(Corrects story to say Alaska's rainy day fund is $49 billion,
not $47 billion, paragraph 11; that the Standard & Poor's report
came out in January, not February, paragraph 12; and that Mike
Hanley is the former, not current, commissioner for the Alaska
state Department of Education, paragraph 13)
By Rory Carroll
Feb 8 From Alaska to Oklahoma, crowded classes,
suspended art programs and longer school commutes give students
and parents a taste of the downside of cheap gas as
oil-producing states scramble to plug budget holes blown by
tumbling crude prices.
Spending on education, healthcare and other services is
either being cut or faces cutbacks in about half a dozen states
that have relied on oil taxes for a sizeable part of their
revenues and most did not prepare for oil diving as deep as $30
a barrel. (Graphic:tmsnrt.rs/20MhFtt)
Heather Popowsky, who has fourth, seventh and eighth graders
in Edmond Public Schools in Oklahoma City, said the
belt-tightening was evident.
"I have seen elective programs like music and art cut back.
I've seen a shortage of new teacher hires, so student to teacher
ratio has risen. There has been an increased call out for
additional supplies at school."
Oklahoma, where oil-related revenue has accounted for 10
percent of the budget at the peak of the shale boom in 2014, in
December slashed its oil production tax revenue forecast for
this year to $2 million from $102 million planned for in June.
The state has already cut spending on education, which
accounts for a third of its $7 billion budget, by $25 million in
the 2015-2016 fiscal year and another $20 million cut looms.
"We're starting to have conversations now that this is as
bad as it was back during the energy industry crash of the
1980s," said Matt Holder, chief operating officer for the
Oklahoma Department of Education.
"Some of our smaller school districts are having talks about
whether they are going to make it through the next crunch," he
Other services will feel the squeeze too with Medicaid
providers facing a 3 percent cut in payments and a hiring freeze
in force at the state's department of human services, says David
Blatt, director of the Oklahoma Policy Institute, an independent
Alaska, where until recently oil tax revenue funded up to 90
percent of the state budget is set for a 68 percent gap between
spending and revenues this year, according to Moody's.
Its Governor Bill Walker has suggested taxing residents'
income for the first time in 35 years. He also proposed using
part of the money earned by the state's $49 billion "rainy day"
fund to cover state expenses rather than pay out as an annual
dividend to residents as usual.
Despite Walker's proposals, Standard and Poor's last month
lowered its rating on Alaska's debt to AA+ from AAA.
With cuts to the $1.4 billion education budget on the
agenda, schools - particularly those in remote areas - could
eventually be forced to shutter, said Mike Hanley, former
commissioner for the Alaska state Department of Education.
"Oil revenues have treated us very well," Hanley said. "But
Alaska is a one-legged revenue stool and we've become too
dependent on oil."
David Teal, director of Alaska's Legislative Finance
Division, said services such as healthcare and corrections could
also face cuts.
"Of course, people are complaining loudly about reductions
in ferry service and snow plowing, but I am not sure they
realize that other services will be reduced," he said.
While Alaska's financial buffer eases the immediate
pressure, the diversified economies of other leading oil
producers - Texas and California - make them less vulnerable to
the oil slump. California, the nation's third largest producer,
is also less exposed because it has never taxed oil production.
The outlook is bleaker for states such as Oklahoma, North
Dakota, or Wyoming, that have less of a financial cushion and
depend more on the oil industry for jobs and income.
North Dakota, the epicenter of the shale oil boom and the
second largest U.S. producer behind Texas, faces a budget
shortfall of more than $1 billion and is now debating whether to
dip into its reserve fund first or slash spending, including a
proposed $72 million cut in the state's education budget.
"If you look at a lot of the states that aren't dependent on
oil production, their revenue forecasts are for growth," said
Gabriel Petek, an analyst at S&P.
"But if you look at these other states, it's almost like a
parallel universe," he said. "If anything, there are cutbacks."
In a recent report, Petek said that as oil industry jobs
losses mount, so too does demand for state-funded social
services paid for by the state, possibly setting oil-dependent
states for more credit downgrades and greater financial stress.
(Reporting by Rory Carroll; Additional reporting by Heide
Brandes; Editing by Tomasz Janowski)