DALLAS -- Williston, North Dakota's sales tax debt took a six-notch downgrade to junk amid continued oil and price declines.
Standard & Poor's downgraded the city's series 2010 sales tax revenue bonds to BB-minus from A-minus Thursday, and dropped
the city's series 2011B, 2013A, and 2013B sales tax revenue bonds to BB from A.
The outlook is negative.
The contraction of North Dakota's energy sector has stung the state and some local government economies, chipping away at both their sales taxes and income tax collections.
Williston's debt burden is largely paid from sales tax revenues, which have nosedived, leading to a slump in debt service coverage.
"The downgrade reflects our view of the precipitous decline in sales and use tax receipts that the city has reported since oil production peaked in the region in late 2014," said Standard & Poor's analyst Scott Nees.
The city is at the center of the Bakken Shale formation, which was home to a boom driven by new hydraulic fracturing, or fracking, techniques.
Fiscal 2015 sales tax collections for Williston -- a portion of which secures its revenue bonds -- declined 13.5% compared to fiscal 2014 collections. January 2016 collections have dramatically fallen by 65% compared to January 2015, and February receipts were down 46%.
If the trend continues into the second and third quarters, it is likely that they city may need to tap its debt service reserves or other revenue sources to cover bond payments. "This could happen within the next year," Nees said.
"There is a one-in-three chance that we could lower our….ratings further in the next year if sales tax receipts continue to decline in a way that suggests to us that Williston will face major, ongoing challenges meeting its annual debt service using pledged revenues," said Nees.
In March, Moody's downgraded the city's general obligation credit two notches to the junk-level of Ba1, and lowered its sales tax-backed bonds four notches to Ba3.
On Feb 19, North Dakota lost its AAA issuer credit rating from S&P because of the impact of oil price volatility on the state's economy. The rating was cut one notch to AA-plus.
The state dipped into its $572 million budget reserve for $497 million to help cover a $1 billion shortfall in revenue for the 2015-2017 biennium triggered by falling crude oil prices. The budget forecast assumes West Texas Intermediate crude oil prices of $30 per barrel as of January 2016 that gradually transition to $43 per barrel by June 30, 2017.