ROCK SPRINGS - What happens when an economy is focused on energy extraction? That's the question asked by Headwaters Economics in an 18-month research effort that focused on Rock Springs and Sweetwater County in southwestern Wyoming.

Headwaters Economics, a nonprofit research group based in Bozeman, Mont., found that while Wyoming's energy boom of this decade dramatically increased state revenues and employment, the long-term effects of the boom are more uncertain, especially on local governments.

Researchers noted that between 2000 and 2006, the production value of oil and gas in Wyoming skyrocketed from $7.3 billion to $17.6 billion. However, real earnings per job in 2006 were about $2,000 less than what they were in 1979, during the prior boom era.

"Community leaders in Rock Springs remembered the last boom," said Julia Haggerty, PhD, co-author of the Sweetwater County case study. Local leaders knew they'd have to tap energy-generated wealth to stay on top of the rapid growth, she said.

But something dramatically different from the prior boom happened with the current boom, she said. The Wyoming Legislature got more involved in directing the expanding energy-revenue  .  In 2007, state severance tax distributions of $444,866 made up 7 percent of intergovernmental revenue, or 10 percent of total revenue. Across Wyoming, the state returns only a small portion of total revenue to local governments (7 percent to counties and 1 percent to cities and towns in 2008 or $196 million and $25 million respectively).

That allowed the regions most impacted by the boom to address basic infrastructure needs (like sewer treatment and water), but only just, she said.

The biggest winners, said Mark Haggerty, were local schools and the state government. By comparison, they received the largest share of all revenue generated by oil and natural gas extraction, a combined 81 percent of the total (more than $1.1 billion each in 2008).

He readily acknowledged many positives from the energy boom, including the low tax burden on Wyoming's citizens. For every $1,500 of taxes paid by Wyoming residents, they receive $7,800 worth of services, he noted.

Wyoming also is doing a good job of capturing revenue from the state's mineral wealth and setting it aside for long-term investments. Last year, for example, Wyoming invested nearly $500 million (17 percent of oil and natural gas revenue) in its budget reserve fund.



Bottom line

The upshot of what the Haggertys found though, was that while the state did help local governments, "it didn't help local governments enough" in their judgment.

Indeed, the Haggertys wrote, "Revenues from the energy surge are neither strengthening Sweetwater County's fiscal health nor assisting efforts to improve long-term economic development. The county's ability to keep pace with increasing service demands-housing, crime, and infrastructure-is mixed, and its ability to fund capital improvements is especially weak. Because new expenditures are in excess of revenue, the county, municipal government, and local institutions (such as schools and hospitals) are scrambling to assemble critical funding from a variety of unreliable sources or downgrading their level of service provision."

Interviews with local leaders were heavily focused on recent accomplishments or the crisis of the day, ranging from water and sanitation to commercial zoning, worker housing, road conditions and maintenance, traffic, new pipelines and power lines, and impacts on social services ranging from cops to day care to domestic violence to drug courts and jails.

"Whenever I talked to them about the future, the response was often a blank stare," said Julia Haggerty.

Local governments in the Green River Basin were so busy keeping on top of the energy boom and its 1,001 manifestations, said the Haggertys, that there was little or no time or money to focus on broader opportunities.

"One county commissioner told us that Rock Springs knew about a Wal-Mart distribution center coming to the state, but just wasn't able to pursue it," said Mark Haggerty. So what happens during the next energy downturn, he asked?

"When the population goes down, they'll have some wonderful, new buildings and fewer kids," he said, and not much in the way of a diversified economy that encourages young adults to stick around.

 

Tax policies

Headwaters Economics is looking at eight western states as part of its "Energy and the West" series.

"I really expected to find strong similarities," said Mark Haggerty, "but each state has a very different approach to taxes and the energy boom."

He found that state tax policies were so different and so hard to compare, that it was easier to look at how, or whether, the states put mineral severance revenues to work for the people.

"Wyoming has the wrong incentives. Sam Western got it right," said Mark Haggerty, referring to a recent article by the Sheridan writer in Wyofile.com. Western compared Wyoming and Alaska tax policies and wrote that Alaska's were better for its citizens.

"Sam realized, as we do, that energy resources are limited," Haggerty said, and that states have a limited opportunity to cash in on resources that will be depleted some day.

It would make more sense for Wyoming to place tax incentives at the front end of energy development (exploration and drilling) rather than at the production end, said Mark Haggerty. Indeed, research shows that higher taxes on the production end of oil and gas development would not drive the industry away and would generate greater revenues for Wyoming, he said.