No state among the lower 48 has been hit harder by the drop in oil prices than North Dakota, which is why Gov. Jack Dalrymple, a Republican, has taken a page from U.S. military tactics in Iraq and signed off last week on a $1.1 billion “surge” designed to buck up the state’s infrastructure needs as it adjusts to changing times.
The state’s two-year budget has been adjusted downward by $4 billion as oil and gas companies scale back extraction projects and lay off workers. But eight years of trying to keep pace with the breakneck energy boom has left western North Dakota desperate for improvements to its strained roads, schools, water treatment plants and other facilities.
North Dakota’s Republican-dominated government says now is the time to spend some taxpayer money for the upgrades.
“Some say $1.1 billion is a lot of money to put into roads, streets, sewer, water towers and homes,” Senate Majority Leader Rich Wardner said this week. “But the fact is that until you have this infrastructure in place for people to live, you cannot find providers that will move to these areas to work.”
North Dakota’s situation is an extreme example of what is happening to governments across the country and around the world as they adjust to the budget effects of plunging oil prices.
State Sen. Kelly Armstrong, who sponsored the bill for an infrastructure surge, pointed out that North Dakota has the surplus money in the bank, thanks to years of energy-driven tax windfalls combined with careful financial stewardship. The state also has amassed $2.4 billion in its Legacy Fund, a rainy-day account that cannot be touched until 2017.
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Still, he acknowledges that he is anxious about North Dakota’s future under a prolonged period of $50-a-barrel crude.
“There’s an exceptional amount of nervousness,” said the Republican lawmaker from Dickinson, located in the heart of the oil patch. “But I think strong policies over the last several years from the statewide perspective will allow us to weather it better than most. I mean, if it lasts six, seven years, even if it’s temporary, everyone in North Dakota will feel the austerity.
“That’s why we’re budgeting cautiously,” he said. “Nervous? Yes. Concerned? Yes. Prepared for it? Hopefully, yes.”
North Dakota is one of the half-dozen major oil-producing states grappling with significant reductions in tax revenue driven by the decline in the worldwide price per barrel of crude, which has fallen by half since July.
A handful of those states are tightening their budgets and considering raising taxes to deal with the slowdown. Alaska, which depends on severance taxes on oil for a highest-in-the-nation 78 percent of its budget, is grappling with a $3.6 billion shortfall in its $6.1 billion budget, according to the Stateline news service.
North Dakota ranks second with 46 percent of its revenue dependent on severance taxes, but state officials say they have reason for optimism, even if oil never again reaches $100 a barrel. The main reason is that North Dakota sits atop the enormous Bakken shale field.
“I think the difference from prior busts is that we know the oil’s in the ground. It’s just a matter of when it becomes economic to extract it again,” said Mr. Armstrong, who works in the oil and gas industry.
Lynn Helms, the state’s director for mineral resources, said last month that a record 775 wells had been drilled but not completed using the hydraulic fracturing process, commonly called fracking, as of November. He thinks companies are waiting for oil prices to rebound.
“That blows away any previous numbers completely out of the water,” Mr. Helms said told KFYR-TV in Bismarck. “That’s almost 800 wells drilled. But, because of low oil prices, because of the potential for little trigger and big trigger [tax reductions], folks are sitting and letting those wells wait.”
Overloaded systems
Those who live in western North Dakota say the slowdown is something of a relief. The population in the town of Williston has grown in five years from about 12,000 to more than 35,000, said David Tuan, director of public works.
“If you do some research on the size and the scope of the Bakken oil shale, it’s pretty sizable,” Mr. Tuan said. “You’re talking 60,000 potential wells. We’ve only started to drill about 8,000. Twenty to 30 years is what’s in the discussion right now. It’s not a boom anymore.”
The lull, he said, is giving the community “a chance to catch our breath a little bit.”
“We’re still in catch-up mode, trying to sustain services to the existing population,” Mr. Tuan said. “Our systems are pretty overloaded, so we’re still even just getting to the point where we have the bare minimum. That’s really what the surge funding is doing for us. It’s allowing us to get a head start on projects, catch up to where we need to be, and give us the capacity to start planning for the future.”
Locals tick off problems with the rapid growth: schools bursting at the seams, two-lane rural roads clogged with trucks hauling major industrial equipment, courts swamped by the influx of cases, rising vandalism and crime rates, companies building “man camps” because there aren’t enough apartments or homes to shelter the workers.
“We’ve been so far behind. If you couldn’t get a job in North Dakota, you couldn’t get a job anywhere,” said Andy Peterson, president of the Greater North Dakota Chamber of Commerce. “You couldn’t build a garage because the contractors were all busy elsewhere. This is allowing us to catch up a little bit in our state in some of those needed infrastructure pieces.”
North Dakota’s unemployment rate has climbed since July, but not by much. It’s now 2.8 percent, up from 2.4 percent last year, and still the lowest in the nation, according to the Bureau of Labor Statistics.
Those industry layoffs have come as a bonus for other employers scrambling to find workers, including the Williston city government, where public works jobs start at $20 per hour to keep up with the industry pay scale, Mr. Tuan said.
“The oil field business is very fickle in their hiring and their layoffs. If they see even a monthly change, they don’t hesitate to let people go. That’s been good for us,” Mr. Tuan said. “We’re taking advantage of it. We’re hiring like crazy, trying to catch up and staff up to carry us through our projects.”
The state Legislative Assembly is bracing for another hit to tax revenue. In January, the extraction tax rate fell as a result of a built-in mechanism, which will be triggered again if crude oil prices stay below $55.09 per barrel for five consecutive months.
Mr. Armstrong said state legislators plan to end the session five to 10 days earlier than their April 27 deadline so they can return if necessary to adjust the budget. Under the North Dakota Constitution, the legislature may meet for only 80 days every two years, although the governor has the option of calling a special session.
“Our plan is to save some, budget cautiously, and then come back if things turn around quicker than expected,” Mr. Armstrong said. “It’s a lot easier to come back in and give people more money than to come back in and take it away — both from a policy standpoint and a political standpoint.”
• Valerie Richardson can be reached at vrichardson@washingtontimes.com.
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