At this point only an act of god, or a sudden Saudi change of heart to cut crude production by 50% (unclear which is more probable) can prevent a recession in Texas. However, one state that few thought would be impaired as a result of the crude plunge, is California. Yet as the LA Times reports, it is precisely California, and specifically Kern County located in the middle of the state and containing the farmer town of Bakersfield and countless oil rigs, that yesterday declared a state of fiscal emergency during the weekly supervisors' meeting on Tuesday. The reason: predictions of a massive shortfall in property tax revenues because of tanking oil prices.
Oil companies account for about 30% of the county’s property tax revenues, a percentage that has been declining in recent decades but still represents a critical cushion for county departments and school districts.
According to the LA Times, as a result of the plunge in crude prices which is primarily driven by the de-financializaition of crude futures and the collapse in Chinese demand coupled with a relentless and rising production quota by the marginal, junk-bond funded producers (and everyone else) Kern, the heart of oil production in California, is facing what could be a $61-million hole in its budget once its fiscal year starts July 1, according to preliminary calculations from the county’s assessor-recorder office.
"It affects all county departments – every department will be asked to make cuts,” said County Assessor Jon Lifquist in an interview this month. “It just doesn’t bode well."
That, and there's also demographic issues which have little to do with the crude contagion: soaring pension costs also influenced the fiscal emergency declaration, which allows supervisors to tap county reserves. Operating costs expected at a new jail facility in fiscal 2017 and 2018 factored into the decision as well.
Looking at an operational deficit of nearly $27 million for the 2015-16 fiscal year, supervisors adopted a plan to immediately begin scaling back county spending rather than making deep reductions all at once in July.
The Service Employees International Union Local 521 urged officials in a statement to “not adopt drastic cuts that could cripple vital community services.”
The union said that although temporary wage cuts and hiring freezes “may be an obvious solution,” such tactics “are never the sole answer to economic problems.”
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Remember, no matter how bleak the facts and reality are, just keep whistling past the graveyard and just keep repeating "unambiguously good", "unambiguously good", "unambiguously good"...