September 2, 2014

City, county leaders push for bigger share of oil revenue

By Neal A. Shipman
Farmer Editor

Watford City and McKenzie County are being absolutely overwhelmed with the costs of building the infrastructure needed to meet the huge growth in energy development in the area. Not only is the city and county looking at projects totalling over a billion dollars in the next six years to meet this growth, but neither the city nor the county have the financial resources to meet that growth.
That was the message that city and county leaders shared with a group of 40 North Dakota legislators, who were part of a daylong tour of McKenzie County and Watford City last Tuesday.
“We need your help,” stated Ron Anderson, chairman of the McKenzie County Commissioners. “We’re looking at over a billion dollars in investments over the next six years.”
According to Anderson, the county needs to spend close to $700 million in just road work over the next six years to help improve the major roads being used by oilfield traffic.
“We need to build a northern bypass that will create a cutoff route from Highway 23 north of Keene to U.S. Highway 85 north of Alexander,” stated Anderson. “This new route, which will cost $100 million, will enhance oilfield traffic and improve highway safety.”
But that, according to Anderson, is not the only road project that the county needs to accomplish. In addition, the county is looking at spending over $430 million upgrading 218 miles of existing county roads to 105,500-pound weight limits.
While roads are a major concern for the county commissioners, Anderson also informed the legislators that the county needs to build a new $40 million, 120-bed jail facility to handle the growth in prisoners in McKenzie County and another $15 million to construct a new public works facility.
The solution to the lack of funding to meet the needs for McKenzie County and Watford City, according to Anderson is for the state Legislature to agree to change the formula used for sharing the state’s Gross Production Tax (GPT) from a 75-25 state-county split to a 60-40 county-state split.
“We need the change of the formula to 60-40 for the next three legislative sessions to build our infrastructure,” stated Anderson.
And Brent Sanford, Watford City mayor, concurs with Anderson that a change in the GPT formula would help the city build its $285,000 in infrastructure needs.
“Currently, the city only receives between $12 million and $15 million annually in GPT funds,” stated Sanford. “We use that money to run our city. It’s not available for infrastructure needs like extending our water and sewer lines or building new city streets into the subdivisions that are being developed.”
According to Sanford, Watford City has annexed over 2,000 acres for new commercial and residential development into the city limits in the past three years.
Which is why Sanford sees a change in the GPT formula as being critical to the growth of Watford City.
“A change in the formula with us getting 60 percent will give us the ability to borrow the money to get our infrastructure in,” stated Sanford.
And, according to Sanford, once the city has the needed water and sewer installed, developers will be able to start building permanent housing, which he says is a key to making Watford City a place where people will want to live.
“There’s 20,000 people living in the area, and 40 percent of the children enrolled in our school system are living in campers,” stated Sanford. “We can build the housing.”
Both Sanford and Anderson agree that the shift in the GPT formula is critical to helping McKenzie County and Watford City become a place where people will want to live and work long term.
In order to meet the growth in Watford City, Sanford says that the city needs to spend $85 million on water and sewer extension projects, as well as, another $198 upgrading city streets and developing an expanded transportation system of connecting roadways.
According to Steve Stenehjem, CEO of First International Bank & Trust, and Jonathan Kaliko, a developer from Manhattan, New York, the lack of this infrastructure is a huge challenge for developers.
“There are very few developers who have enough cash to be able to pay for water, sewer and paving in their developments,” stated Stenehjem. “As a result, all you see being built here is multi-family housing because it is the only thing that will pencil out financially.”
To illustrate the point, Stenehjem explained that in most communities, the city puts in the infrastructure and then uses special assessments to recover the costs. But he said that because Watford City does not have the money, the burden of those costs are being placed on the developer.
“Watford City doesn’t have money or the bonding capacity to pay for these improvements,” stated Stenehjem. “When developers have to pay millions of dollars for infrastructure, the lot prices become too high for single family homes.”
Which, according to Stenehjem, is why man camps around Watford City are doubling and tripling in size.
“Man camps are not the solution for our housing problems,” stated Stenehjem. “We need permanent housing. We can grow if the city has the money.”
For Kaliko, who is planning a major office building in downtown Watford City, developers know how much the state is getting in oil revenue, but question why developers are being asked to pay for infrastructure that is normally paid for by the local government.
“The key to this lifetime opportunity is whether the state, city and county use the money to make the communities sustainable into the future,” stated Kalikov. “Watford City, in particular, needs diversity in housing as it transitions from a ‘gold rush’ type of community into a sustainable city.”
According to Sanford and Anderson, the city and the county aren’t looking for a handout from the state. They are only looking at getting a fairer return of the oil and gas revenues that are being produced in McKenzie County.
According to Anderson, over the next six years, McKenzie County wells will generate over $12 billion in tax revenues to the state of North Dakota.
“If you give us the 60 percent, we will make you look good,” stated Sanford to the legislators. “We’ll make this into a great town.”