- The coronavirus pandemic is hurting Texas' oil industry and, consequently, its economy, reported Gregory Meyer for The Financial Times .
- Oil prices have dropped from $58 to $20,against the backdrop of a Saudi Arabia-Russia oil pricing war.
- It's a problem for a state that has seen a population boom thanks to its affordability and strong energy-oriented economy.
- Visit Business Insider's homepage for more stories .
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Texas has been the poster boy for good economic news in the US, and its decimation by the coronavirus shows what a rough ride every state has in store
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The coronavirus pandemic is striking Texas where it hurts: in the oil industry.
As local governments in the state (but not the governor) implement stay-at-home orders to help slow the spread of the coronavirus, Texans are sticking inside, reported Gregory Meyer for The Financial Times . The decline in fuel demand is one factor behind oil cratering to around $20, the other being the ongoing oil-pricing war between Saudi Arabia and Russia. And it'snot good news for a state that produces 41% of the US' crude oil .
"As much a tragedy as the coronavirus is, most states are dealing with one problem," Dale Craymer, president of the Texas Taxpayers and Research Association and a former state budget director, told Meyer. "Texas is dealing with two because we're dealing with coronavirus and the dramatic drop in oil and gas prices."
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The plunge is putting Texas' tax revenue, oil output, and investment at risk, Meyer wrote. Craymer's group estimated that despite saving a portion of oil and natural gas production taxes in an emergency fund, Texas loses out on $85 million per year in tax revenue for every $1 decline in oil price. In the current budget cycle, Meyer reported, citing comptroller revenue estimates, these taxes were expected to earn the state about $5.5 billion.
That's based on a $58 oil price, he said, which has since fallen to $20.
But the oil price drop isn't Texas' only grievance. Texas tourism, a $69 billion industry , may also see a decline. Texas Gov. Greg Abbott hasn't issued a statewide order shutting down beaches, but spring breakers who've been crowding the beaches previously told Business Insider that local businesses in the area were shutting down temporarily due to restrictions. It's a problem compounding with the states declining sales taxes, Meyer reported.
That $5.5 billion of anticipated revenue was expected to generate $1.6 billion for the state's rainy-day fund, and the shortfall is going to challenge the statewide response to the pandemic. In the absence of a cohesive national strategy to arrest the spread of the coronavirus, state governments have had to step into the breach.
If even Texas is having economic issues, then, 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 rainy-day funds adequate for a moderate recession. And this looks like no moderate recession.
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Texas has built a reputation as one of the best places to live
The hits to oil and tourism are big blows to the Lone Star State, the poster child for marrying a low cost of living to a booming economy.
Ten cities in Texas ranked in the top 25 lowest cost of living cities in the US, Business Insider's Erin McDowell reported , citing a report by Niche . 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 in a list of 25. This time, Frisco ranked first.
Consequently, Texas has undergone a population boom in recent years. In the past eight years, its population swelled from over 25.2 million to more than 28.6 million, reported Business Insider's Andy Kiersz and Madison Hoff . Metro areas across the state, from Waco to Austin, have welcomed the influx of new residents. And Dallas happened to be the top city millennials moved to in 2019 .
Texas, which is one of seven states without personal income tax, 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-oriented economy,the state is one of the best places to find a job .
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But the latter may no longer hold true, thanks to the coronavirus pandemic. As Meyer wrote, the oil slump has already led to salary cuts and job loss.
If the pandemic is bringing one of America's most affordable states to its economic 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 the time being."
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- Billionaire David Geffen deleted his Instagram after being slammed for a post about how he's self-isolating on his $590 million superyacht
- Billionaires from Bill Gates to George Soros are donating millions to help alleviate the coronavirus crisis but it may not go where it's needed most
DON'T MISS: The top 25 recession-proof cities in the US
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