Commentary

When crude oil prices started declining early last year, we dug deep into the oil patch states to determine what the potential impact would be on municipal credits from crude oil at $50 to $60 per barrel. Here is a link to the first of four bullets on the topic: http://snwam.com/blog/2014/12/22/muniland-part-1-of-4-falling-crude-oil-prices-and-muni-credit-winners-and-losers. Our conclusion was that states like Texas, Colorado and North Dakota were well prepared because of diverse economies or conservative state budget planning. The major exception was Alaska, which we reviewed just a few weeks ago (linked to here: http://snwam.com/blog/?offset=1453227777030). Now that crude oil is down to $30 per barrel and expected to stay there or lower for far longer than many forecasters originally predicted, has our view of the municipal oil patch credit landscape changed? The short answer is, “not much,” and that our bullet from last August is still relevant: http://snwam.com/blog/2015/8/31/muniland-oil-patch-update. But let’s take a look at data from the Texas Comptroller of Public Account’s office. The Texas Comptroller’s office reports that revenues are marginally down. For example, sales tax receipts for December 2015 were only 1.03% lower than for December 2014, and sales tax collections in fiscal year 2016 through December were 2.1% below collections for the same period in fiscal 2015. On the other hand, motor vehicle sales and rental tax collections for December 2015 were up 5.1% from December 2014. Regional impacts from lower crude oil prices are expected. For instance, the Houston regional economy, which is the center of the Texas oil economy, is beginning to see the effects of lower crude oil prices. Office vacancy rates are up and high-end home prices are beginning to fall. Though this is unwelcome news for the Houston regional economy, there is a bright spot. Just days after the U.S. lifted the ban on crude oil exports, two oil tankers set sail from Houston ports with crude oil shipments to Europe. Other regional economies like Dallas and San Antonio are less exposed to oil and gas activities and have not yet seen any major impacts. As a reminder, the Texas economy is well-balanced, with oil and gas activity accounting for only 11% of state GDP. Therefore, while the price and outlook for oil have changed over the last couple of quarters, the view on municipal credit quality at the state level has not.

Sources: Texas Comptroller of Public Accounts, WSJ