Oil and water don’t mix, but in Kern County they’ve combined to create a double-whammy.
Already confronting a drought of historic proportions, Kern County — the nation’s No. 2 agricultural county with more than $6 billion in gross receipts — also faces a severe financial hit because of falling oil prices. The county is home to more than two-thirds of California’s oil production.
“People are looking at this and saying, ‘You know, these clouds are pretty dark.”
The per-barrel cost of oil on the world market was about $49 and fluctuating Monday, but it’s even lower – perhaps $5 lower — for the crude from Kern’s fields, because that oil is thicker and heavier. A year ago, crude cost $100 per barrel. While the price-per-barrel has been inching up in the last few days, the financial hit on county revenue is profound.
The fall in prices, which prompted county supervisors to declare a fiscal emergency last week, translates into a loss of about $61 million in property tax revenues for the 2015-16 fiscal year.
“We will cut 1 percent from the county budget in the remaining months of this fiscal year, and there will have to be further belt-tightening next year and for several years after that,” said Supervisor Leticia Perez said in an email.
Budget numbers are a moving target, but the $61 million represents a hefty chunk of the discretionary money in the county budget, about $346 million. That is likely to push a razor-thin reserve into a $27 million deficit, and the ripple effects will be felt throughout government. Belt-tightening in Kern County, where the jobless rate is two points higher than the statewide average of already was under way before the oil price fall took hold.
The fiscal emergency declaration, which takes effect immediately, allows officials to quickly tap reserves and trim staff – and hope that gas prices go back up. Big issues are the new county jail project, which will cost about $20 million annually when it opens in two years, and the cost of the fire department, which will suffer about $17 million of the loss in revenue, according to the board. There also are pension obligations, and new county hires are getting enrolled in 401(k) programs.
Unions representing public employees in Kern County were concerned that the declaration of a fiscal emergency could be used to justify unnecessary cuts targeting workers’ benefits or services.
The declaration ” allows the county flexibility to tap into reserves, which may be needed, but we would caution the Board of Supervisors not adopt drastic cuts that could cripple vital community services,” Luisa Blue, chief elected officer of SEIU Local 521, said in a written statement.
“As for the drop in funding, temporary wage cuts and hiring freezes may be an obvious solution, but we know all too well that cuts alone are never the sole answer to economic problems,” she said.
But the fall in oil prices is only one of the issues confronting Kern County.
“People are looking at this and saying, ‘You know, these clouds are pretty dark. The worst-case scenario is that Kern County is in a very deep hole, especially if the drought continues,” said Michael Turnipseed, head of the Kern County Taxpayers Association.
The intensifying drought, despite the respite of heavy rains last month, is hitting the county hard. Kern County, with a population of just under a million, had nearly 840,000 acres under cultivation in 2013, a drop of about 40,000 acres from the year before, reflecting the lack of water 839,000 acres of everything from fruit and nut crops to livestock and poultry products were harvested in Kern County, at a total value of $6.7 billion. That number is down from the 878,000 harvested acres in 2012
Of the 10 urban areas hit hardest by the drought, Bakersfield – the population hub of Kern County – was hit the hardest, according to an August 2014 report of the National Drought Mitigation Center, the USDA and the National Oceanic and Atmospheric Administration.
Of the top 10, five were up the Central Valley from Bakersfield: Hanford, Merced, Madera, Visalia and Fresno. Bakersfield was experiencing “extreme drought coverage,” according to the report.
“It’s a double whammy for us, and counties up and down the valley are getting really scared,” Turnipseed said. “A lot of orchards are coming out.”
“If February is bone dry, it’s going to get real serious,” he added.