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Montana towns struggling with costs of oil boom

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DENVER – Tractor-trailer trucks carrying oil, water and sand to drilling sites are lined up at one of two stoplights in Fairview, Mont., as the mayor tries to figure out how to squeeze more people into his town.

The prairie community straddles the state line with North Dakota and needs a new water tank, improvements to its sewage treatment plant and curbs and gutters. The price tag: $14.4 million – five times the city’s $2.7 million budget.

“A town of 1,100 people just doesn’t run down to the bank and write a check for that kind of money,” Mayor Bryan Cummins said. “Our town has eight times the traffic traveling through it as it did five years ago.”

Fairview is one of a half-dozen farming towns in eastern Montana transformed over the past 18 months into bedroom communities for workers toiling in the Bakken oil patch. Unlike North Dakota cities that reap tax money from oil production to help keep pace with double-digit growth, Montana municipalities get next to nothing. The towns’ new reality illustrates the tradeoffs that come with the energy boom and how the drilling that showered riches on its neighbor poses challenges in Montana.

Jails are filled to capacity, prompting officials to consider freeing less-violent offenders. Planners worry overflowing sewers will force them to ration building permits. School administrators say they may need to turn gymnasiums and hallways into classrooms to serve an expanding student body.

“We’re looking at 32 possible developments with up to 1,700 students,” Sidney Public Schools Superintendent Daniel Farr said. “That would double my current student enrollment, resulting in the need to build a new school system at a range of $24 to $35 million.”

Waiting on taxes

A fraction of the drilling in the Bakken is taking place in Montana, which saw its last oil boom lose steam in 2006. Production on wells in Montana isn’t fully taxed for 18 months, leaving towns to wait two years for money to upgrade infrastructure. When taxes do kick in, the state receives 52 percent, with about 47 percent divided between counties and school districts. Cities get one-tenth of 1 percent.

Montana will collect $800,000 less from each new well compared to North Dakota, even as continuous drilling to increase productivity deepens the impact on cities and extends it over long periods, said Mark Haggerty, an economist with Bozeman, Mont.-based Headwaters Economics.

Democratic Gov. Steve Bullock vetoed a bill in May that would have provided $35 million for eastern Montana communities to build new facilities. Lawmakers say waiting until the next legislative session in 2015 to address growth will force additional costs onto existing residents, many of whom live on fixed incomes.

“I’m very concerned that waiting another year and a half is going to put these communities in a tougher spot,” said Republican state Rep. Austin Knudsen. “You really have no choice but to go to your ratepayers and ask them to pay more. That’s the situation were in and I’m afraid it’s going to get worse.”

Bakken boom town

Eighteen-wheelers raise clouds of dust on Bainville’s dirt roads as they pass its school and a white-steepled church on the hill. The town, just a half hour’s drive from the epicenter of the Bakken boom in Williston, N.D., raised residential sewer rates to help expand its system. The new lagoon was full the day it opened. Now there’s a waiting list for a second $1.5 million expansion being funded by Procore Group Inc. of Calgary, a company building a camp to house workers nearby.

“When this boom hit, our town of 150 people went to 450 people in a very short time,” Bainville Mayor Dennis Portra said. “Our school population was only 76 kids and now it’s in the 165 range. Everything is going very fast.”

The town with a two-pump gas station, two bars and an annual budget of $250,000, is likely to triple in size again in the next few years as developers finish plans for two hotels, retail shops, offices and condos and several subdivisions.

About 15 miles west of Bainville, in Culbertson, waitresses at the Wild West Diner serve hamburgers with sides of mashed potatoes and gravy as city officials recount how the town raised its residential sewage rates from $5 a month to $60 to help fund a $6 million sewer upgrade.

“Last quarter we got $6,000 back from oil revenue,” said Mayor Gordon Oelkers, who owns a service station in town. “That has to change. This is where the impact is and this is where the funding should be.”

The town grew from 700 to 1,000 in the last two years and is expecting a 140-unit subdivision currently under construction, a 250-unit hotel and a nearby man camp to increase its population by 30 percent.

