Low Oil Prices Drain Some But Energize Most Local Economies

The impact of oil's price drop depends on how much a local government relies on the oil industry for revenue and jobs.

The dramatic drop in oil prices will be a drag on some local government’s health but overall, experts say the price drop will dump a welcome infusion of cash into local government coffers.

During the last six months of 2014, oil prices fell by some 44 percent while the average gasoline price fell by 30 percent in the U.S. That means that for local governments that depend on the oil industry, growth will slow to nearly a standstill.

Not all local governments in the major oil-producing states -- Texas, Wyoming, North Dakota, Alaska, Louisiana, Mississippi, Montana, New Mexico and Oklahoma -- will be affected negatively, however. It depends on how much of the locality’s revenues are related to the industry. Oil extraction is expected to continue so the local economy will still grow, but new drilling should slow in 2015. That means a related slowdown in employment (layoffs have already begun in these states), hotels and restaurants, retail and construction and other related businesses. An analysis by Fitch Ratings last month noted that cities will feel the impact in reduced sales tax receipts, building permits and other economically sensitive revenues.

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