Analysis: BP disaster will slow Gulf states' recoveryDocument Transcript
Analysis: BP disaster will slow Gulf states’ recovery
July 16, 2010 spend a year studying the ramifications of the
April 20 catastrophe.
MIAMI - The BP Plc oil leak contaminating the “We need a clear grasp on how this oil spill
Gulf of Mexico will muck up for years the gov- will impact the State of Mississippi and local
ernmental finances and economies of America’s communities for years to come,” Mississippi
Gulf coast region. Governor Haley Barbour said.
Beyond directly sea-related sectors such as Even before the disaster, in the first three
fishing and offshore energy production, the months of 2010, the revenue of states in the
gushing oil leak is fouling other drivers of the Gulf region shrank, according to a report this
economy like lodging, casinos, real estate and week from the Rockefeller Institute of Gov-
governments as the overall U.S. economy ernment. While all 50 state governments
emerges from the worst recession since the across America had an overall 2.5 percent rise
1930s. in revenues, Louisiana, Mississippi, Ala-
bama, Florida and Texas all showed declines
As BP’s heavy spending to stop the leak, in year-over-year comparisons.
company compensation payouts and its $20 bil-
lion escrow fund blunts some immediate finan- A scramble for revenue will remain fever-
cial damage, policy makers, executives, ish for the foreseeable future. The Center for
business owners and economists are beginning Budget and Policy Priorities last month forecast
to gauge the disaster’s long-term consequences. states face revenue shortfalls of $140 billion in
the coming fiscal year.
The spill and its consequences, such as the
federal government’s deepwater-drilling mora- The projected fiscal 2011 budget gaps for
torium, threatens coastal property values, thou- Gulf states total at least $11 billion, including
sands of energy sector jobs and tourism ones for Florida of $4.7 billion, Texas of $4.6 bil-
businesses reliant on pristine beaches and spar- lion, and Louisiana at $1 billion, according to
kling waters. the center.
“Right now tax revenues are a secondary Beyond hiking taxes, lifting fees and cut-
issue to the economic growth over the long ting spending, some governments look to tax
term,” said economist Mark McMullen of medical marijuana and sugared drinks. Others
Moody’s economy.com. “What’s scary is: when such as Florida are clearing the way for more
will it bounce back? And what will be the last- gambling or casinos, at least in part to raise rev-
ing damage to the economy and government enue.
coffers?” In Louisiana, the Gulf state most reliant on
Looking at those questions, Mississippi’s energy businesses, the economic costs of the
governor last week ordered economists, state federal moratorium on deepwater oil drilling,
tax officials, business leaders and marine ex- in place through November 30, will be severe
perts to put aside current finance pressures and and long lasting, according to Eric Smith, asso-
ciate director of Tulane University’s Energy In- “This is a case of the regulators not under-
stitute. standing the business they are regulating,”
Smith estimated the moratorium affects Smith said. “They don’t understand the con-
dozens of deepwater rigs that ordinarily em- tracts. These things cost $500 million to $600
ploy as many as 10,000 crew making about million to build. They need contracts. They
$100,000 each annually, with most of those have to operate.”
wages spent in Louisiana and nearby states. In west Florida’s Panhandle, an area with
The ripples from the moratorium may take many tourist businesses, officials in Escambia
the number of lost jobs in Louisiana to 24,000, County worry that property prices already hit
according to Michael Hecht, head of Greater by the prolonged U.S. housing market slump
New Orleans Inc, an economic development will fall further.
agency. The county’s property last year was ap-
“The economic impact from the oil spill it- praised a total 6 percent less than a year earlier
self, however broad and long-lasting, will likely at $27.6 billion. That meant lower property tax
be dwarfed by the impact from the morato- revenue and a $24-million reduction in county
rium,” Hecht this week told a presidential panel spending.
investigating the disaster. Florida’s tourist-dependent coastal econo-
Many of the rigs, their high-paying jobs mies stand to lose as much as 39,000 jobs and
and supply requirements will move elsewhere, $2.2 billion or more in business because of the
Smith said, and slow the region’s economy for BP oil spill, according to University of Central
years. One big driller, Diamond Offshore Drill- Florida economist Sean Snaith.
ing, has already announced it is moving two of “The idea that a great environmental disas-
its five rigs in the Gulf to other regions. ter could become a great economic one isn’t in-
The likelihood of tougher U.S. regulations conceivable, but neither is it a certainty,” S&P
after the BP disaster for Gulf offshore drilling said last week in a report that concluded state
may drive operators to send rigs to Brazil and and local governments were so far managing
other regions, Standard & Poor’s said. the BP leak ably.