Report: Longview-area economy could take bigger hit from energy downturn

Published 5:00 am Sunday, May 3, 2020

With this past week’s announcement that Halliburton is closing its Kilgore facility and laying off 233 employees based there, the global oil glut became more real in East Texas.

“I think right now, people are optimistic,” Gregg Appraisal District Chief Libby Neely said. “There is still construction going on now, and that’s a good thing to see, but I think anybody would agree that the longer we have to go before we get our economy back up, the shakier it’s going to be.”

About $2.2 billion of Longview’s more than $16 billion gross domestic product in 2018 came from mining, quarrying and oil/gas extraction, according to data released in December from the federal Bureau of Economic Analysis.

Researchers from Business Insider, a financial news website, suggest Longview could be among the 14 U.S. metro areas most impacted by the energy downturn. That’s because the oil and gas share of the area’s gross domestic product is among the highest in the nation, making it among the most susceptible to the decline.

But officials say efforts in past years to diversify the Longview-area economy make it more prepared to endure a big hit.

“We hate that the oil and gas prices are so low,” Longview Mayor Andy Mack said, “because it affects our economy, of course, and it affects everybody’s livelihood that is involved in oil and gas, and East Texas is famous for oil and gas production.”

Mack sees optimism in how Longview rebounded from another energy industry downturn about five years ago, however. The city tightened its belt and found ways to diversify the economy, he said, “and I think we’ve done that fairly well.”

In 2014, mining, quarrying and oil and gas accounted for 23% of the Longview metro area’s gross domestic product, according to the Bureau of Economic Analysis. The combined economic output from several other industries — finance, insurance, real estate, rental and leasing, retail trade, educational services, health care and social assistance — also made up 23% of Longview’s GDP.

Fast forward to 2018, and those other industries bolstered annual local production by $1 billion and now account for 30% of the metro area’s GDP. Meanwhile, local oil and gas operations dropped to 13% of the production pie.

The oil and gas industry’s impact on Longview will never be replaced, Mack said, but efforts to diversify the economy and add new employers such as Dollar General Corp.’s distribution center and Everest Rehabilitation Hospital plus job expansions at companies such as AAON Coil Products and Indevco Plastics have helped sustain the economy, whereas prior energy downturns left the area struggling.

“We have tried our best to have other sources of income in our community in the last five years, and I think we’ve done a decent job in that,” he said. “We could never replace oil and gas in our community, but we have to do the best to not be so dependent on it when it turns down like this, and my heart breaks for those companies and those individuals that work for oil and gas industries that are being laid off. It’s a difficult time on top of what we’re already facing with this coronavirus epidemic.”

It is the combination of energy downturn and global pandemic that makes this oil bust unique, especially considering the expected impact on retail sales.

The sales tax outlook “can’t be anything less than very ugly,” said former Lonview mayor and state Rep. Jay Dean. He added that the months of June, July and August — when the state comptroller’s office releases tax rebates from retail sales in April, May and June — will reveal how steep the economy is suffering and how much local and state governments’ revenues will suffer.

“You’re going to continue to see this decline, and until we can get some semblance of being back up and running, our economy both local and statewide in a positive way, you’re going to see just some drastic declines,” Dean said. “It’s no way around it.”

Administrators at the city of Longview and Gregg County say they are in the early stages of preparing their 2020-21 budgets, which take effect Oct. 1.

They are expecting leaner revenues.

“My budget director and I have already discussed that in the last few weeks,” Gregg County Judge Bill Stoudt said this past week, “and she’s doing some future projections and we’ll see what that looks like. I don’t have them right now.”

While local governments await the next sales tax report that could be released Wednesday, Neely, the appraisal district chief, said the downturn’s effects on property values will likely be seen on next year’s values. Income-producing properties such as hotels or office buildings could experience the biggest hits.

“Our market is hanging in there right now, but we just don’t know,” Neely said. “I really feel like the longer it goes on — and heaven forbid we have an increase in our cases or more health problems for a larger number of people — then that will require us to still sit tight for a few months. … but there’s a lot more chance of this have serious impacts on much more than just the housing market.”

The announcement that Halliburton is closing its Kilgore facility “is pretty serious,” Stoudt said, and the oilfield service companies are also taking “taking a big hit, and there’s going to be some damage to the economy. There’s no question about that.”

Halliburton’s action came a week after the Texas Workforce Commission reported fracking company FTS International Services furloughed 59 employees from its facility in Longview. And U.S. Steel’s Lone Star Tubular Operations will begin laying off hourly workers this week at its plant north of Longview, starting with 24 employees, but the company expects all or most of the steel mill to be idled by the end of the month.

According to the Hibbs Institute at the University of Texas at Tyler, more than 11,800 people work in the coal, oil and power industries in the Longview area, with an average annual wage of $83,671.

Hibbs’ research indicates those industries would expand 1.3% a year over the next 10 years, but the institute used data from 2018.

Oil and gas and mining outputs have historically been cyclic, and the Longview area has weathered the cycles each time, said Longview Economic Development Corp. President/CEO Wayne Mansfield.

“LEDCO continues to work to increase the opportunities for a more diverse local economy and I believe that we have been, and will continue to be successful in this endeavor. However, the most significant challenge will be retraining the workforce that is exiting those occupations mentioned above,” Mansfield said, “and we certainly have the tools to accomplish this with entities such as Kilgore College, (Texas State Technical College) and the East Texas Manufacturing Academy.”