By now, it is no secret that the one state that conventional wisdom expects to suffer the most as a result of the crude collapse is the one state that through the Great Recession was the primary provider of (well-paying) job creation, the same state which is now expected to enter into a full-blown recession as confirmed by Jeff Gundlach in his latest outlook call [10] who, correctly, observed that all the jobs created during the "recovery" were thanks to the shale sector (something we presented previously [11]).
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But is it really Texas that will be impacted the most? The answer, at least according to a recent Pew report [13], is a resounding no.
As Stone McCarthy summarizes [14], the Pew report assessed the volatility in state tax revenues for the U.S. overall and for all 50 states. The analysts assigned a revenue volatility score to each state based on year-to-year changes in state revenues; the scores control for changes in state tax laws.
The volatility score for the U.S. overall was 5.0%; 29 states had higher volatility scores and 21 had lower scores. Three of the four states with the greatest volatility in revenues -- Alaska, North Dakota and Wyoming -- derive a large share of their revenue from so-called severance taxes on the extraction of oil, gas and other natural resources. Revenue from severance taxes in those states has been quite volatile, as the following chart shows.
Alaska, which had the highest volatility score by far at 34.4%, derived 78.3% of its revenue in 2013 from severance taxes, according to PEW. Severance taxes made up 46.4% of revenue in North Dakota in 2013, and 39.7% of revenue in Wyoming.
Incidentally, where is Texas? Smack in the middle.
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So yes: in absolute terms, Texas may be facing a recession as a result of the retrenching of the energy industry - the biggest source of revenue for the state. However, in relative terms, when looking at state tax revenue volatility and reliance on energy, there may be some 25 or so state that stand to suffer even more than Texas!
Still think the crude crunch is "unambiguously" good?
