DALLAS - Some sectors of public finance will emerge as winners while others suffer amid falling oil prices, analysts at Moody's Investors Service reported Feb. 24.
The majority of state and local governments will see mildly positive effects from the decline in energy prices as lower costs bolster disposable income and boost consumer confidence, raising economic activity and increasing spending on other goods and services, Moody's senior credit analyst Marcia Van Wagner wrote.
"That spending, in turn, boosts collections of sales and other transaction taxes," she added. "Lower energy prices will also have a minor positive effect on operating costs for governments that operate large vehicle fleets, such as school districts."
Among all the oil dependent states, Alaska is an outlier, Van Wagner said, since 90% of the state's operating revenues come from extraction taxes.
Among local governments, Midland, Texas, in the heart of the Permian Basin stands out for its dependence on the oil economy, she said.
If consumers feel freer with their pocketbooks with lower pump prices, the ensuing sales tax growth will benefit transit agencies such as Dallas Area Rapid Transit and the Metropolitan Atlanta Regional Transit Authority, analysts said.
"The drop in gas prices also leads to higher consumer spending on fuel and vehicles, providing a moderately positive impact for the highway-related bond programs," Van Wagner said. "Gas tax collections will grow because they are based on volume of gasoline sales rather than the price. Other revenues that states typically earmark for highway transportation, such as vehicle registrations and vehicles sales taxes, should follow suit, also boosted by strong new vehicle sales."
Maria Matesanz, senior vice president at Moody's, said data make it "already evident that lower gasoline prices are stimulating increased driving and greater use of toll roads by commuters and leisure drivers alike.
Toll roads, especially in fast-growing urban areas such as Dallas, San Francisco, and Denver, are likely to benefit the most, she said.
"We expect that median toll transactions for our rated U.S. toll roads will increase by 1%-2% in 2015, in line with growth in 2014, but up slightly from about 1% in both 2013 and 2012," Matesanz said. "However, the sustained period of low fuel prices that we are now expecting to last through 2015 may spur higher growth rates."
Analyst Dan Seymour said oil price declines will have a near-term positive impact on municipal water and sewer utilities.
"Lower gasoline prices will ease pressure on consumer budgets, potentially relieving resistance to utility rate increases," he said. "Some water utilities in energy-rich states may see volume declines by energy users. Hydraulic fracturing and coal mining, for instance, are water-intensive processes, and the utilities serving these users may sustain a downturn in volume if these processes are scaled back. We expect these instances to be scattered."
Dan Aschenbach, senior vice president at Moody's, said the impact of lower oil prices on electricity costs is small because oil in the U.S. represents an insignificant percentage of the fuel used in the generation of electricity by public utilities.
"We do believe that sustained lower oil prices could weaken the resolve to complete the strategic direction of some of these utilities in their current efforts to diversify their fuel mix which we believe would be a credit negative," Aschenbach said.
Most U.S. airports will benefit indirectly from lower oil prices because the favorable economic environment encourages consumers and companies to spend money saved from lower energy prices, according to analyst Earl Heffintrayer.
"However, airports in or near states focused on energy production, such as Texas and North Dakota, will likely see lower passenger boarding growth than other U.S. airports this year," he said.
"For 2015, we expect that more seat capacity on U.S. airlines, combined with continued economic growth, will push up industry wide enplanement growth between 3% and 4%, exceeding our previous expectation of up to 2% growth in 2014," Heffintrayer said.
U.S. seaports will also benefit, according to analyst Myra Shankin.
"Container volumes reflect population, consumption and wealth trends, which also effect more specialized cargo segments like dry bulk, liquid bulk and break bulk," Shankin noted.
Lisa Goldstein, Moody's associate managing director, said she expects no effect from lower oil and gas prices on the healthcare sector, while senior analyst Rachael McDonald sees a positive impact on Housing Finance Agency single-family and multifamily portfolio performance.
"We anticipate that single-family delinquencies, already on the decline due to lower unemployment, will be pushed further down as home owners apply savings from lower heating and transportation costs to paying their mortgages," McDonald said.
