Louisiana and Oklahoma have “less financial flexibility” and lower levels of financial reserves than other large oil-producing states, according to a new report by Moody’s.
The situation led to both states facing “difficult budget decisions,” the bond rating agency wrote, as it noted how six of the top oil-producing states are coping with lower oil prices.
“Both states had to cut spending in fiscal 2015 as revenues came in below expectations, and adjust to lower revenues in their fiscal 2016 budgets.”
State Division of Administration spokesman Gregory Dupuis released a statement noting that the state is keeping a close eye on oil prices and will adjust accordingly.
“The state’s economy has grown and diversified tremendously since the 1980s though, so just 13.5% of Louisiana’s tax revenue is based on minerals now, compared to 45% in 1986,” the statement said.
Moody’s report also covered Alaska, Texas, North Dakota and New Mexico – all with much different situations.
“Texas and New Mexico are less vulnerable to lower oil prices due to their diversified economies and strong sales tax revenues, partly driven by consumer spending due to savings at the gas pump,” the report said.
Moody’s said both states are also increasing spending in the next fiscal year.
“North Dakota has limited the future impact of lower oil prices by changing its oil tax structure, and the state has capped oil revenues to the general fund to mitigate volatility,” Moody’s said.
The report included a caution involving Alaska, which gets 89 percent of its operating revenue from oil. The state has built up the highest financial reserves of any state. But it is facing a $2.7 billion deficit in fiscal year 2016.
“A rapid depletion of those reserves without a new additional recurring revenue stream could put downward pressure on the (bond) rating,” Moody’s said.