Oil helped rejuvenate the local economy, Oelkers said, adding that some farmers used proceeds from the sales of their mineral rights to buy state-of-the-art irrigation systems.

Inflation’s toll

Like many eastern Montana towns before drilling began in the Bakken in the late 2000s, Culbertson watched new homes lose value the minute they hit the market, kids move away for college and never return, and schools close for lack of pupils. Today, all three of Bainville Mayor Portra’s grown children live in their hometown and work in the oil patch.

Yet inflated prices for gasoline, groceries and housing because of the Bakken boom are taxing residents on fixed incomes.

“I have a big house and the prices people are getting for homes are high, so it’s a good time to sell,” said Evelyn Casterline, 80, a retired high school home economics teacher who’s lived in Culbertson since 1961. “But there’s no place to go to get homes that are smaller.”

The need for housing is acute in eastern Montana. School districts, businesses and restaurants are unable to hire workers because there’s no place for them to live. Home prices went from $60,000 to $300,000, driven up by demand from oil workers.

Hundreds of families are on a year-long waiting list for federal Section 8 housing assistance vouchers, said Brian Steffen, chief executive of Action for Eastern Montana, a community organization based in Glendive.

Once someone has a voucher he or she must find an apartment for no more than $505 per month, a near impossibility in a region where rents quintupled since 2008, he said.

“We’re starting to see an exodus of the fixed-income elderly,” said Steffen. “Either they’re leaving the area or moving into care facilities, which is a huge hit to Medicare.”

Worker shortage

Local businesses are unable to find workers. Even after an expensive advertising program to fill out his seasonal work force, Sidney Sugars Inc.’s general manager, David Garland, has fewer employees than he needs to process sugar beets from October through February. During these five months, 300 people work at the factory.

“We’re finding it harder and harder to fill those positions,” which used to be taken by locals, he said. “We can’t compete with oil wages and there’s no housing.”

The company built a 50-site RV park on its property last year and plans to build a 42-person dormitory. That facility will need to rely on water and sewer hookups to the city of Sidney, which is struggling to figure out how to pay for improvements to those systems.

Running low on caffeine on a recent overcast afternoon – both the town’s coffee cart and the local McDonald’s were closed for lack of workers – Sidney’s director of public works, Jeffrey Hintz, lifted his ball cap and scratched his head as he considered his meager funding options.

“We’ve got a $15 million cloud hanging over our head and $800,000 in a fund to pay for it,” said Hintz, referring to wastewater facility upgrades. “We promised to have the first phase done at the end of the 2014 fiscal year.”

The town must also upgrade its water-treatment facilities to serve an expected 1,100 new multi-family units and 386 new residential lots and make other infrastructure improvements.

“We’ve identified $55 to $60 million in real needs with a $13 million budget and no oil or gas revenue stream,” Sidney Mayor Bret Smelser said.

Located about 45 miles from Williston, Sidney is the largest town in eastern Montana directly affected by the Bakken oil boom. In the city’s center, the 86-year-old courthouse is undergoing a two-year renovation with new sidewalks, landscaping and electrical and plumbing systems. The improvements to the building, which houses the Richland County Commissioners, were funded with oil and gas revenue.

Sharing the wealth

City officials in Sidney say Richland County should share some of the millions it collects in oil and gas taxes annually with the town.

“Of the $220 million the state collected last year in oil and gas revenue, 50 percent came from Richland County,” Smelser said. “The county gets 25 percent and the schools get 20 percent. We’ve been begging them to help us.”

The county helped the city purchase a new police car, funded two officers and paid $1.6 million for sewer maintenance, said Richland County Commissioner Shane Gorder. The county, one of the fastest growing in the nation by percentage of population, doesn’t have money to spare as its struggles to maintain 1,200 miles of roads battered by unrelenting truck traffic, he added.

“We can’t keep up with maintaining our roads, they just fall apart,” Gorder said. “We’ve spent $30 million in the last five years on road projects. It seems like we’re always behind.”

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