Local Fiscal Effects of a Drilling Downturn: Local Government Impacts of Decreased Oil and Gas Activity in Five US Shale Regions
After a downturn in drilling, most local governments in Colorado, North Dakota, Pennsylvania, and Texas continue to benefit from oil and gas development.
Oil and gas development in the United States dramatically increased between 2009 and 2014, then saw a steep downturn as commodity prices fell. This growth and subsequent contraction has affected local governments in dozens of regions. From 2013 to 2015, we conducted structured interviews with hundreds of local officials in 21 regions across 16 states, finding that most local governments had experienced net fiscal benefits from increased oil and gas development. We returned to five key regions (the Bakken, Denver-Julesburg, Eagle Ford, Marcellus, and Permian plays) in 2016 and 2017 to see whether and how the downturn had affected fiscal conditions for local governments. While effects varied depending on local factors, fiscal conditions have generally improved, with 82 percent of local governments reporting net positive fiscal effects, compared with 63 percent during our previous visits to these regions. However, managing revenue volatility has emerged as a major challenge for many local governments, and while economic diversification is a priority for most local officials, achieving this goal will be difficult, particularly for rural communities that are or have become heavily dependent on the oil and gas sector.
Key findings
- Government revenues and demand for services have declined, but are higher than they were before the shale revolution.
- Local governments have become more reliant on oil and gas revenues, exposing them to risk from a volatile revenue source.
- Some local governments in Texas and North Dakota now face challenges managing debt amidst revenue volatility.
- Revenue for many small local governments in Pennsylvania have doubled as a result of the state’s Impact Fee.
- Fiscal impacts for most governments along Colorado’s economically diverse Front Range have been minor.
