When we first visited the Bakken shale region in western North Dakota almost two years ago, 165 drilling rigs were operating in the area. They brought with them thousands of new workers, a large influx of heavy vehicle traffic, and a range of challenges for local governments trying to cope with this extraordinary growth.
On our return trip in mid-September, with oil prices at roughly half the level they were during our last visit, the rig count had fallen to 67.
We returned to North Dakota to see whether fiscal conditions had changed substantially for local governments in the region. During our November 2013 visit, most of these local governments were struggling to keep up with demand for new infrastructure. Though revenues had grown rapidly, this growth was insufficient to keep up with rapid demand for new roads, sewer and water infrastructure, and government staff.
Road construction in Manning, N.D.
However, state legislators in their most recent legislative session revised tax policies to allocate more funds to impacted communities, and sent over $500 million of “surge” funding to local governments in the region to manage infrastructure growth. These funds have been put to immediate use building roads and other infrastructure across the western half of the state.
As oil and gas activity has slowed, local officials describe an opportunity to catch up with infrastructure and other needs. And while local government revenues have fallen due to lower oil prices and slowed economic activity, they remain far above their pre-boom levels. Indeed, most local governments appear to be in substantially stronger fiscal condition than during our 2013 visit, and some say they are now in better fiscal condition than before the boom, a change from our prior findings.
Despite the substantial progress made in recent months, important near-term challenges remain for many local governments. Dunn and Williams counties, for example, have continued to see large increases in demand for law enforcement, and social services have faced challenges providing mental health services and foster care. However, officials in these counties say their fiscal condition is stronger than before the boom and the quality of their services has improved.
Municipalities in the region continue to face substantial fiscal challenges. In Watford City, the seat of McKenzie County, population has grown from roughly 2,500 before Bakken development to between 10,000 and 15,000, and infrastructure needs are still acute. The city is spending roughly $32 million for new wastewater infrastructure, and estimates needs of roughly $200 million for new roads to service new residents and businesses. Despite increased revenue allocations from the state and growing sales tax receipts, Watford City has borrowed roughly $150 million to finance this new infrastructure, and debt service now occupies roughly $7 million of the city’s annual budget.
Drilling rigs and pump jacks in Williams County, N.D.
While some local governments like Watford City continue to focus on acute near-term needs, others are turning their attention to new issues, namely the diversification of an economy that has become heavily dependent on the oil and gas industry. While most expect Bakken development to continue for the foreseeable future, there is a recognition that—at some point—the region will need to develop an economic base that is less heavily tied to volatile oil and gas prices.
This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.
