March 9, 2020
Oil Price Free Fall that Virus Makes Worse Could
Force Special Session to Keep State in Business
By Mike Hailey
Capitol Inside Editor
A double-whammy blow from plummeting oil prices and the coronavirus could push Texas government to the brink of going broke in a development that could prompt an election-year special session to keep the state budget from sinking in red ink.
Fears of a potential fiscal crisis in Texas are starting to percolate amid the sharpest plunge in oil prices in almost 30 years as a consequence of Saudi Arabia's plans to flood the market with an overabundant supply of crude in the wake of a collapse in OPEC negotiations on a deal with Russia.
The futures price for U.S. benchmark West Texas Intermediate crude was hovering at $32 a barrel on Monday - a 28 percent decline - after falling initially by a third this past weekend to slightly more than $27. The price war that the Saudis triggered in a shocking turn of events sent stocks tanking after a weeklong roller-coaster ride that the spread of the coronavirus had fueled amid concerns of a major recession in the making.
Some analysts are predicting that the price of oil could slump as low as $20 a barrel barring a swift reverse in the Saudi Arabia plans for a significant production boost at a time when demand has dipped as a result of the coronavirus and the dramatic impact it's having on the travel industry and other segments of the economy.
President Donald Trump has been attempting to alleviate concerns by asserting that the coronavirus repercussions have been contained in the United States despite signs here and abroad that suggest the opposite. Trump's most outspoken Texas supporter - Republican Lieutenant Governor Dan Patrick - might not be on the same page with the president amid speculation about a possible postponing of state Senate committee meetings for the time being as a result of the disease that prompted the cancellation of the SXSW film and music festival that was set to get under way in Austin this week.
Texas lawmakers could be forced to return to the Capitol City - however - if oil costs fail to rebound in the fairly near future in a state where the $251 billion two-year budget that they approved last year is based on Comptroller Glenn Hegar's projection of oil selling at $50 a barrel in the first year of the current biennium and $53 in the second.
Hegar, who's also a Republican, had increased the revenue estimate by more than $500 million for the fiscal year that ended in September in the closing stages of the regular legislative session last year despite a warning on the volatility of oil prices in a state that relies significantly on taxes from fossil fuels production.
The comptroller could eventually be compelled to slash the estimate of incoming revenues for the current two-year cycle barring a quick turnabout in the cost of crude that the Saudis have the ability to manipulate without apparent regard for an adverse effect on other OPEC nations. The state budget that the Texas House and Senate adopted with Abbott's nod earmarked $126 billion for total spending in fiscal 2020 and $124.7 billion for 2021.
Republican Governor Greg Abbott would have to make the final call on a special session that could be disastrous for the GOP at a time when the Democrats' odds for a Texas House takeover at the polls in November appear to be on the rise in the wake of the Super Tuesday primary election last week. The Democrats have a shot to carry Texas in the presidential race for the first time since Jimmy Carter won here in 1976. A loss here would doom Trump's bid for a second term in a state that he has to win to keep his re-election hopes alive.
A special session could be a nightmare for the ruling Republicans by forcing them to decide between steep budget cuts or higher taxes or both to stop the bleeding brought on by a dramatic oil price fall that would be exacerbated by the coronavirus effect on the economy here.
A steep decline in oil prices would be welcome in some parts of the U.S. by lower electricity and gas bills in the northeast where Trump is based and states with economies that don't depend on oil and gas production to the degree that Texas does.
more to come ...