Just over two weeks into his first term, Gov. Bill Walker, who ran as an independent, faces a full-blown crisis—"a budget challenge of an unprecedented magnitude," the governor's office said in a press release last week—so much so that the new administration announced plans to ask the public for ideas about how to solve it.
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"I'm confident that together, we Alaskans can manage our way through it," Walker said in the statement.
Alaska's projected shortfall is now more than $3 billion, and counting. Moody's Investors Service last week slapped a negative outlook on the state's normally sterling credit rating.
"Alaska of course is going to need to tap its reserve fund," Nick Samuels, Moody's vice president and senior credit officer, told CNBC. The state constitution requires a rainy day fund equal to about 3 percent of operating revenue, Samuels said.
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"It's now going to have to draw that down somewhat," he said. "How much and how fast are credit determinants."
While the immediate impact is most severe in Alaska, other oil states are starting to grapple with the effects as well.
New Mexico is the nation's fifth-largest oil producing state, but it relies on oil for nearly one-fifth of state revenue, according to Moody's—second only to Alaska. State officials have estimated that every $1 drop in the price of oil means $7.5 million less in general fund revenue. With the state legislature set to open a 60-day session next month, state officials are scrambling to revise their estimates of what is available to spend on services.
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Other big oil producing states like North Dakota and California are less susceptible to price fluctuations because their economies are more diverse, analysts say. But the impact in the nation's biggest oil producing state is the subject of some debate.
Texas relies on oil taxes for about 8 percent of state revenue, but Moody's said the state managed to build up its budget reserves when the price of oil was high, limiting the fiscal impact of lower prices. Even so, a report from JPMorgan warned Texas "could be headed for recession" if the slide continues.
In his report titled "Houston, you have a problem," economist Michael Feroli compared the latest oil shock to the price collapse in the mid-1980s that left the state in a painful downturn. If anything, Feroli wrote, Texas is more vulnerable now than it was 30 years ago.
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"Texas—already a giant—has become a behemoth crude producer in the past few years, now accounting for over 40 percent of U.S. production," he said.