County officials monitor effects of oil, gas prices on their budgets
“Too early to tell.” That’s the consensus of county officials throughout the state regarding the impact that plummeting oil prices will have on their budgets, says Lonnie Hunt, county relations officer for the Texas Association of Counties. Because counties are in the middle of their current budget cycles, the effects of declining oil prices won’t be felt until next year’s revenues are determined.
Hunt had occasion to visit with several veteran county officials this week who were imparting their experiences in county government at a seminar for newly elected county judges and commissioners. Some represented small counties heavily involved in oil and gas production, some were from large counties heavily invested in the oil and gas industry and some were from rural areas that have little oil and gas production. There was a consensus among them, said Hunt, that trying to read the tea leaves to determine whether lower gas prices will adversely affect their counties is not an easy task.
That day of reckoning could come this summer when appraisal districts notify counties of the appraised value of property in each county. Hunt said there could be “significant” increases in effective tax rates next year. The effective tax rate is the tax rate necessary to generate last year’s money on last year’s property at this year’s value.
If gas rates continue to decline, mineral values on property decline as well. Property values go down and the loss of property value on the tax roll generally means an increase in the tax rate.
The recent lower oil prices caused economic activity in Texas to expand at a “slightly slower” rate last November and December than it had in the prior six weeks, according to data from the Federal Reserve. Hunt said some companies already are slowing production and cutting back on hiring. One of the nation’s largest oil companies, Schlumberger, just this week said it was cutting 9,000 jobs.
Some experts are predicting the oil boom could soon go bust. As the price of oil declines, expect production to fall with it.
In spite of previous seemingly non-stop oil and gas exploration activity in the Permian Basin in West Texas and the Eagle Ford Shale, low oil prices have resulted in a slowdown at the wellhead. The Federal Reserve notes that demand for oilfield services has also fallen. A decline of 15-40 percent in demand for those services is anticipated for the first half of this year.
This comes on the heels of a National Association of Counties study regarding the economic performance of the more than 3,000 counties in the United States. The report indicated that although the nation as a whole is showing signs of a rapidly increasing growth in the economy, recovery in the nation’s counties is still “sluggish and uneven.” In fact, only 65 of the 3,069 counties have recovered to pre-recession rates in the categories used in the study – economic output, employment, unemployment and home prices. The report indicates that most of those 65 counties are small (under 50,000 population) and in states with booming energy and agriculture sectors.
The agriculture industry in Texas is fairly stable, according to Hunt, but if oil prices stay below $50 per barrel, oilfield activity will decline. Last year, oil prices averaged $110 per barrel. This week, the price is hovering at $46 per barrel.
Hunt described the low gas prices as a “mixed bag of blessings,” noting that the cost of living goes down as gas prices go down, which is good for consumers. “The oilfield has a ripple effect on the economy,” he said. “When there’s a lot of oil and gas activity, more people spend money at restaurants, at gas stations and in stores.” That’s good for businesses and good for the local economy.
And, because counties spend approximately 25 percent of their budgets on their Road and Bridge departments, lower gasoline prices at the pump are a blessing. Lower oil prices are also a boon for counties that put oil on mile after mile of their roads. Even those counties that do not use oil on their roads still have to transport the other materials they use on their roads, such as rock, gravel or caliche – and lower costs for fuel to operate the trucks to transport those materials is a god-send.
But, for all the face value benefits for Texas counties related to declining oil and gas prices, there is still potential for a negative impact as well. The next fiscal year’s budget workshops could test a lot of Texas counties and oil and gas prices are likely to play a key role in the deliberations. Time will tell.