OKLAHOMA CITY (AP) — Slumping energy prices and dwindling tax collections already have punched a $1.3 billion hole in Oklahoma's budget for next year, but there may be more economic "pain on the horizon," one of the nation's top ratings agency said Tuesday.
Moody's Investors Service released detailed reports on California, North Dakota and Oklahoma as part of its research into the effect of low oil prices on key oil-producing states. Those show North Dakota and Oklahoma, along with local governments in the states, are suffering from declining revenue collections from various taxes, including income, sales and severance taxes.
"Low oil prices have already caused sharp declines in revenues collected by Oklahoma and its local governments," Moody's Associate Vice President Julius Vizner said in the report, "but more pain is on the horizon as the rest of the economy slows down due to muted drilling activity."
Oklahoma finance officials already have slashed appropriations for the current fiscal year by 7 percent to state agencies amid a revenue failure, while the gap in next year's state-appropriated budget is about $1.3 billion, or 19 percent, less than last year's state spending.
Lawmakers are still considering a range of ideas to raise revenue, including an expansion of the sales tax onto services and items that are now exempt, an increase in the tobacco tax, the elimination of costly state tax subsidies and exemptions, and issuing transportation bonds to free up money for operational costs. But Moody's notes the state also is expected to reduce spending, which will hurt local governments.
Oklahoma currently has an Aa2 credit rating from Moody's, which is the company's third-highest credit quality rating and essentially the same rating the state has carried since 1993. But in December the company revised Oklahoma's outlook to negative from stable, based on the decline in the energy sector. The company also has said Oklahoma's depletion of financial reserves, failure to address the structural budget gap or further declines in the energy sector could result in a downgrade.
Oklahoma's Rainy Day Fund, which had a balance of $560 million two years ago, has fallen to about $306 million as lawmakers sought to ease budget cuts to schools, prisons, child welfare and other state services.
Moody's also predicts the downturn in oil prices is likely to persist in the short term.
Crude oil gained 3 percent on Tuesday to $41 a barrel in New York. Oil was around $100 a barrel in the summer of 2014 before the price plummeted.