Blog Post

Budgeting through 'Boom and Bust' in McAlester

Dec 29, 2014 | Daniel Raimi

Natural gas drilling and production surged in southeastern Oklahoma during the middle part of the 2000s thanks to the application of new technologies to the region’s Woodford shale. Two counties in particular — Coal and Pittsburg — saw the most drilling activity during this period, and government revenues swelled as a result.

Coal on display in McAlester, Okla.

Among other local governments, we visited the city of McAlester, the seat of Pittsburg County. The city was established in the 1800s and initially was one of the largest in Oklahoma. The local economy was focused on coal mining, but as local mines become less competitive in the middle of the 20th century, McAlester shrank. The region’s last coal mine closed in the 1970s.

McAlester today has a population of roughly 18,000 and a fairly diverse economy, with major employers in the retail sector, weapons manufacturing and a large state prison nicknamed “Big Mac.” As drilling ramped up in the mid-2000s, the city saw substantial increases in revenue from sales taxes and other sources, with little in the way of new costs.

During this period, the city government expanded substantially, raising wages and adding new staff in a variety of departments. However, the downturn in drilling in 2009 meant city revenues declined rapidly, and the additional staff expenses put in place during the “boom” years became unsustainable. McAlester hired a new city manager who was forced to freeze wages, lay off or give early retirement packages to roughly a dozen employees, and furlough other employees.

Most local government officials we have interviewed for the Shale Public Finance project caution against using “boom” period revenues for recurring expenses such as additional staff, increased wages or reductions in tax rates. Instead, they tend to use increased revenues for one-time expenditures such as purchasing new equipment, building new infrastructure or improving government facilities.

Overall, the increase in natural gas development has improved city finances, as revenues are higher today than before the boom. The city’s diverse economy has helped cushion it against the downturn in natural gas development. However, its budgeting practices during the mid-2000s illustrate the risks of relying too heavily on revenue from oil and gas development.

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.