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Texas Towns Under Pressure From Low Oil Prices

The low price of crude is finally taking its toll on one oil town in West Texas while another, just over 100 miles away, is faring far better. But how exactly do we explain this disparity?

Midland’s sales tax revenues fell to $5.119 million in March from $5.125 million in the same month a year before, according to data from the state comptroller. This drop in income, which reflects residential and commercial spending, seems small, but it was only the second such decline in five years, when the current US oil boom was beginning to transform Midland.

On top of that, March 2014 was three months before crude prices started their plunge. At that time, oil was selling at more than $100 per barrel, and sales tax revenues had just risen by 11 percent.

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These numbers are the most important evidence of the state of Midland’s economy, according to economist Karr Ingham, who assembles the annual Texas PetroIndex, which reports on the condition of the state’s economy.

“There is no doubt that local spending is going to suffer, and we are just seeing the beginning of this,” Ingham said. In fact, he forecasts economic losses in Midland for months if not years, even when – and if – oil prices eventually rally.

Midland, which sits over one of the largest oil fields in the United States, has undergone fast economic growth in the past five years with the sudden presence of energy companies that brought jobs and invested in construction projects. But oil has lost half its value in the past nine months, and the jobs and construction projects are beginning to dwindle.

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Especially telling is Midland’s housing market, with more than 500 unsold houses languishing on the market, average home sales prices dropping by 20 percent and foreclosures nearing 200 percent, most of them in the second half of 2014 when the plunge in oil prices had turned from a concern to a reality.

Now look about 100 miles southeast to San Angelo, Texas. In January, the city enjoyed the 54th straight month of year-over-year rising sales tax receipts, which is “unprecedented for San Angelo,” Phil Neighbors, the president of the San Angelo Chamber of Commerce, told the San Angelo News Leader.

Neighbors said sales tax revenues continue to rise in San Angelo and the city’s sales tax growth, at 10.2 percent in January, is the highest of the similar-sized west Texas cities and the second highest in the state after Fort Worth’s.

The reason? Diversity, Neighbors said. When the oil business slumps, he says, other businesses step in to keep the city’s economy above water. He explains that this is the reason for the lower rise in tax revenues in Midland: “Midland is more dependent upon energy.”

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Neighbors has no trouble reeling off other sources of tax revenue for San Angelo, starting with the largest contributor, Goodfellow Air Force Base. But that’s not all. “[There’s] also Angelo State University, Howard College, City, County and [independent school districts] in the public sector, and then large components of employment in the private sectors of retail and wholesale trade …,” he said.

The list, and the value of the enterprises on the list, go on and on.


“That diversity is what insulates us from the huge upswings and downswings we see in less diverse economies,” Neighbors said. And that diversity evidently is absent in Midland.

By Andy Tully of Oilprice.com

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