Reacting to the End of the Oil Boom

Those who live by the boom shall die by the bust—or so it always seems. The surge in the oil sector turned several states into the envy of the United States during the recession. It was laughable to even mention the "r" word in this sphere when the price per barrel of oil was above $100 and only seemed to be heading north. These were the days for states like North Dakota, Texas, Louisiana and Alaska as well as, to a slightly lesser extent Oklahoma, Wyoming, West Virginia and New Mexico. The bust has been nearly as swift as the boom and now these states are all coping in their own way.

The majority of the tax revenue related to the oil boom has come from extraction taxes at the wellhead, but that is hardly the most important part of the oil economy for these states. There were lots of jobs and thus, income taxes and sales taxes being collected. There was housing and retail development and all the industrial expansion that goes along with the surge. Now much of this is gone at least for the time being.

States tend to fall into two categories depending on how many times they have been through this process. Those who know the drill have practiced frugality in some respects and set aside money to protect against events like this. They will be able to keep their budget intact for a while. Others tended to react to the windfall with excess—They will be hard pressed to avoid some version of a fiscal disaster.

- Chris Kuehl, Ph.D., NACM economist

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