Trend in the Region

Gulf States Ready and Worrying

DALLAS — The massive oil spill in the Gulf of Mexico could devastate the economy and ecology of coastal regions in several states, but it is too early to know what the ultimate effects will be.

Federal, state and local officials from Texas to Florida are keeping an anxious eye on the oil gushing from almost a mile underwater since the Deepwater Horizon drilling rig exploded and sank about 40 miles off the Louisiana coast on the night of April 20.

British Petroleum officials told a congressional hearing on Tuesday that the oil could be escaping at a rate of up to 60,000 barrels a day.

Louisiana Treasurer John N. Kennedy said the state is working with BP, the owner of the well that blew out two weeks ago, federal agencies, and other states to limit the economic and environmental damage from the spreading oil.

“We’re fighting a two-front war,” Kennedy said. “There are efforts under way to prevent the oil from reaching land, and to stop the leaks. But nobody has a clear picture of how much oil is coming from those leaks.”

Kennedy said he anticipated no credit issues from the oil spill, but wants to meet with the bond rating agencies as soon as the situation becomes clearer.

“We will have a conference call with the agencies sometime, but not within the next few days at least,” he said.

Kennedy said the public perception of the situation could be as harmful as the oil.

“The state has shut down some fishing areas not because there is oil in them — there is not — but because we don’t want the public to be concerned that the seafood is contaminated,” he said.

Concern for the seafood and tourism industries is great in Florida, Mississippi and Alabama, where officials have declared states of emergency, as has Louisiana. All were waiting yesterday to see when the spill would make it to shore.

“Mother Nature has been a little bit kind to us over the last several days,” Florida Department of Environmental Protection Secretary Michael Sole told state lawmakers in a conference call Tuesday. “But I will tell you Mother Nature is a fickle thing.”

Lawmakers are concerned that some or all of the state’s 1,197-mile-long shoreline ultimately could be impacted because of the loop current that flows from the Gulf around the state to the east coast.

“The magnitude of this can be significant,” Sole said. “The bad news is we may be dealing with this another two to three months.”

Analysts in their initial assessments have noted that BP, which recently reported a triple-digit increase in profits for the first quarter, has indicated it will pay cleanup costs.

BP has already provided $25 million grants to the states for their initial response and said it would “pay all necessary and appropriate cleanup costs” associated with the assessment, mitigation and cleanup of spilled oil; real and property damage caused by the oil; personal injuries, and commercial losses, including loss of earnings or profit.

But there are growing concerns about the long-term effect on local economies already suffering because of the recession and laws that could limit BP’s liability for economic damages such as lost wages and tourism.

In response to reports that BP could face limited responsibility for covering economic costs beyond cleanup and containment, federal lawmakers have introduced legislation that would either require companies responsible for offshore oil spills to pay for the full cost of cleanup or raise the existing statutory cap on their liability to $10 billion from $75 million.

A report on the Louisiana economy by Miller Tabak Asset Management of New York said the economic impact across the affected Gulf Coast states could be “catastrophic,” but cautioned that it’s too early to speculate on harm to tourism and fishing industries.

Commercial fishing contributes $2.6 billion a year to the Louisiana economy, according to the Miller Tabak report. Louisiana accounts for 25% of seafood produced in the lower 48 states. The Louisiana shrimp industry, which totaled 89 million pounds in 2008 to lead the nation, depends on a number of variables, most of which are unknown at this point, the report said.

Louisiana Gov. Bobby Jindal said the spill could harm the state’s economy and negate billions of dollars that have been spent to protect the fragile coastal ecosystem, but there is no way to tell how severe the damage will be at this point.

“Although we expect there to be an economic impact, it’s too soon to quantify what it is,” he said at a news conference on Monday. “It’s way too early to know the full extent.”

The governor said the state’s response to the spill should not be an economic burden in the short term. Jindal said he does not expect to ask the Legislature for additional funds before the current fiscal year ends June 30.

The state agencies involved in the situation have sufficient funds to handle the short-term expenses, he said, and BP has pledged to reimburse the state and parishes for their efforts.

