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Declining Oil Prices Impact State Budgets, GDP

December 17, 2015

Around the country, states are beginning to feel the fiscal impacts of falling oil prices.  In FY 2016, eight states enacted FY 2016 budgets below their FY 2008 levels, largely as a result of challenges associated with their oil and gas industry, according to the Fiscal Survey of States report by the National Association of State Budget Officers (NASBO). Similarly, a quarterly update of gross domestic product (GDP) by the U.S. Bureau of Economic Analysis finds that mining subtracted from growth in 49 states during the second quarter of 2015.

While states vary in their fiscal health, with some doing fairly well and others facing more significant struggles, state budgets are relatively stable and will continue to grow moderately in FY 2016, according to the Fiscal Survey of States report. In FY 2016, spending levels are expected to increase in 43 states compared to FY 2015. General fund expenditures in enacted FY 2016 budgets reach $790.3 billion, an increase of $30.9 billion (4.1 percent) over FY 2015. This rate of growth is slower than the 4.6 increase in expenditures from FY 2014 to FY 2015. Similarly, after accelerating in FY 2015, state revenue growth is expected to slow in FY 2016. General fund revenues are projected to increase by 2.5 percent in FY 2016, down from the estimated 4.8 percent gain in FY 2015.

The bulk of spending increases are focused around education and Medicaid, areas which already comprise nearly two-thirds of total state spending.  Although most states have surpassed their pre-recession spending levels in nominal teams, eight states enacted FY 2016 budgets below their FY 2008 levels.  According to the report, most of these states are facing negative budgetary impacts as a result of the declining price of oil. Seven states, including several that were focused on energy-production, also reported that general fund revenues ending in FY 2015 were lower than their projections. 

In addition to impacting state budgets, the dropping price of oil has also impacted GDP. According to a quarterly update of GDP by state figures, mining subtracted from growth in 49 states during the second quarter of 2015, according to The U.S. Bureau of Economic Analysis (BEA). In North Dakota, West Virginia, Oklahoma, Texas, and Wyoming, mining subtracted from more than two percentage points of real GDP growth. Finance and insurance grew 12.4 percent during the second quarter of 2015, serving as the leading contributor to growth in 28 states.


state budget