Hub-CitiesAffordability, Needs, and Funding Gaps

Presented to:

Energy Development

and Transmission

Interim Legislative Committee

March 8, 2018

PLANNING FOR THE FUTURE

Supporting Continued Investment

• As demonstrated, Hub Cities have made required, smart, and prudent investment through the boom

• All of our State’s communities that support energy development are typical small town ND that have been thrust into high paced growth at a high cost

• Integral to a high quality of life is providing a cost of living existing/prospective residents and businesses can afford

• While price of oil often dictates activity by employers, quality of life and cost of living dictates activity of employees

• ND is in competition with other plays for Human Capital:

– Permian

– Niobrara

– Woodford

– Eagle/Ford

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Cost of Living | Comparable Plays

Ft. Collins,CO

WatfordCity, ND

Williston,ND

Dickinson,ND

Minot, ND Gillette, WY Greeley, CO Casper, WY Midland, TX Odessa, TX Norman, OK

124.2

117.2115.1

112.6

105.4 104.4 104.2

100.597.7

94.5

87.8

Cost of Living Index*

Bestplaces.net | Index value of 100 is representative of national average

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Affordability | Comparable Plays

*As of November 2017

• Hub City local industry support is primarily through Infrastructure and City Services

• All Hub Cities depend on Gross Production Tax revenues to support required infrastructure and service expansion

• How else do communities support affordability of services?

By managing:• Property Taxes• Utility Fees• Sales Taxes• Special Assessments• Debt

INVESTING IN OURSELVES

Affordability | Supporting Housing

Based on publically available listing and recent sale price on Zillow.com*

$5,325

$4,597

$2,974 $2,961 $2,898 $2,489

$2,186 $1,876

$1,518 $1,488 $1,345

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Median Home Price Annual Property Tax on a Median Priced Home

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Median Home Prices | Comparable Plays

*As of November 2017

2008 2017- 2017

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Cost of Living | ND Utility Rates

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

WatfordCity, ND

Minot, ND Odessa, TX Dickinson,ND

Midland, TX Ft. Collins,CO

Norman,OK

Greeley, CO Casper, WY Gillette, WY Williston,ND

$1,372

$1,118

$1,028 $1,012 $1,005$981

$881

$715 $693$667

$510

Total Combined Annual Utility Bill

Includes: Water, Wastewater, Stormwater, Sanitation

INVESTING IN OURSELVES

Cost of Living | Utility Rates

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Total Local Sales Tax Rate and Taxable Sales

WILLISTON DICKINSON MINOT

TAXABLE S&P*

$366.9M

LOCAL SALES TAX RATE (INCLUDING COUNTY)

3.00%

TAXABLE S&P*

$222.2M

LOCAL SALES TAX RATE

1.50%

TAXABLE S&P*

$263.3M

LOCAL SALES TAX RATE (INCLUDING COUNTY)

2.50%

*As reported Q3 2017

AFFORDABLE | COMPETIVE | ATTRACTIVE COMMUNITIES

Total Debt Load / Debt per Capita

$5 $73

- -$14 $26 $34

$267

$6 $49

$79 $39

$340

$92 $63

$104

2008 2018 2008 2018 2008 2018

WILLISTON DICKINSON MINOT

TOTAL DEBT (MILLIONS)

Assessment Debt Other Debt

$383

$2,773

- -

$394 $1,034

$2,710

$10,093

$4,016.65

$1,370 $1,616

$3,094

$12,865

$351

$1,764 $2,650

2008 2018 2008 2018 2008 2018

WILLISTON DICKINSON MINOT

DEBT PER CAPITA

Assessment Debt Other Debt

• Six-City study developed to show how quality of life is maintained through continued infrastructure and service investments

• Hub Cities have tall task of maintaining an affordable quality of life and cost of living

• Needed future investments will keep pressure on City to maintain affordable tax and fee levels

• GPT/Hub City funding is a critical tool

INVESTING IN OURSELVES

Affordability | Maintaining Quality of Life

• Completed Early 2017

• Capital and Operational Forecasting and Financial Gap Analysis

• Study Funded 50/50 by WDEA and Participating Cities

• Impacts Forecasts for Six (now 7) Participating Cities

Williston | Watford City | Dickinson | Tioga | Stanley | Killdeer | Minot

• Further projected population increases are expected to place additional service demands on each city

• Impacts to include the expansion of infrastructure and operations that will be required to meet the needs of each community.

