Texas and many of its larger cities are well equipped to withstand lost oil revenues, but the months-long decline in oil prices could hit some local governments hard, says credit rating agency Fitch.  “The state overall and many of the larger municipalities have well-diversified economies, and Fitch expects any losses in oil revenue to be limited and offset to some degree by increased consumer spending based on current forecast scenarios,” the agency said in a Tuesday note. “However, a number of local governments in the three major production areas of the state will likely see declines in taxable values and weaker economic activity if oil prices do not recover and exploration slows.”  A recent rise in oil and gas drilling in the Eagle Ford Shale and Permian regions of Texas has generated income for the state through higher sales tax revenues, tax base valuations, construction and permit revenues and other related activity. But the oil price decline could undo some of that, the agency’s analysts argue in the note.  “This slowdown will affect employment, hotels and restaurants, retail, and construction and other related businesses. Cities will feel the impact in reduced sales tax receipts, building permits and other economically sensitive revenues,” they write.  A decline in revenues could force cities and counties to raise taxes and make it difficult for some local school districts to take on new debt. But many of the very local governments at risk of seeing big declines in revenue have been able to build up big, insulating reserves during the recent oil and gas boom, according to Fitch, which believes that “the current ratings of these entities reflect this additional risk.”  The state as a whole is in a better position thanks to an economy that is more diversified than it was decades ago and the fact that much of the revenue recovered from the recent spike in oil production was spent either on building up the state’s rainy-day reserves or on non-recurring investments, such as highway spending.  In fact, the state may see some benefit from the dropping prices as consumers use money saved at the pump elsewhere. The price of gas in Texas has dropped $1.57 since June 1, around when the oil price decline began, according to data from AAA’s Daily Fuel Gauge Report, the automotive and travel information nonprofit group’s gas-price-tracking Web site. Today, the average price of a regular gallon of gas is $1.86, down from $3.47 on June 1.  Where oil prices go from here is not clear, though state estimators don’t expect to see average prices return to anywhere near the $100 a barrel they were at in early 2014. As part of his biennial revenue estimate released on Monday, the state comptroller assumed average oil prices for the 2015 fiscal year would be just above $64 per barrel, a full third lower than the fiscal 2014 level. He also estimated it would remain near that level, though a little higher, through 2017. But such estimates are notoriously tricky, thanks to the interplay of global politics, economics and supply and demand, as the Texas Tribune noted Tuesday:  “Nobody expects you to be right about oil and gas prices,” Billy Hamilton, a former Texas revenue estimator, said last month. “They just expect you to be less wrong in the right direction.”  Despite its note, Fitch is not adjusting ratings for any affected Texas areas just yet, though it warned it “will closely monitor” those communities over the next few months.  Niraj Chokshi reports for GovBeat, The Post's state and local policy blog.
While the state should be able to withstand the months-long price decline, cities in some oil- and gas-producing regions could suffer.