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Mark Haggerty
Photo Credit: Mike Kopp | Bakken.com

Economist says North Dakota does poorly at using oil taxes to offset oil impact

By: , Shale Plays Media

A Montana economist says North Dakota is one of the worst states for taxing the oil industry and not supporting the local regions from which the oil tax money is collected.  Mark Haggerty from Headwaters Economics of Bozeman, Montana, said North Dakota could do a better job of supporting the local governments in the oil impacted regions of western North Dakota.  He says local governments don’t have the access to tax money they need to pay for the infrastructure that supports oil production.

Haggerty told Watford City business leaders, Wednesday night, that out of seven oil-producing states, North Dakota ranks 6th in the money it shares with the local governments that are paying for oil production infrastructure.  Instead of returning the money to where it’s collected, the state government and other non-oil regions of the state get the money that is needed by local governments in the oil patch to pay for the roads, water and law enforcement.

Haggerty spoke to a packed ballroom at the annual meeting of the Watford City Chamber of Commerce and Job Development Authority.  His organization studies how states tax oil and return the tax revenue to the regions from which it comes.  He said, “North Dakota’s oil boom is unlike any other boom ever seen.” To keep oil flowing from the Bakken, he said, it will have to be worked differently. Unlike the oil produced by regions such as Prudhoe Bay which require little work to keep the oil flowing, the Bakken oil boom will have to be continually worked to maintain long-term output. He says that will continue to add long-term stress to local needs in the oil patch.  That’s one reason, he said, the state needs to change the way it returns oil tax money to oil producing areas.

Haggerty said that while the state is to be applauded for the foresight of having savings plans such as the Legacy Fund and various trust funds, he said the state is keeping too much.  Some cities in the oil patch borrow hundreds of millions of dollars to pay for sewers and other infrastructure elements that support the oil production the state taxes.

Haggerty said one of the biggest failures of the state’s oil tax distribution plan is volatility.  Local governments cannot plan ahead on money they may receive from oil taxes collected from their areas.  He recommended that the state create a fund from which interest can be uniformly and predictably distributed back to the areas from which the taxes are collected. He said that if that were done, local jurisdictions could plan how to handle the stresses on their systems.  Haggerty said “the challenges of managing a boom are tremendous.  The bigger the boom, the greater the challenge.”  He said if volatility can be reduced, the boom and bust cycle can be made less severe.

Long term savings plans are not only the responsibility of the state government, Haggerty said.  He recommends local governments not only get more of the tax money collected from their region, but also that they save some of the taxes collected so that as the boom winds down local areas are better off than they were before the boom.

Several legislators in the meeting suggested the economist’s findings be shared at legislature interim meetings before the next session.  Haggerty was open to the idea and said after his presentation that his presentation is also available to people who email him at Headwaters Economics.

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