WDEA 6-CITIES STUDY RESULTS

DICKINSON WILLISTON MINOT

ANNUAL POP.

GROWTH

3.5%INFRASTRUCTURE

MILES

23.5%UTILITY ACCTS.

24.1%

2.8%INFRASTRUCTURE

MILES

19.0%UTILITY ACCTS.

19.4%

2.0%INFRASTRUCTURE

MILES

12.7%UTILITY ACCTS.

12.8%

POPULATION & GROWTH PROJECTIONS

Hub City Projected Growth (2017-2023) – Moderate O&G Activity

ANNUAL POP.

GROWTH

ANNUAL POP.

GROWTH

6-YEAR CAPITAL IMPROVEMENT NEEDS

Projected Amount Less Preliminary Funding (Millions)

• Regional analysis looking at operational levels of service from communities similar in size to long-term growth trajectory of participating Cities

• Operational levels based on metrics of population, utility accounts, infrastructure miles, and facilities operated

• Benchmark data used as basis for future staffing, fleet, and budgetary impact projections

BENCHMARKING

A.) Average across Williston, ND; West Fargo, ND; Gillette, WY; Bozeman, MT; Minot, ND; Grand Forks, ND; Great Falls, MT; Bismarck, ND

B.) Hybrid Fire Department

C.) Purchased Water

D.) Includes Ambulance Services

Benchmarked Department

BenchmarkedAverage

FTEA Dickinson FTE Williston FTE Minot FTE

Staffing Ratio

Finance/Administration 4.3 3.4 4.1 3.3 per 10,000 Population

Human Resources 1.0 1.1 0.7 1.0 per 100 Total FTE

Fire 11.9 7.2B 19.9D 13.7 per 10,000 Population

Police 19.7 24.4 22.1 19.4 per 10,000 Population

Engineering 3.6 3.8 4.5 2.6 per 10,000 Population

Building / Inspections 2.2 2.1 5.6 2.9 per 10,000 Population

Planning & Zoning 1.4 1.3 2.3 0.9 per 10,000 Population

Streets 8.9 6.8 13.2 9.9 per 100 CL Infrastructure Miles

Sanitation / Landfill 2.5 1.8 5.4 1.6 per 1000 Utility Accounts

Shop / Vehicle Maintenance

1.5 1.3 1.9 1.7 per 10,000 Population

Water / WW / Storm 11.4 7.2C 17.6 10.2 per 10,000 Population

BENCHMARKING RESULTS

Staffing Ratios

Projected Incremental Annual Cost for New FTE 2018 2019 2020 2021 2022 2023

Dickinson $1.1M $1.5M $2.2M $2.5M $2.8M $3.0M

Minot $0.2M $0.9M $1.2M $2.0M $3.1M $3.4M

Williston $767K $2.1M $4.6M $5.1M $6.2M $6.7M

0

50

100

150

200

250

300

350

400

450

2018 2019 2020 2021 2022 2023

200 207221 225 231 235

333347

374 379 390 395423 432 436 446 459 462

Dickinson

Williston

Minot

BENCHMARKING RESULTS

Projected Employee Growth

REVENUE

Major Revenue Source Projections

0

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

MINOT

0

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

WILLISTON

0

10

20

30

40

50

60

70

80

90

100

2017 2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

DICKINSON

*Water, Sewer, Storm, Refuse

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Minot Williston Dickinson Watford City Stanley Tioga Killdeer

Projected Distribution of Major Revenues

Gross Production Tax Sales Tax Property Tax Highway Tax State Aid Utility Rate Revenues*

MAJOR REVENUES BY CITY

FUNDING GAP

Cash Based Funding Gap Analysis

$(600)

$(500)

$(400)

$(300)

$(200)

$(100)

$-

$100

$200

$300

2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

MINOT

$(600)

$(500)

$(400)

$(300)

$(200)

$(100)

$-

$100

$200

$300

2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

DICKINSON

TOTAL GAP

$112.4M*

*not including flood control

(500)

(400)

(300)

(200)

