Moody’s Revises State’s Economic Outlook to Negative

More bad news for Oklahoma’s state budget officials and once again, the blame is being laid on the feet of the oil and gas industry in the state.

Moody’s Investors Service, according to State Treasurer Ken Miller has reaffirmed the state’s current general obligation rating of Aa2, but at the same time has revised it’s Oklahoma outlook from stable to negative.

“The negative outlook reflects the fiscal effect of an 18-month decline in the energy sector and the prospects for a prolonged, muted recovery in prices and production,” stated Moody’s as quoted in Miller’s monthly Oklahoma Economic Report. Moody’s, one of three primary debt rating services characterized Oklahoma’s revenue collections as having “significantly underperformed what was budgeted” and added that collections are expected to remain weak during the next fiscal year.

The Moody’s opinion came after the state declared a budget failure for FY-16 and budget cuts were ordered. Moody’s listed two factors that could lead to an upgrade. One would be a rapid recovery in the energy sector and the other would be an increase in financial reserves. Neither is likely.

But the debting rating company said there are several things that could cause a downgrading of Oklahoma’s general obligation rating.They include the depletion of financial reserves, a failure to address a structural budget gap and the acceleration of the energy sector downturn.

The Economic Report also indicated the credit opinion points to the state’s slowing economy stemming from the energy sector slump and said the potential lifting of Iranian sanctions—could significantly increase supply and push prices even lower than current projections.

One aspect of the state’s economy that is stable is reflected by the large number of federal government jobs that are anchored by several military facilities.

In spite of “significant progress toward revenue diversification away from reliance on severance (gross production) taxes,” the opinion said the Oklahoma economy remains exposed to volatility in the energy sector.

Oklahoma Economic Report


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