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2017 Business News In Review: State Budget Woes, And Modest Energy Rebound

Dec 27, 2017

Oklahoma’s budget shortfall and “cautious optimism” from the oil and gas sector were two of the largest themes in business news during 2017.

Speaking on KGOU’s The Business Intelligence Rerport, Journal Record editor Ted Streuli said the state’s budget woes had implications in healthcare, transportation, employment and the state’s image.

The rural hospital in Sayre had to shut down its emergency room temporarily, partially due to provider rate cuts from the state’s Medicaid agency, and partly because the state did not expand its Medicaid program. The Oklahoma Department of Transportation put on hold hundreds of millions of dollars of road construction contracts, even though the contracts were already awarded and workers were ready to tear up pavement.

“That has a lot of repercussions because all that money does not get into the economy via paychecks, so there's less sales tax, less income tax and less spending by consumers, which really affects businesses,” Streuli said.

The state government is a large employer, so layoffs have hurt to some extent, Streuli said.

“In kind of a bigger picture thing, the state ends up having a little bit of a reputation for fiscal problems that makes it harder to attract and keep new companies,” Streuli said.

Additionally, a downgrade in the state’s credit rating could potentially cost taxpayers millions of dollars to take out bonds, though experts have not been able to pin down how much.

“In the case of a state needing more income, that means more taxes, or in Oklahoma's case, often more fees. So it's usually businesses that are going to end up picking up the tab when the state's costs go up. More expenses for businesses makes it harder to compete because to compensate they either have to raise prices or find a way to increase their sales volume,” Streuli said.

The oil and gas industry, on the other hand, was cautiously optimistic in 2017 as a result of oil prices that have been relatively stable near $50 per barrel. Streuli says that created the opportunity for new drilling in the promising SCOOP and STACK plays.

“There's some new technology out there that is dramatically changing where the oil companies can break even on the price of a barrel of oil. So some of that was good news for them. It helped earnings rebound from the year before. We saw companies either minimize their losses or get well into the black compared to a year ago,” Streuli said.

FULL TRANSCRIPT

Jacob McCleland: It's the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I'm Jacob McCleland. I'm talking now with Ted Streuli. He's the editor of the Journal Record newspaper. Ted thank you so much for talking with us.

Ted Streuli: Glad to be here Jacob.

McCleland: So it's the end of the year so let's take a look back at 2017 from a business perspective in Oklahoma. And one of the biggest themes that I see throughout the year was the state budget. I mean this of course was an issue for government agencies. But could you also kind of walk us through the reverberations that it had for business here as well?

Streuli: The budget problems certainly were the big story of the year for everybody, I think. One of the ways we saw that manifest was in the way it affected rural hospitals in Oklahoma. The hospital in Sayre had a couple of problems. Most recently it had to shut down its emergency room at least on a temporary basis and direct patients to other hospitals. That in part was because of a lack of Medicaid expansion, but also due to cuts in provider rates that just made it financially impossible for them to continue providing those services. We also saw a big problem for road contractors with the Department of Transportation who had already contracted to do work, hundreds of millions of dollars worth of work that were suddenly put on hold even though they were ready to start tearing up pavement. Now that has a lot of repercussions because all that money does not get into the economy via paychecks, so there's less sales tax, less income tax and less spending by consumers, which really affects businesses. Government's also big employer, so agency layoffs hurt to some extent. And in kind of a bigger picture thing, the state ends up having a little bit of a reputation for, you know, fiscal problems that makes it harder to attract and keep new companies.

McCleland: Journal Record reporter Brian Brus wrote in November that the budget gap could cost the state millions in bond interest. This came after Moody's issued a credit negative warning. I mean how can this type of rating affect business here moving forward?

Streuli: Well, if the state has to pay more on the money it's borrowing, it has to collect more in order to pay those debts. So to put it in simple terms, if you want to own a $200,000 house and have bad credit, the loan's going to cost you more and you're gonna need more income to pay for that house than someone with great credit who gets a lower interest rate. Well it's no different for the state. So in the case of a state needing more income, that means more taxes, or in Oklahoma's case, often more fees. So it's usually businesses that are going to end up picking up the tab when the state's costs go up. More expenses for businesses makes it harder to compete because to compensate they either have to raise prices or find a way to increase their sales volume.

McCleland: So Oklahoma obviously is an oil and gas state, and oil and gas drives a lot of the economy here. The energy sector had gone through a few rough years prior to 2017, but this year seemed to be a little bit more stable. How would you describe 2017 for the oil and gas industry?

Streuli: I guess I'd call it a year of cautious optimism and and some writing of the ship. Prices pretty much stabilized throughout the year, right around $50 a barrel. That sparked some new drilling in the state especially in the SCOOP and STACK plays where they see a lot of promise.

McCleland: So what was really kind of driving the energy sector's modest rebound that we saw?

Streuli: Well getting prices back up to the $50 level played the biggest role. But one reason they were able to do that is that there's some new technology out there that is dramatically changing where the oil companies can break even on the price of a barrel of oil. So some of that was good news for them. It helped earnings rebound from the year before. We saw companies either minimize their losses or get well into the black compared to a year ago.

McCleland: Ted Streuli is the editor of The Journal of Record newspaper. Thank you so much for talking with us and Happy New Year.

Streuli: My pleasure Jacob. Happy New Year to you.

McCleland: KGOU and the Journal Record collaborate each week on The Business Intelligence Report. You can find this conversation at kgou.org. You can also follow us on social media. We're on Facebook and Twitter, @journalrecord and @kgounews.

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