(100)

-

100

200

300

2018 2019 2020 2021 2022 2023

Mill

ion

s ($

)

WILLISTON

TOTAL GAP

$181.3M

TOTAL GAP

$128.8M

SUMMARY

• All of our State’s communities that support energy development are typical small town ND that have been thrust into high paced growth at a high cost

• Hub Cities with the support of the State have made required, smart, and prudent investment through the boom

• This investment has put strain on local revenues to keep pace and Hub City funding has been a critical tool

• Integral to a high quality of life in each Hub City is providing a cost of living existing/prospective residents and businesses can afford

• As O&G development continues, unique funding and financing strategies will be required to fill the total funding gaps projected

• Addressing shortfalls will require solutions at both the local and State level

Thank you!

March 8, 2018

TESTIMONY

Shawn Gaddie AE2S Nexus

INTERIM ENERGY DEVELOPMENT AND TRANSMISSION COMMITTEE Bismarck, ND March 8, 2018

Mr. Chairman and Members of the Committee, thank you for the opportunity to present to you today. I

have had the pleasure and honor of working with the Hub Cities of Dickinson, Williston, and Minot and

the Western Dakota Energy Association to identify and help plan for the potential impacts of

infrastructure and operational changes necessary to serve growing communities in the western part of

our state.

The first topic I would like to cover today is that of how we as a State attract and retain workers in the

highly competitive job market of the oil and gas industry. As you have heard in past presentations from

industry representatives, a major challenge since the downturn is finding the workers in state to run the

frack crews and keep operations going. Instead, workers are finding comparable jobs, with comparable

pay in different shale plays with a lower cost of living that may have more attractive climates, larger cities,

or other amenities. This message indicates that in order to stay competitive among national oil and gas

plays, we must continue to improve tangible and measureable quality of life aspects for our workforce.

While our communities look to continuing to provide opportunities for improved quality of life, they must

do so with an eye towards affordability – a challenge that every community faces.

To better understand how each of the Hub Cities compare on affordability, we looked at multiple

communities across various plays. These communities were identified by industry representatives to be

in competition for the human capital required to support further oil and gas development in Western ND:

Community Shale Play Cost of Living Index1 Median Home Price

Ft. Collins, CO Niobrara 124.2 $285,450

Watford City, ND Bakken 117.2 $302,450

Williston, ND Bakken 115.1 $260,000

Dickinson, ND Bakken 112.6 $272,719

Minot, ND Bakken 105.4 $209,500

Gillette, WY Niobrara 104.4 $209,842

Greeley, CO Niobrara 104.2 $285,000

Casper, WY Niobrara 100.5 $214,950

Midland, TX Permian 97.7 $273,900

Odessa, TX Permian 94.5 $185,000

Norman, OK Woodford 87.8 $204,905 1Sterling’s Best Places Cost of Living Index – as of November 2017

The results of this analysis showed that in various cost of living indices, each of the Hub Cities generally

had higher costs of living than other communities in comparable shale plays. Similarly, this was

corroborated when looking at median home prices across these communities where Dickinson, Williston,

and Watford City all have above average median home prices ($246,000) for the communities surveyed.

While local taxes, rates, and fees are not generally included in these cost of living indices, they are an

important part of overall affordability and are generally one of the few items that are within the ability of

State and local authorities to control. In comparing the total cost of property taxes on a median priced

home along with utility fees, North Dakota communities again are generally at or above the average for

communities evaluated. When considering the impacts on affordability overall, North Dakota needs to

remain cognizant and intentional in striking the appropriate balance to the overall State and local taxation

strategy.

Across communities in North Dakota, the Gross Production Tax (GPT) is critical to supporting investments

in infrastructure and city services that improve quality of life and affordability in these communities.

Without the funding the GPT provides Hub Cities and all other O&G impacted communities would need

to reevaluate how critical infrastructure is implemented and how it is paid for. The resulting cost burden

would negatively impact the overall affordability within North Dakota communities and impede the ability

to compete for the human capital necessary to meet long-term industry needs.

Looking ahead, this revenue stream will continue to be tested as the infrastructure investment needs of

communities grow. The second key item I would like to highlight is the investment needs for each of the

Hub Cities as identified by the Western Dakota Energy Association’s 6-City study completed early 2017.

