Are western states in an abusive relationship with the oil and gas industry?

Oil rig in North Dakota.

Tim Evanson, Flickr

Report finds oil and gas expansion leaves some towns worse for wear, despite economic benefits.

America’s oil and gas bubble has long fueled the livelihoods of many western states, but only in recent decades have economists started to look at what happens when that bubble bursts.

There’s no denying that the presence of oil and gas development provides an array of benefits to local communities. Natural resource production often brings new jobs, new businesses and increased tax revenue. But once production levels off and the industry hits the road, do the economic perks leave town with it?

Oil-rich communities in Colorado, Montana, New Mexico, North Dakota, Utah and Wyoming that participated in the 1980 oil boom are the focus of a new report from Headwaters Economics that explores this issue. Headwaters argues that an over-dependence on oil and gas expansion, as well as a lack of diversification, can ultimately leave western towns at the mercy of  oil prices and economic fluctuations.

"The Western counties that participated in the 1980s boom all enjoyed a surge of income in the early years. But once production leveled off, the paper finds, many of those counties actually found themselves worse off over the longer term."

Towns near North Dakota’s Bakken formation, for example, now report higher crime rates, heavy truck traffic and overcrowded schools. And that doesn’t even include a greater host of socioeconomic problems found in other oil-dependent states. Western counties that participated most heavily in the boom and specialized most intensively in oil and gas industries actually saw greater declines in income, higher crime rates, and lower rates of educational attainment in the 1980 to 2011 period.

The Washington Post’s Wonkblog reported:

The Western counties that participated in the 1980s boom all enjoyed a surge of income in the early years. But once production leveled off, the paper finds, many of those counties actually found themselves worse off over the longer term.

"The magnitude of this relationship is substantial," the authors write, "decreasing per capita income by as much as $7,000 for a county with high participation in the boom (greater than 8% of income from oil and gas) and long-term specialization (greater than 10 years) versus an identical county with only one year of specialization in oil and gas."

Economists call this love ‘em and leave ‘em relationship the “resource curse,” and it calls into question the mistaken assumption that long-term oil and gas development is a clear economic advantage for American communities.

"Our study does not question the idea that oil and gas activity can have a strong immediate positive impact on employment and income, but it does suggest there are negative effects when fossil fuel development plays a major role in a local economy for a long-period of time,” says the report.

In 2009, The Wilderness Society examined the real price rural communities pay while oil and gas companies continue to reap record profits while enjoying billions in federal tax subsidies. We believe that the character of America’s communities can be harmed, if not forever changed, by the significant fiscal burdens from oil and gas development. Burdens that the industry does not take on along with their rewards.

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