North Dakota knows all too well the ups and downs of the oil boom…and bust. As oil soared over to over $145 in 2008, apartment buildings were built, businesses popped up, and the entire state seemed to benefit from the oil boom in the Bakken. The state saw the industry as an economic stimulus, a boon that North Dakota hadn’t seen before. At least, not quite like that.
It’s safe to say that the shale boom put North Dakota on the map. People came from all over the country, and even the world, just to work in the Bakken. And as a result, even the North Dakota government began to rely on income generated by the industry.
Now, oil is hanging out at near $45 per barrel, with no real promise for an increase more than a dollar or two by year’s end. Adjustments to the budget have caused legislators to carefully consider where to put dollars and increasing concern about increases in taxes as well as questions about where the money is going to come from to fund programs or pay for infrastructure.
State Tax Commissioner Ryan Rauchenberger told The Fuse that revenue forecasts were reduced four times in the last eighteen months.
In a reflection of how badly the state budget has been hurt by the price downturn, for the second half of 2015 when prices took a nosedive, total tax revenue came in some $215 million less than forecast. In 2016, the state was hit particularly hard. Sales tax revenue doubled from 2011 through 2015, but fell by $400 million in 2016. Meanwhile, oil extraction tax and production revenues peaked in 2014 at $3.3 billion, but was a massive $1.7 billion lower last year.
The Fuse also accurately discusses the consequences of the downturn beyond economics:
…there was also the personal toll of the downturn, as lives were upended by the spectacular crash in prices. Although most workers who were laid off left the state, local businesses still took major hits. “We’re about right on the edge of losing everything … We’re trying to literally hang on to any possibility of this coming back,” an owner of a small oilfield services company told The Atlantic last year. “Those who relocated to the western part of the state to restart their lives have been particularly hurt,” said Flynn. The areas built up around the oil activity are still searching for a longer-run equilibrium. Schools, medical facilities, and the housing market were expanded during the oil boom, but now they are underutilized as there has been net migration out of the area.
Yet North Dakotans are resilient, and now work hard to navigate through post-boom obstacles, accepting what many are calling a “new normal” and learning to accept some of the long-term side effects of the slowdown. Diversification, for one, allows North Dakota’s job market to remain strong. Housing in Williston and Watford City is experiencing a small pickup, just like the oil and gas jobs. Rents in Bismarck and Minot, too, have seen small increases indicating health growth.
However, jumping back in with both feet into what appears to be recovery isn’t what most companies are going to do. Most are exerting caution when it comes to hiring, and the state will have to do the same. The Fuse states it well:
The state will need to manage its resources and finances prudently to keep as much damage from price volatility at bay and develop longer-term sustainable growth through deeper economic diversification.