Oil producing states continue to face fiscal pressure -S&P

Oil producing states rely on oil production to fill government coffers.  Nabors’ photo.

By Rory Carroll

SAN FRANCISCO, April 27 (Reuters) – Persistent low oil prices continue to strain budgets in oil producing states like Alaska, Louisiana, Oklahoma and North Dakota, which rely on oil production taxes to fill government coffers, Standard and Poor’s said in a report on state budgets on Wednesday.

“Oil producing states are under the most pressing fiscal pressure,” the credit ratings agency said.

While the finances of most state have strengthened, especially in the western United States, the oil states are an exception.

In Alaska, slumping oil prices have blown a multibillion-dollar hole in the state budget.

To close the gap Governor Bill Walker has called for imposing the first income tax on residents in 35 years, and cutting annual payments resident receive from a state-run fund. Supporters and opponents are bracing for a long political fight over his plans.

In Louisiana, plummeted oil prices have exacerbated existing structural imbalances caused by an overreliance on oil revenues, S&P said.

New Governor John Bel Edwards and the state legislature agreed in a special session to adopt new taxes and spending cuts that cut the expected budget deficit for next year from $2 billion to about $750 million.

This week, the governor’s office said Medicaid expansion under the Affordable Care Act has helped narrow the budget gap to $600 million.

Still, state expenditures will outpace revenue growth. The state will be challenged to restore fiscal accountability after years of reliance on one-time resources while also prioritizing education, expanding Medicaid and public safety initiatives, S&P said.

In Oklahoma, contracting production and employment in the energy sector are rippling through the economy, S&P said.

On Wednesday Governor Mary Fallin signed four criminal justice reform bills into law designed to reduce incarceration rates and cut the bloated system’s costs.

Fallin’s budget proposal largely addresses the state’s projected budget gap through a mix of cuts and increases for key priorities like education, corrections and human services, S&P said.

North Dakota, which saw its economy surge amid a boom in oil and gas produced by fracking in the years prior to the price collapse in 2014, is expected to have an $829.3 million shortfall for fiscal 2017. That is approximately 18 percent of its ongoing expenditures.

When Governor Jack Dalrymple presented his 2015-2017 budget address in December 2014, key priorities were tax relief, support for the oil-rich Bakken shale region, and investments in education, outdoor recreation, environmental production, and infrastructure improvements, S&P said.

(Reporting by Rory Carroll; Editing by David Gregorio)