil boom gave, the bust has started to take away in communities across Texas.
Crude oil has collapsed from a high of $107 in June 2014 to around $40 Friday. U.S. consumers have seen some of the lowest gasoline prices in years, while the oil industry battles through its worst crisis since the 1980s.
- Companies have slashed tens of thousands of jobs in Texas and lost billions of dollars over the past 18 months. Dozens of smaller drillers have filed for bankruptcy protection, and as many as 74 North American producers face significant difficulties paying the bills, Moody’s Investors service said in a recent report.
- The signs of turmoil in local governments are more subtle. Few Texas communities have the kind of financial poster child as the swim center in Alice, but local officials in oil-dependent cities and counties are scrutinizing budgets. Ratings companies are evaluating their ability to borrow money and pay it back.
- Moody’s, one of the three major credit rating agencies, recently placed 10 West Texas governments and hospital districts under review because of their financial exposure to the economic health of the Permian Basin, the state’s largest oil and gas field. One school district located in the Eagle Ford in South Texas, Normangee Independent School District in Leon County, which is on the northeastern edge of the field, is also under review. In Houston, where many oil companies have their headquarters, Moody’s revised its outlook on the city’s general obligation debt to “negative.”
The state of Texas, so far, remains in growth mode. Oil and manufacturing have slowed, but most of the service sectors are chugging along.
“If you’re sitting in West Texas you may say, ‘Wow this is really bad.’ If you’re in Austin, you’re less likely to feel it in a tangible way. Overall the state’s budget is holding together just fine.”
- But it’s starting to show some strain as local governments collect fewer tax dollars from things such as hotel stays and retail sales. Hotel revenues have plunged by 40 percent to 70 percent in oil field communities in the Eagle Ford and Permian Basin, according to the Texas Comptroller of Public Accounts. Sales taxes, which help fund city and county budgets, are down 20 percent to 50 percent in most oil field towns.
- And the longer oil stays low, the worse the financial picture gets, Offerman said. “Overall, the state is still a growth story, but it has slowed down substantially.”
- Laid-off industry workers and companies in a financial crisis tend to tighten their belts, spending less on extra services and activities, spreading the pain to other industries and, eventually, to the state and local treasuries that collect fewer taxes as a result.
Those effects unfold over a longer period of time.
How much more diverse is Texas than it was in the 1980s?
You think of Texas and you think of oil. You also think of tech and trade. That diversity should help to offset some of the negatives of the oil decline.
It’s still a positive from the Eagle Ford