In Oklahoma, Low Energy Prices Drive State Budget Crisis

Jan 23, 2016

Oklahoma's economy runs on oil. The energy industry drives 1 in 5 jobs and is tied to almost every type of tax source, so falling oil prices have rippled into a state budget crisis.

Crude oil prices have dropped more than 70 percent, and that's created problems across government agencies in Oklahoma. Jason Murphy is a project coordinator for the Oklahoma Water Resources Board. He slides on a pair of waders, unspools a sensor probe and splashes into the frigid Canadian River east of Oklahoma City.

The information helps Murphy's team evaluate the health of this river, which is a source of public drinking water. Fieldwork like this is one of the most important things his agency does. But with the price of oil sinking to 12-year lows, officials in Oklahoma face budget cuts that threaten their most essential functions.

Fossil Fuel Funding Problems

“We're essentially down to the point where we don't have anything left that's not mission-critical,” said OWRB executive director J.D. Strong.

Plummeting oil prices forced Secretary of Finance Preston Doerflinger to declare a revenue failure.

“Almost every major tax category is in decline because of our biggest industry is in decline,” Doerflinger said at a budget briefing in December 2015.

That led to mid-year cuts in current funding levels at every state agency. Oklahoma now faces a budget gap of at least $900 million. No one knows the depth or length of the current oil downturn, but Doerflinger said the effects will worsen if drilling stoppages and layoffs continue.

“I think the hole could get bigger this year and next year,” he said.

Oklahoma is not alone. Low oil and natural gas prices are driving down government revenues in Alaska, Louisiana and Texas. Low coal production is adding to the tax problem in West Virginia and Wyoming. North Dakota is hurting, too, but state funding is protected by saving's funds set up to siphon off billions in boom-time oil taxes. Oklahoma has a rainy day fund, but it's much smaller — and lawmakers dipped into it last year. Doerflinger and other leaders, including state Sen. David Holt, R-Oklahoma City, say it might be time for a bigger state savings account.

"Panicking about the situation is not productive,” Doerflinger said. “We need to use this as an opportunity to do things we may not otherwise have the will to do.”

Employee buyouts and furloughs are being considered, and some agencies could be closed. Teachers are getting layoff notices. Schools could be shuttered. House Speaker Jeff Hickman, R-Fairview, says years of Republican-backed tax cuts are not to blame.

"Oil busts have blown holes like this in budgets under Democrats,” Hickman said at the budget briefing. “They've blown holes in budgets under Republicans alike for decades, and they probably will do so in the future."

'Failure,' Fieldwork

Jason Murphy’s boss, assistant chief of water quality Bill Cauthron, says crashing oil prices and funding cuts could limit his team's fieldwork.

"We'll tweak the program in the ways that make scientific sense,” Cauthron said. “You know, maybe we'll sample less parameters. Maybe we'll sample less sites.”

Oklahoma hasn't had a revenue failure since the Great Recession. The current budget crisis is smaller, but it doesn't make the solutions any easier.

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