The EPA Threat To North Dakota’s Economy Is Real

Over the weekend, a story ran in the Bismarck Tribune that specifically detailed the threat that an out of control Environmental Protection Agency poses to North Dakota’s oil based economic boom.

According to The Bismarck Tribune:

Helms believes the Environmental Protection Agency is on track to stop fracking as soon as January, when state regulators must write new rules for fracture treatment based on an EPA guidance document that is under review by the Office of Management and Budget.

The document will tell states how to comply with the federal Safe Drinking Water Act and write permits under the act’s underground injection control Class II well program when diesel fuels are used in fracking fluids, an authority the EPA said it has in a statement to the Tribune.

In January, the EPA will release the guidance document to states. Then, his department will write a new section of state rules to comply with the document. Those are referred to the State Industrial Commission for adoption, but first are opened for public hearing.

By January 2013, the state would be able to complete its rulemaking, which the EPA must first publish in the Federal Register, possibly in the first quarter of that year, before the state could begin permitting hydraulic fracturing.

In the meantime, Helms said, he believes there will be a moratorium on fracking because of the history of many-months moratoriums in Alabama, when the EPA, because of an environmental lawsuit, revoked Alabama’s underground injection program until the state wrote new rules specific to fracking under Class II well standards.

“I believe it will be stopped cold for 12 to 24 months. The best case is 15 months and that’s only if we red-lighted everything else and got nothing else done,” Helms said.

This has been a lingering threat over the oil industry for some time.

One major reason that state government officials in North Dakota should be worried about this is because of how quickly the state budget has increased.

From 2001 to 2011, state spending has increased 135% from $1.6 billion to $4.1 billion on a biennial basis.

Of the last $4.1 billion general fund budget,  according to the legislature’s own reporting (from page A-2 of the report), $533 million was dedicated to “one-time spending” such as infrastructure and oil impact.

This means that “one-time spending” accounts for only 13% of the total general fund spending, and barely 1/5th of the $2.5 billion (135%) spending increase we’ve seen in the last 10 years.

How can our state rely on a boom and bust industry like oil to increase the level of state spending with 4 out of every 5 new dollars going towards increasing the baseline budget?

The simple answer is: it can’t.

The spending track that North Dakota has been on is unsustainable, even in the best of scenarios.

While the Bakken oil play is pumping billions into the state coffers, those oil wells don’t produce 2,000 barrels a day forever.  Eventually the pressure subsides and production on a daily basis drops to about 10-15% of what it originally was.

If the EPA were to crack down on fracking and make it next to impossible to drill new wells, there simply won’t be enough oil pumping to be taxed at 11.5% to maintain the state’s spending habits.  If the the oil stops pumping, the overly inflated baseline budgets go away too.

If the European Union’s economy crashes, and the Euro currency fails, the value of the dollar will go through the roof because investors will be looking for a safer place to put their money – and they will look back to the dollar.  When the dollar is in demand, it is worth more, and you need fewer dollars to buy oil.  If the price of oil falls below $50 for any sustained period, the pace at which wells are drilled in North Dakota will slow dramatically.

Obviously, a strong dollar would be good for the American consumer on the national level, but it would not be good for North Dakota’s oil-boom economy.

These are just two of the factors North Dakota has no control over that could wreck havoc on the state budget.

If either of these situations were to occur the state legislature would be forced to go back into special session and dramatically slash budgets to make way for that reality.

We can hope that these things don’t happen, but it is foolish to assume there will be no bumps in the road, especially given who is in charge of those federal agencies.

Dustin Gawrylow is the executive director of the North Dakota Taxpayer’s Association.

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