14 September 2015

One of the Facts of Running a Local Government Is That Making Your Government "Business Friendly" Never Pays

Of course, what I mean by "Business Friendly" is using tax abatements, creating dedicated infrastructure, or building stadiums.

When you pay companies to locate in your town, you always lose, and the latest case is the oil boom towns in North Dakota, which have discovered that by not making drillers pay their way, they raise costs for everyone else:
While the massive Bakken oil boom drew hordes of job seekers and international attention to the remote prairies of North Dakota and Montana in recent years, it’s turned into a money loser for most cities and counties in the region.

Crime in Dunn County, N.D., in the heart of the nation’s oil boom, skyrocketed 60 percent in just three years, and the road maintenance budget soared from $1.5 million to $25 million.

The local government couldn’t keep up, with demand for services outpacing the growth in tax revenue by as much as 40 percent. The problem continues as the drop in oil prices in the past year means increasingly less money for the county to spend on projects – while drilling, the truck traffic that eats up the roads, and demand for community services haven’t stopped.

“The gap between revenues and needs is still fairly large,” Daryl Dukart, a Dunn County commissioner, said in an interview. “It will take many years to balance out.”

Dunn County is far from alone. Analysis from researchers at Duke University found that “most local governments in North Dakota and Montana’s Bakken region have experienced net negative fiscal effects” from the shale drilling boom.
The answer here is fairly simple: Make the newcomers pay their own way.

When thousands of very trucks tear up your local roads, charge tolls on them.

When their water demands require the construction of new sewer and water infrastructure, charge them for that too.

The oil is where the oil is. If drilling drops by 10% because the energy companies have to pay their own way, it's a net plus.

The idea that in the long term it will sort itself out, a sentiment expressed by a Dickinson, North Dakota City Manager Shawn Kessel, is a pipe dream.

In the long term, the oil boom goes bust, and you still have to pay for the infrastructure that is now sitting unused, as well as the mountains of toxic waste that will start showing up.

I learned a little bit by being raised by a city planner, and one of the lessons that stuck is that if you subsidize industries to locate in your town, it will be a net tax loser.

The 2nd lesson is that most of the money in real estate is made through explicit and implicit subsidies that come from the local government in the form of tax abatements, zoning changes, and unpaid for infrastructure upgrades.


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