They’re Good Challenges to Have: Meeting the Needs of North Dakota’s Economic and Population Boom

“We are blessed in North Dakota, and oil and gas development is a big part of our good fortune,” said Governor Dalrymple in a statement.

North Dakota is seeing growth in all its industries, including energy, technology, tourism, agriculture and manufacturing. According to news releases from the governor’s office, the state has kicked off the first Bismarck-Mandan Growth Summit and opened the new Northeast Bypass, seven miles of new road on Highway 83 that should ease congestion through Minot.

State government is responding to growth with a variety of measures, from increasing school sizes with portable classrooms to upgrading highways and funding enhancements in emergency services throughout the oil producing counties. North Dakota is moving forward fast with a robust economy that’s part traditional conservative fiscal policy, part diversified economy and partly due to explosive growth in the oil and gas industry.

Such growth means a healthy economy. It also means challenges, because change rarely comes easily or without a price tag. But Cory Fong, state tax commissioner said, “They’re good challenges to have.”

The Good Challenges

It’s not just the energy industry that’s contributing to the economic boom in North Dakota – some 60 percent of the 22,000 open job positions are outside the 17 oil producing counties. The boom is happening because the economy is working across the board. Industry sectors across the state have grown for seven of the last eight years.

“It’s actually an exciting time for North Dakota,” said Al Anderson, commerce commissioner of North Dakota. “Our population from the 1930s until the last few years has been declining, so we’ve always fought against out-migration.”

In 2011, the state’s population was listed at 684,000, the highest peak since 1930, and a figure that doesn’t include transient energy workers living in crew camps, not planning to stay.

“It sets the stage for the future,” said Anderson. “We just recently had a housing update, and they’re forecasting North Dakota by the year 2025 will exceed 841,000.”

That much growth doesn’t happen without growing pains, and chief among those are the demands on infrastructure. The state needs more housing, better roads and more child care facilities.

But that challenge is welcome, too. The workforce is getting younger.

“One of the big challenges for any state is the aging of the population,” said Anderson. In 2000, the state was still seeing out-migration of workers younger than 35; today the fastest growing population is 25- to 45-year-olds.

Not that all of them will stay. Drilling and completing personnel in the oil industry, as well as those involved in the exploration and development side, tend to be transient and follow rig levels – the more rigs, the more people, but as the numbers go down, so does that population. But every time a well is drilled, more of the production people come into the state, and they tend to come in as permanent residents, bringing families.

That’s one of the key drivers for the future, Anderson said, and with North Dakota’s quality of life, retaining the new residents shouldn’t be that difficult. “We haven’t had trouble in the past if there were jobs available.”

Residents and Revenues

Not that every worker will stay. For energy industry workers in North Dakota who’ll follow the rigs back out again, while they’re part of the state, they’re part of the economy, both putting stresses on services and putting money back into that system.

“We’ve got more workers coming in and more activity and of course more business, which translates in some cases to individual income tax if they’re a business and entities like pass-throughs, and corporate income tax if they’re corporate,” said Fong. “So we’re seeing a lift in revenue across all tax types.” Because while working in-state, out-of-state workers pay state income tax, sales tax for purchase, and fuel taxes. Even renters see part of their rent going to property taxes, and with housing at a premium, property taxes are up.

Most taxes are up. Sales and use taxes are up 56 percent over forecast, 89 percent over the previous biennium, according to Fong. Income taxes are up 58 percent over the forecast and corporate income tax 223 percent over forecast, 125 percent over the previous biennium. In oil and gas producing counties, a 5 percent portion of the gas production tax is distributed back into the counties themselves.

The demands on infrastructure are being met as quickly as possible. The 2011 Legislature set aside $1.2 billion for infrastructure improvement, Anderson said, and the Governor has already indicated he’ll be seeking $2.5 billion for infrastructure investment from the 2013 legislative session.

The state benefits from receiving additional funds, oil and gas revenues, and with the number one economy in the nation, all those different taxes being paid benefit the state. “So we do have the funding available to invest in infrastructure and continue to grow,” Anderson said.

Taxes don’t cover everything, though. There’s a need for more environmental health workers in the oil field counties. Most of the funding for public health comes from local area taxes, with a cap that organizations don’t want to exceed because if the economy slows, those taxes will slow and the organizations will still need the same amounts to operate. But, the qualified professionals organizations like the Upper Missouri District Health Unit would be hiring can make two-and-a-half times the public health salary working for the energy industry – there’s no way to compete, said Daphne Clark, protection team leader.

