December 20, 2014

Booms and Busts: The Impact of West Virginia’s Energy Economy

CLICK HERE to download the report as a pdf.

Conclusion of “Booms and Busts”, by Sean O’Leary and Ted Boettner

In the past, West Virginia counties with a concentration in mining saw their economic performance dramatically decline after an energy development boom. Today, their economies are weaker than the rest of the state, and they are ill-positioned to compete and grow. It is uncertain whether today’s energy boom, led by natural gas extraction, will bring the prosperity to West Virginia that it promises. While the potential revenues from this boom seem to be an attractive source of economic growth for communities, history shows that natural resource booms inevitably lead to busts.

This pattern is likely to repeat itself in counties that focus heavily on the Marcellus Shale development as the main source of economic growth. Indicators suggest that relying on an energy boom is not a definite solution for long-term growth and prosperity. The Marcellus Shale
development has the potential to place unprecedented strains on the communities where drilling occurs. Researchers and analysts are just beginning to understand the environmental, health, and infrastructural impact of Marcellus Shale drilling. It remains unclear if natural gas
drilling can create sustained economic growth for counties.

While the present and future impact of natural gas drilling remains uncertain, there will certainly be an initial boom in economic activity due to the Marcellus Shale development. However, positive long-term economic growth will come only from a diverse economy with a highly educated workforce. West Virginia can benefit in the long-term by capturing revenue from today’s boom activity and converting it into a permanent source of wealth. This can be done through the creation of a Permanent Mineral Trust Fund financed by severance taxes. Such a fund would be used to promote economic diversification and development, and would help ensure that the wealth generated by the energy boom stays in West Virginia and remains long after the mining resources are gone. The interest income from the permanent fund can be used for economic diversification, such as investments in early child care and higher education, infrastructure projects like high-speed broadband, renewable energy and remediation, and grants to help entrepreneurs and other business owners.