Bakersfield and Kern County were built on oil, Buck Owens and Merle Haggard popularized the area. However the primary source of income there is and always has been oil. The stunning drop in oil prices, from $101 a barrel in May 2014 to $38 yesterday is creating a fiscal crisis for the county. Property taxes on oil and gas properties amount to 35% of assessments, and are pegged to the price of oil. Layoffs have already hit the oil patch with more surely coming. This will have a ripple effect upon new housing starts, discretionary spending, and the general economy.
On top of this, the county has overspent on new projects and their public pension funds are a financial smoking crater. The country is now using their emergency fund and cutting staff.
What’s happening in Kern County is a microcosm of the insidious nature of an oil bust whose many tentacles are grabbing and strangling different aspects of the economy and government. It invariably exposes the sins committed and false promises made during good times, when the price of oil was so high that everything was possible and nothing could go wrong.
The oil bust is also demolishing the junk bonds that funded the fracking boom. But now, the pain is spreading to non-energy companies.
Ah yes, behind every boom seemingly are sleazy financiers and banksters peddling garbage. When the bonds blow up they damage may be systemic. And of course they will while “no one could have predicted this” and demand bailouts.