The Wrongologist often writes about privatizing profits and socializing losses, a system where businesses and individuals can benefit from the profits earned by their business, while the public gets stuck with the consequences, the long-term bill. Governments all over America play into this, from doing deals to bring or keep jobs in the state, to underwriting the costs of sports areas, to building infrastructure when a new business comes to town.
Here is another object lesson in socializing the losses. Some towns in North Dakota (ND) are beginning to worry about the debt that they have incurred to build infrastructure to support the boom in shale oil production.
Oil Price reports that oil production in ND exploded in the past five years to well over a million barrels/day, making North Dakota the second largest oil producing state in the country. The likely fallout from the recent fall in oil prices may have serious financial side effects for NDâs towns.
Consider Williston, ND, a town in the center of the shale oil patch that finds itself planning for the worst. The town is deciding how to cope with $300 million in debt, money it borrowed to build infrastructure to meet the rapid growth of people and equipment working in the oil patch. That meant building new roads, schools, and a water-treatment plant, all of which were paid for by the city. The debt was expected to be repaid from increased sales and real estate taxes that suddenly may not be flowing into local and state coffers.
Williams County Commissioner Dan Kalil told NPR that he fears the town has overreached and wonât recover quickly, as global demand for oil is expected to grow slowly over the next few years, and shale oil prices may not bounce back to the mid-2014 levels. He may be correct. Production is down about 5% from its all-time high of 1.2 million barrels per day in December 2014. But more declines are expected with drillers pulling rigs and crews from the field. Rig counts in ND have fallen to 76, far below the 130 that state officials believe is needed to keep production flat.
And ND is experiencing the negative side effects of an oil boom. The huge increase in drilling brought a wave of cash and people to once sleepy towns, fueling a boom not only in oil, but also in crime, prostitution, and drug trafficking. Consider that Williston went from a population of 14,000 in the 2010 census to an estimated 24,000 in 2014.
On June 3rd, the US DOJ, in conjunction with NDâs Attorney General, announced the creation of a âstrike forceâ that would target organized crime in the state. The effort is a direct response to the rise in crime in the shale oil field towns in ND and Montana, which has been fueled by:
Dramatic influxes in the population as well as serious crimes, including the importation of pure methamphetamine from Mexico and multi-million dollar fraud and environmental crimes.
Too many people, too much money, too little economic security in the local economy. The weak oil players pull out, and the debt, crime and now unemployment, remain. And the towns and state government have to sweep up after the companies go.
Thatâs not all. The boom/bust cycle makes estimating the future population of Williston difficult. How many kids and spouses of oil field workers will settle permanently in the area? Does the school district build, or stand pat? Will more classrooms be paid for by more taxes, or will they be a money loser? In a boom, most oil field workers are temporary; towns need permanent residents in order to build schools.
Even if a semblance of the oil boom returns, and Williston attracts more workers who come to stay, Dan Kalil fears another boom would mean even more people, traffic and crime.
So, who pays? The taxpayers. The people who donât pull out when the companies leave. The people who stay have to cover the hole in the budget, and tolerate fewer services when the money guys hit the road. Williston isnât Detroit, but in both cases, the little people are left holding the bag.
Once again, a town makes a long-term investment, hoping for a return down the road in the form of increased sales taxes and property tax revenues. They sacrifice quality of life, looking for a return in the form of more and better jobs, and better house values. They pay higher prices for most things.
On the other hand, Willistonâs Walmart is hiring at $17/hour.
But when you think about it, that is now a subsistence wage in Williston.
The comment below is from blog reader David Price:
Thanks for helping to make this a good morning. Your posting today was a winner. Luring corporate headquarters to NJ from NYC has been and is a safer bet than the one Williston ND made and different in that Williston didn’t exactly lure the oil workers. Still, these are bets with other peoples money and lifestyle, often made with very little public discussion and, typical of gamblers, a denial of the downside risk and a discounting of the indirect costs of a “win” that borders on the pathological. As you acknowledged, this particular story is but one example of a Wrongologist theme.
David M. Price, MDiv, PhD