It was only four years ago that the most popular bumper sticker in Dallas pleaded: “Please Lord, Give Me One More Boom--This Time I Promise Not to (Throw) It Away.”
What is happening today is not a boom in the grandiose meaning of the old days when dentists and cardiologists became oil barons overnight and Texas Mercedes-Benz dealerships were the most lucrative in the world. But signs of revival are unmistakable. Construction cranes have returned to the cityscape, and groundbreaking began recently on world headquarters for GTE, J.C. Penney and a new mass-transit system.
The oil states are back in action, humbler and perhaps a bit wiser than in their heyday a decade ago, though no less scorned by other parts of the nation. On the seesaw of American regional economics, Texas, Oklahoma and Louisiana go up with the price of oil, just when much of the rest of the country goes down. The latest countercyclical rise of the energy states began even before Iraq invaded Kuwait and oil leaped above $40 a barrel--those events only intensified a trend, transforming a slow but steady recovery into a more spirited and optimistic revival.
“The ‘90s look to be a good decade for this part of the country,” said economist Bud Weinstein, director of the Center for Economic Development and Research at the University of North Texas. “I’ve talked to more industrial prospects in the past three months than in the previous four years--people looking to locate, buy, sell, do business in Texas. We’re not going back to the thrilling days of yesteryear; there never could be a boom like that again, but compared to other parts of the country we’re looking good.”
When oil prices plummeted in 1986, the effects went far beyond the energy industry, shaking the economic, academic, cultural and social foundations of an entire region.
Texas lost 230,000 jobs. Louisiana lost 9% of its work force, larger than the national percentage during the Great Depression. Libraries closed in New Orleans. Scores of nationally renowned professors fled Louisiana State University, and prestigious faculty chairs at the University of Texas and Texas A&M; went unfilled. Teachers in Oklahoma and Texas suffered through years of low pay and salary cuts. Hundreds of savings and loans and banks, run poorly and often corruptly, fell into insolvency in the first wave of a massive national financial scandal.
Texas, Oklahoma and Louisiana, overly dependent on oil and gas royalties and mineral taxes for state revenues, essentially went bankrupt. First, the Texas state government crumbled with a $2.9-billion deficit in July, 1986, on the way to a $5.8-billion shortfall. Oklahoma’s low point came in June, 1987, with a projected $565-million deficit. Then Louisiana hit bottom May 12, 1988, when the state had an accumulated deficit of $1.3 billion and failed to meet its payroll.
Today, all three are in relatively sound condition. Texas not only recovered the jobs it lost but has added another 230,000. Oklahoma’s employment level is nearly what it was before the bust. Louisiana, according to LSU economist Loren Scott, will pick up 51,000 jobs over the next two years and should reach its old level of employment by 1994. Democratic Louisiana Gov. Buddy Roemer and the Legislature pumped another $50 million into higher education this year in an effort to turn around what Scott called the “terrible exodus of talent.”
Texas, the only one of the three states without an income tax--and under federal court orders to bolster its education, prison and mental health systems--is struggling with a modest potential shortfall for next year. But Oklahoma and Louisiana have not only balanced their budgets but have been able to save money in what they call “rainy-day” reserve accounts.
“Right now, I’m amazed at some of the early estimates my people are bringing to me,” said Alexander Holmes, director of the Oklahoma office of finance. “I find myself arguing with them because they seem so optimistic. We are showing very solid economic growth.”
To understand what effect the Persian Gulf crisis and inflated oil prices will have on this region, it is important to realize how Texas, Oklahoma and Louisiana have changed since the last boom. Oil remains a significant factor in the regional economy, but hardly what it was in the old days and no longer the cash cow for state revenues. Consider these dramatic changes:
* In 1982, Louisiana derived 42% of its state money from oil and gas. Today, energy provides 14% of state revenues.
* When the 1980s began, Texas was drawing 28% of its funds from energy. Now the figure is 8%.
Oklahoma relied on energy for 25% of its money only six years ago. Now, oil and gas revenues fill only 6.3% of the state coffers.
Tom Plaut, chief economist for the Texas comptroller’s office, cited three major reasons for the transformation. First and most obvious was the specific collapse of the oil industry. Fewer rigs and shrinking work forces meant less in taxes. The second, correlative reason was that the oil bust forced the states to diversify to survive. Finally, the legislatures had to change the tax structures, mostly by raising sales and franchise taxes, to produce money no longer provided by energy.
The result is that the energy states have a safer and somewhat special economic balance. On the one hand, the diversity has moved them closer to the national economy, so they are unlikely ever again to lose as much as in the 1986-88 depression. On the other hand, the countercyclical nature of oil and gas gives them a boost in times like these when inflation and high energy prices are moving much of the nation into a recession.
“The optimistic way of looking at it now,” said Holmes, “is that we have the best of both worlds.”
Texas has changed to the extent that economist Weinstein said it would be better for the state if oil prices declined. “Forty-dollar oil is bad for Texas,” he said. “First of all, nobody believes it is real. And if it does stay in place for a time, that’s going to take a mild and brief national recession and turn it into a long national recession. So my optimistic scenario for Texas has oil prices settling at $26. My pessimistic scenario is for it to stay at $40.”
Oil industry executives in the region are drafting cautious budgets for next year based on the assumption that prices will drop. “We learned in 1986 the treacheries of assuming things were going to be good forever and getting things chopped out from under us,” said Don Covey, president of exploration for Mitchell Energy and Development Corp. in Houston.
According to Ike Kerridge, vice president of Baker-Hughes Inc., a Houston firm that tracks and forecasts drilling-rig numbers, the number of rigs looking for oil will increase 15% in the region next year if oil prices settle at $21 a barrel, the figure being used by the firm’s computer model.
“People are concerned,” Kerridge said. “There is a reluctance to invest too much until we see where the price stabilizes. So we won’t see dramatic changes in this region unless the prices stay up for three or four more months.”
In Louisiana, economist Scott and his LSU associates have developed a computer model based on $21-a-barrel oil that shows the state growing twice as fast next year as over the last two years but without much of a rush back to the oil fields for exploration. In 1982, Louisiana had 450 rigs. Today, there are 150. Scott said he doubts that the number will reach 200 next year.
“In 1980 and 1984, people rushed out to explore and got burned,” Scott said. “Not only the wildcatters but also those who lent them money got burned. So the lenders will be more cautious this time. And even if they were not, probably the regulators would restrain them more. So there are three tiers of resistance to a full-fledged boom atmosphere.”
But Louisiana, according to Scott’s computer model, will continue along the comeback trail if the oil-price scenario holds, an “if” that Scott considers with some levity. “I have to tell you we are never wildly confident about our scenarios,” he said. “When people ask us what method we use to forecast, we say we use the Onagastic Approach. It comes from the word onager. Look it up in the dictionary.”
Onager: Wild ass.