Falling Oil Prices Raise New Concerns For States

Plummeting oil prices may add a little jingle in the pockets of holiday shoppers and travelers but are raising financial worries in some states that had been tapping into surging oil tax revenues to pay for roads and other government services.

With oil prices now around a five-year low, budget officials in about a half-dozen states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels.

How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues. Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by.

"I think we'll be able to weather these depressed prices for six to eight months," said Oklahoma Finance Secretary Preston Doerflinger, whose state is among several where concerns are growing. But "there's no question at some point, if they remain depressed, they begin to have an impact on the budget."

U.S. crude oil prices that topped $100 per barrel this summer have plunged to barely $60 this week, the result of high supplies globally and expanded domestic production. Some analysts expect prices to remain around that level, or dip further, throughout 2015.

For many U.S. residents, lower oil prices translate to lower gasoline prices or lower winter heating costs. That can free up cash for consumers to spend on other things, potentially generating sales tax revenues for states.

"Quite frankly, it bodes well for consumers. It probably isn't terrific for Texas or Oklahoma (oil) investors or North Dakota investors," said Tom Kloza, the chief oil analyst at the Oil Price Information Service. "But we're not quite sure where the point of extreme pain is."


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