Lambert here: Should be interesting to see how this plays out in 2018 and 2020.
By Tsvetana Paraskova, a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice.com.
The oil price slump has put pressure on the budgets of the U.S. oil and coal states that have been struggling with lower energy tax revenues and difficult decisions about which public-sector financing they should reduce. Higher budget deficits have led to cuts across the board, and education has been one of the sectors on the chopping block.
This week, Wyoming became the latest in a series of oil and coal producing states that have cut funds from education. Oklahoma, North Dakota and Alaska had already lowered some of the funding for various education programs throughout last year, when the sting of the low oil prices was most painful to monthly tax collections.
Last year, six of the top eight oil-pumping U.S. states slipped into recession, S&P Global Ratings said in a report in January. Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, and Wyoming saw their economies shrink in 2016, while Texas and Montana had GDP growth much smaller than in 2015, estimates in the report show.
“The sharp pullback in exploration and production during the past 18 months has inflicted considerable damage on the economies of the oil producing states,” S&P said back in January.
While the oil price crash was affecting drilling and consequently, oil revenues of the states, U.S. coal production was also dropping. In the first quarter of 2016, U.S. coal output hit its lowest quarterly level since a major coal strike in the second quarter of 1981, the EIA said last June, with coal production from the Powder River Basin in Montana and Wyoming declining the most in tonnage and percentage since the previous quarter. Related: Oil Prices Wait And Watch For OPEC’s Next Move
And Wyoming was the latest U.S. state to cut from education funds. Governor Matt Mead approved on March 13 a K-12 education spending plan that cuts $34.5 million from schools.
The education funding shortage was a result of the downturn and previous years of generous spending. Wyoming’s State Superintendent of Public Instruction Jillian Balow told The Casper Star-Tribune in December that historically high spending levels are now untenable.
“The truth of the matter is that we’re going to need to think about funding education as a Chevy rather than a Cadillac in the future,” Balow told the newspaper.
Since around 30 percent of Wyoming’s spending on education comes from federal mineral royalties, and another 30 percent from property taxes often backed by these minerals, it’s hardly a surprise that the state has cut some of the education spend. Future funding for some of Wyoming’s educational programs could really depend on the state of the U.S. oil and coal industries, The Atlantic notes.
Across the oil producing states, North Dakota’s Revised Executive Budget Recommendation 2017-2019 prioritizes K-12 education, but envisages a $31-million reduction to higher education.
In the middle of last year, Alaska Governor Bill Walker cut a total of $150 million in budget allocations to schools, the university and the state education department.
“I especially struggled with the funding to education, which I have consistently prioritized. But a $4 billion deficit means nothing can be insulated,” Governor Walker said.
In Oklahoma, some school districts have switched to a 4-day school week to save funds in light of declining oil revenues.
It’s in Oklahoma, however, that the more stable and relatively higher oil prices since the beginning of this year started turning in increased gross receipts to the Treasury.
Mostly driven by rising oil and gas production collections, gross receipts to the Treasury grew by 0.5 percent on the year in January at $990.5 million, putting an end to a 20-month string of shrinking collections, State Treasurer Ken Miller said. Related: Can OPEC Resist The Temptation To Cheat?
“Low prices and curtailed production in the oil field led us into the latest downturn, and it appears rising prices and production are leading us out. Several data points — rising state GDP, rig counts, business conditions, and employment — give reason for cautious optimism,” Miller noted.
Receipts in February also inched up compared to February last year.
So, higher oil prices are helping Oklahoma’s revenues, while Wyoming’s coal is not thriving, either in production or in revenues for the state. Despite the oil price recovery from last year’s lows, the U.S. coal and oil states still have substantial budget gaps to fill in, and would be wise to continue sticking to some form of austerity in spending and budgeting.