Schools need to expand, though it’s sometimes difficult to predict by how much. “We’re seeing from our northwest, our oil country, growth over the previous year was up 14 percent,” said Jerry Coleman, director of school finance, North Dakota Department of Public Instruction. But then again, the Williston School District was expecting 1,200 new kids in 2012 and instead got 200. Predicting the future isn’t always easy, even when basing predications on new housing.

Statewide, public schools are up by 3,300 students, putting a strain on public health teams checking immunization records of new students, and creating challenges of housing both students in classrooms and teachers in homes.

For students, funds freed up from the Oil and Gas Impact Fund were used for grants to obtain 32 portable classrooms.

Finding housing for the teachers isn’t as easy. Building enough housing for everyone coming into North Dakota remains a challenge.
One that’s starting to be met. The state’s Housing Incentive Fund is structured so dollars can be dedicated to developing multi-family housing units. Developers receive funding in exchange for keeping a certain number of units available for low to moderate income families.

And while school districts might be scrambling to find enough room for students and enough teachers, the positives are that the state went through a period of 15 years in which out-migration took 25,000 kids; now they’re starting to come back.

“We’re seeing an increase in property valuations, and that also generates new revenue [for school districts] as does the state aid formula driven by students, so that also generates increased revenues for schools,” said Coleman. “But then they also have new kids, which means they have to hire new teachers. I think they’re certainly seeing challenges, but I don’t know that I would say they’re overwhelmed. They’re handling it.”

Sometimes the need for funding is inside the energy industry. Lynn Helms, director, Department of Mineral Resources, said in a statement the agency is asking the 2013 legislature for an additional 18 staff members. Last session the agency doubled its staff in the oil and gas measurement department, and there’s a need for more, as well as staff to build up the production auditing department and the field inspector presence in the oil fields.

Doing the Math

North Dakota’s economy is strong in part because of its traditional, conservative policies. The state hasn’t seen much of the balloon highs the rest of the country experienced, or the extreme lows.

Today the state’s economy is number one in the nation, with a 7.6 percent increase in gross domestic product over 2010. In 2000, the state was at $18 billion GDP – today it’s headed for $40 billion.

Wages across the state are increasing. Between 2000 and 2010 residents saw a 78 percent increase in personal income per capita – approximately $20,000 – moving the state from 38th in the nation to ninth in terms of income per capita – statewide, not just in the oil producing counties to the west.

Taxes are up, and not just for mining and oil extraction or individual income taxes, but for 14 of 15 industry sectors. “It’s not just those things centered around one particular sector,” said Fong. “I would say our economy is firing on all cylinders at 100 percent.”

That said, recent studies indicate 7,700 producing wells in the state and about 35,000 positions open in the Bakken oil fields. In October there were 185 to 190 rigs in service, a drop of 14 percent since the peak in May 2012, which saw 215 to 218 rigs. The drop is due primarily to efficiency as more companies complete exploration and move into production, according to Ron Ness, president, North Dakota Petroleum Council. “They move rigs in that can drill multiple wells on a pad, which means you can operate with fewer rigs and drill just as many wells and do it more efficiently with a smaller footprint, and reduce your costs.”

And increase numbers for the state. “We were producing over 701,000 barrels of oil per day in August, just doing the math on what that type of economics means in terms of royalties and all input costs, at $8 to $10 million a well with over 2000 wells drilled – it’s going to be a big number,” said Ness.

Crystal Ball

Forecasting is never easy. Fong predicts a leveling out heading into 2013. “I think we will continue to see that kind of growth third and fourth quarter 2012. I would offer caution, though; those are really off the charts outlying numbers and I think we will see a leveling off going into 2013. When it levels off it might indicate a little bit of a downturn. I don’t think that means the sky is falling, I think it means it’s probably returning to more of a normal.”

Barring price collapse or the federal government stepping in, Ness expects another 10 to 15 years of active drilling and production. He also expects engineers to determine how to get more than the present five out of every 100 barrels out of the ground. “This is a world-class resource and there will be some peaks and valleys but all at an elevated level, so not really peaks and valleys but more like plateaus and bumps. Just because of the raw volume of the oil being produced, that oil is going to be produced.”

“The state is providing unprecedented resources to help address the challenges that come with rapid growth,” said Governor Dalrymple. “We are aggressively addressing these issues every day and we will not waver in our commitment to helping our communities meet these challenges.”

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