The coronavirus pandemic is hitting Texas where it hurts: in the oil industry.
As local state governments (but not the governor) implement stay-at-home orders to help slow the spread of the coronavirus, Texans are staying indoors, Gregory Meyer reported for the Financial Times. Falling demand for fuel is one of the factors driving oil down to around $20, the other being the ongoing oil price war between Saudi Arabia and Russia. And that’s not good news for a state that produces 41% of US crude oil.
“As tragic as the coronavirus is, most states have a problem,” Dale Craymer, president of the Texas Taxpayers and Research Association and former state budget director, told Meyer. “Texas has two because we’re dealing with coronavirus and the dramatic drop in oil and gas prices.”
The plunge puts Texas tax revenue, oil production and investment at risk, Meyer wrote. Craymer’s group estimated that despite saving a portion of taxes on oil and natural gas production to an emergency fund, Texas loses $85 million a year in tax revenue for every drop of 1 dollar of oil price. In the current budget cycle, Meyer reported, citing comptroller revenue estimates, these taxes are expected to bring the state about $5.5 billion.
That’s based on an oil price of $58, he said, which has since fallen to $20.
But falling oil prices aren’t Texas’ only grievance. Tourism in Texas, a $69 billion industry, could also see a decline. Texas Governor Greg Abbott hasn’t issued a statewide order closing beaches, but spring breakers who have taken over the beaches have previously told Business Insider that local businesses in the area were temporarily closing due to restrictions. It’s a problem that’s getting worse with lower state sales taxes, Meyer reported.
That $5.5 billion in projected revenue was expected to generate $1.6 billion for the state’s rainy day fund, and the shortfall will challenge the state’s response to the pandemic. In the absence of a cohesive national strategy to stop the spread of the coronavirus, state governments have had to step into the breach.
If even Texas has economic problems, that bodes ill for states with fewer advantages. As Catherine Rampell of The Washington Post reported, citing Moody’s, only about half of US states have sufficient funds for a period of moderate crisis.
. And it doesn’t look like any moderate recession.
Texas has built a reputation as one of the best places to live
The blows to oil and tourism are big blows to the Lone Star State, the poster child for marrying a low cost of living with a booming economy.
Ten cities in Texas rank in the top 25 cities with the lowest cost of living in the United States, Business Insider’s Erin McDowell reported, citing a Niche report. That’s more than any other state. Wichita Falls ranked number one. And a recent SmartAsset report deemed eight Texas cities recession-proof — again, more than any other state on a list of 25. This time, Frisco ranked first.
Consequently, Texas has experienced a population boom in recent years. Over the past eight years, its population has grown from more than 25.2 million to more than 28.6 million, Business Insider’s Andy Kiersz and Madison Hoff reported. The state’s metropolitan areas, from Waco to Austin, welcomed the influx of new residents. And Dallas turned out to be the busiest city for millennials in 2019.
Texas, which is one of the seven unstaffed states
, offers several alluring factors to residents and transplants, according to Shaina Mishkin for Money: good weather, housing affordability and job growth. With 54 Fortune 500 companies headquartered there and a strong energy-driven economy, the state is one of the best places to find a job.
But the latter may no longer be true, thanks to the coronavirus pandemic. As Meyer wrote, the oil crisis has already led to wage cuts and job losses.
If the pandemic brings one of America’s most affordable states to its knees, that’s not a good sign for any state.
As Craymer told Meyer of the FT, the so-called “Texas Miracle” is “on ice for now.”