DALLAS -- Williston, N.D. lost its investment grade rating this week, buffeted by the oil and gas price declines that recently cost North Dakota a triple-A rating.
Moody’s Investors Service on Monday downgraded Williston by two notches, to junk-level Ba1 from Baa2, affecting $2.8 million of general obligation bonds, and lowered $1.4 million of sales tax-backed bonds four notches to Ba3 from Baa2. Both credits were assigned a negative outlook.
Moody’s said the GO downgrade reflects weak financial performance and the potential for “significant variances in general fund revenues in fiscal 2016 due to declining oil and gas production tax receipts.”
The city is at the center of the Bakken Shale formation, which was at the center of a fossil fuel production boom driven by new hydraulic fracturing, or fracking, techniques.
The downgrade also reflects Williston's high debt burden that is largely paid from sales tax revenues, which have nosedived, leading to a slump in debt service coverage.
“Sales tax collections declined … following several years of rapid growth related to the booming oil industry in the region,” said Moody’s analysts. “Declining sales tax trends are accelerating in the first quarter of 2016.”
Fiscal 2015 sales tax collections for the North Dakota city 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%.
The decline in Williston’s tax base, fully valued at $3.1 billion, is in contrast to the fast pace of growth the city experienced since 2010 that saw rates grow by 39% each year, according to Moody’s. The rating agency believes that the recent severe declines in oil prices -- West Texas Intermediate crude oil was down 31% at the end of 2015 -- will stall the city’s economic growth.
Williston experienced a significant economic slowdown beginning in June 2015. Building permits fell 50% in 2015. “These trends significantly affected sales and use tax revenue receipts pledged towards debt service on the outstanding sales revenue bonds,” said Moody’s analysts.
“The negative outlook reflects our expectation that the city's financial position will remain challenged given anticipated declines in oil and gas production tax receipts coupled with additional increases in debt burden in the near term,” Moody’s added. The city’s population skyrocketed to 30,000, a 140% jump since the 2000 census.
Halliburton, the city's largest employer, cut workers throughout 2015 and current total employment is unknown.
On Feb 19, North Dakota lost its top rating from S&P because of the impact of oil price volatility on the state's economy. 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.
The state had already implemented across-the-board budget cuts of 4.05% to make up for the shortfall in a $6 billion general fund budget for the current two-year cycle that began in July 2015.
Moody’s rates North Dakota at Aa1 with a stable outlook.