Declining Oil Prices Blow up Kern County’s Budget

Wednesday, January 28, 2015
A Chevron oil field in Kern County (photo: Jim Wilson, New York Times)

Back in the first week of November, Kern County Assistant Assessor Anthony Ansolabehere warned of a dire, imminent budget shortfall because, “Oil has fallen from $99 a barrel down to $72 yesterday, which is a huge drop.”

It's under $50, now.

On Tuesday, the county Board of Supervisors declared a fiscal emergency in anticipation of a massive hit in property taxes, 30% of which comes from oil and gas companies. The emergency declaration will allow officials to tap the county's current $40-million general fund reserve.  

The county is the top oil producer in the state, which is the third-largest oil producer in the nation. So, while the rest of the state is celebrating lower gasoline prices, Kern County, which incongruously has about the highest gasoline prices in the nation, is dealing with a budget deficit.

The county is projecting a $61-million decline in property tax revenues in the fiscal year beginning July 1 based on lower valuations of the land, according to the Los Angeles Times. That would result in a $27-million deficit. The supervisors aren't waiting until July 1 to begin hacking away at services. The emergency declaration anticipates a reduction in fire department personnel.

Oil isn't the only thing fueling the county's fiscal scramble. Like a lot of other local governments, Kern has pension obligations coming due. Officials are also ramping up for the opening of a new jail sometime in 2018. 

The county is at the mercy of a highly volatile oil industry. Crude oil prices have dropped 60% since last July and are approaching the 10-year low in 2009 during the depths of the Great Recession. Prices went from $140 a barrel to just over $40 in one year back then.

Although commenters on Bakersfield Now overwhelming voiced a desire to see the price of oil continue to drop—citing personal benefits over those for the oil industry and government—the outcome from falling prices will certainly be a mixed bag.

Nearly 5.4% of the state's GDP comes from the oil industry, which directly and indirectly employs around half a million people statewide. Three-quarters of the industry's action is in Kern County.

“They call us the Texas of California,” Richard Chapman, president and CEO of the Kern Economic Development Corp., crowed in their investment guide, “There Will Be Oil” (pdf), published in November, even as the oil market was tanking. “We are one of the reasons the state of California is balancing its budget now.”

If so, the miraculous turnaround in California's economic fortunes—from a $25-billion deficit to surplus—which has been attributed to Governor Jerry Brown's savvy leadership and the state's newfound fiscal responsibility could be at risk from the kind of global forces that have shaped it all along.

–Ken Broder


To Learn More:

Kern County Supervisors Declare Fiscal Emergency (by Kyle Harvey, Bakersfield Now)

Supervisors Declare Fiscal Emergency amid Plummeting Oil Prices (by James Burger, Bakersfield Californian)

Kern County Declares a Fiscal Emergency amid Plunging Oil Prices (by Tiffany Hsu, Los Angeles Times)

Plunging Oil Prices Could Have Kern County over a Barrel (by Jose Gaspar, Bakersfield Now)

There Will Be Oil (by Ron Starner, Kern Economic Development Corporation) (pdf)

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