Jindal said the state has more than $150 million set aside for natural disaster relief, including $143.4 million in the emergency response fund, which is normally used for hurricane response expenses, and $3.6 million in the oil spill contingency fund.

The Louisiana Division of Administration said the oil company already has reimbursed the state’s homeland security office for $1.1 million in expenses, with additional reimbursements expected soon.

Jindal said the state mobilized its coastal protection efforts because neither BP nor the U.S. Coast Guard had what the state considered to be adequate plans for preventing the oil from reaching environmentally sensitive and economically important wetlands and coastal areas.

“We have asked BP for their plans to address the oil leak many times over the last two weeks since this leak began, and it became clear that there was no detailed plan to address an incident on this scale,” said Jindal, whose concerns have been noted by other governors in the affected states.

Stephen Moret, secretary of the Louisiana Department of Economic Development, is working with a team of economists and incident-management experts to assess the economic impact of the oil spill on the state.

Louisiana’s annual gross product of $210 billion includes more than $10 billion from the seafood and tourism industries, Moret said.

“Economically, it is of great concern to us because it already has impacted one of our greatest industries, seafood and fisheries, and it’s likely to impact another: tourism,” Moret said at a news conference on Monday. “At this point we are very concerned.”

At the same time, offshore oil drilling is a major contributor to the Louisiana economy. Louisiana is the leading oil-producing state and second in natural gas production, contributing close to $1 trillion to the U.S. economy.

Its coastal waters contain 3,200 of the roughly 3,700 offshore production platforms in the Gulf of Mexico. Platforms off the state’s coasts account for 80% of the oil and 72% of the natural gas produced in the continental U.S.

A recent economic impact study by Dr. Loren Scott said that the total direct and indirect effect on the state is approximately $65 billion.

The direct impact comes from the taxes, royalties, fees, salaries, and other money spent in Louisiana by the oil and gas industry. The indirect impact results from the salaries and wages earned by oil and gas employees being spent in the state as well as oil field service companies.

The direct taxes and royalties paid by the industry to the state, along with fees and other taxes, account for approximately 13% of all the general fund revenues collected by the state. At one time the industry accounted for nearly 40% of all state general fund revenues.

A study by Applied Technology Research Inc. said the offshore industry has a direct impact of $3 billion on the state. The offshore industry annually pays more than $500 million in wages to people working in the Gulf of Mexico. Another $2.5 billion is spent with companies operating in Louisiana and doing business with the offshore industry

The refining segment of the industry has an $8 billion impact on the state.

Greg Albrecht, chief economist at the Legislative Fiscal Office, said no reliable information on the spill’s initial economic impact would be available for at least two months.

So far, there are no indications that issuers plan to delay sales or that the oil spill concerns analysts rating upcoming bond deals.

Alabama on Tuesday is planning to competitively sell $110 million of general obligation capital improvement bonds and $80.2 million of GO refunding bonds.

In rating Alabama’s bonds AA-plus, a report by Fitch Ratings made no mention of the oil spill.

Florida Gov. Charlie Crist said it’s not if but when oil reaches the shore and the initial impact in the form of sheen and tar balls could hit the state today. And one state senator has asked Crist to call a special session of the Legislature to address this “potential economic crisis and to make sure the attorney general has both the power and the tools to hold accountable the companies involved in the oil spill.”

Attorneys general from the Gulf Coast states, including Texas, gathered on Sunday to discuss the “shared impacts to the Southeast and explore legal options,” said Florida Attorney General Bill McCollum.

Texas will not participate in legal action against BP unless the oil reaches Texas waters, which seems unlikely, said Texas Attorney General Greg Abbott.

However, Abbott said the Gulf states attorneys general have formed the Gulf States Coalition to coordinate their response to the unfolding disaster.

“Our top focus,” Abbott said, “is ­ensuring that BP makes good on its promise to fully compensate individuals, coastal businesses, and taxpayers for any expenses incurred during the cleanup effort.”


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