Alaska, North Dakota and Texas face a dramatic drop in revenue heading into 2015 because of plunging oil prices, which hit a six-year low Monday.
The price of oil — recently $100 a barrel — dropped below $50 a barrel Monday for the first time since April, 2009, reported The Wall Street Journal. Consumers are benefiting from the drop, with gas prices as low as $2 a gallon, but the news is bad for lawmakers now facing revenue cuts in states like Alaska that depend heavily on oil production.
Alaska does not have a state income or sales tax, and depends on oil revenue for most of its budget. State officials increased the state’s estimated 2015 budget shortfall to $3.5 billion in December, after wrongly predicting in April that oil prices would remain above $100 a barrel in 2015, reported The Hill.
Alaska can tap into $14 billion of rainy day funds, but financial analysts worry it won’t be enough, reported Politico. Moody’s Investors Service downgraded the state’s outlook from “stable” to “negative” in December. “The oil plunge caught them off guard, and now they are trying to recalibrate,” Moody’s analyst Ted Hampton told Politico.
New Gov. Bill Walker has until February to submit a revised budget factoring in the newest estimates.
In North Dakota, which has benefitted immensely in the past decade from the oil boom, lower prices could hit a trigger that would eliminate the state’s 6.5 percent oil extraction tax. In 2012, about a third of the state’s $9 billion in revenue came from oil extraction taxes.
North Dakota Gov. Jack Dalrymple’s current budget proposal assumes oil will cost $74 a barrel in July, reported CBS Minnesota. “The elephant in the room is the price of oil,” Senate Democrat Mac Schneider told CBS. “It’s an issue we have no control over and one that will hang over our proceedings this session.”
Oil production is already falling in the state, and concerns about the loss of revenue are disrupting plans to cut taxes in 2015. (RELATED: North Dakota Republicans Plan To Slash Taxes In The New Year)
A new law in Texas is supposed to direct $1.7 billion of oil revenue to new transportation spending, but the decline in oil prices could mean much of that money won’t show up. “It may not even be a billion next year,” the lawmaker who championed the initiative, Joe Pickett, told The El Paso Times.
The loss of oil revenue complicates Governor-elect Greg Abbot’s promise to make transportation his top legislative priority, especially since he also promised not to raise taxes or fees. It could also increase pressure on Abbot to accept federal money to officially expand Medicaid under Obamacare, a move the state has refused so far.
“There’s more and more pressure on the Republicans not to leave money on the table,” Rice University Political Science Department chair Mark Jones told the El Paso Times.
Increasing energy production in the U.S. and weak demand, coupled with unusually high production in Russia and Iraq are responsible for the plunge in oil prices, reported The Wall Street Journal. Prices are expected to rebound to around $80 by the end of 2015.
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