Considering the volatility in the oil industry and the anticipated moderate recovery, the Study was

intended to demonstrate core City needs as the price of oil began the recovery cycle and included an

evaluation of traditional capital infrastructure improvements required such as water, sewer, roads, and

other essential community infrastructure. It also identified how operations and City services provided will

need to grow to keep pace with the anticipated growth pattern in each City. The results of the study

provided a 7-year financial roadmap for each City’s anticipated capital and operational financial needs

and quantified the fiscal impacts that each City can expect to realize for a prescribed population growth

planning scenario.

Population forecasts for the impacts analysis were based on adaptations from the workforce and

population analyses performed by North Dakota State University (NDSU) in conjunction with Vision West.

The workforce and population analysis focused on county-level economic activity in the region and its

effect on workforce and population through 2040 under varying oil price recovery scenarios. The resulting

County-level projections for a moderate recovery scenario were adjusted to City-level results based on

historic trends in city/county capture rates and other county hub city benchmarks from across the region.

Ultimately under the moderate price recovery scenario, the population forecasting model projected

annual growth rates through 2023 at 3.5% for Dickinson, 2.8% for Williston, and 2.0% for Minot.

The study also identified existing operational service levels for each of the Hub Cities and identified growth

projections that will drive future operational service levels. Projected operational levels were analyzed

based on key metrics of population, utility accounts, and centerline infrastructure miles. Infrastructure

mile projections were based on average mile of linear infrastructure required per unit population from

2013 – 2015. Similarly, future projections of utility accounts were based on average population in each

City per water account data from 2013 – 2015.

Capital improvements needed to support projected growth were also identified and prioritized by year of

construction from 2017 to 2023. Capital improvements fell into categories of transportation, water,

wastewater, storm water, airport and other public facility needs (City Hall, Public Works, and

Recreational). Preliminary identified funding sources, such as SRF loans, State Water Commission Cost-

Share, and other anticipated Federal and State Funds, were then assigned to total projected infrastructure

needs where appropriate to identify a total remaining unfunded CIP cost. The projected capital costs from

2017-2023 after assignment of preliminary funding sources totaled $198M for the City of Dickinson,

$258M for the City of Williston, and $194M for the City of Minot* (*excluding anticipated Flood Control

expenditures and dedicated revenues).

Considering the growth projected through 2023, operational increases were also projected and analyzed

to determine appropriate future municipal service levels across impacted City departments. To make

prudent projections, the study team reviewed and analyzed specific organization, staffing, and fleet

inventories from a cross-section of benchmark communities throughout the region with populations

similar in size to Dickinson, Williston, and Minot and along each City’s anticipated growth trajectory. Based

on the results of the benchmarking analysis against the comparable communities, staffing and fleet needs

were forecasted in order to effectively deliver services at desired levels of service into the future.

The estimated new incremental annual cost for these employees was calculated to be just over $3.0

million annually by 2023 for the City of Dickinson, 3.4 million annually for the City of Minot, and $6.7M

annually for the City of Williston. Considering projected capital and operational revenue requirements

across the 7-year timeframe, a multi-year revenue and expense projection model and cash flow

spreadsheet was developed based on each of the Hub Cities 2017 budgets. The models were used to

determine the 7-year financial “gap” for all capital and operational requirements for growth impacted

funds. The modeling analysis also included a detailed review of each City’s line item budgets in order to

determine appropriate escalation factors for all anticipated growth impacted expenses and revenues.

Similarly, a detailed analysis of projected major revenue sources such as Gross Production Tax, Sales Tax,

property tax, and utility rate revenues was completed, with appropriate escalation factors applied to

minor revenue line items. Ultimately, under the prescribed growth projection scenario, the total cash-

based funding gaps were projected at $129M for the City of Dickinson, $181M for the City of Williston,

and $112M for the City of Minot by the year 2023* (*excluding anticipated Flood Control expenditures

and dedicated revenues).

The results of the study ultimately highlighted that even at the tail end of a slow-down with past significant

investments made in each Hub City, a moderate oil price recovery will continue to place significant

demands on each of the Hub City’s infrastructure and governmental services. Past investments by the

State and the City in trunk infrastructure have positioned each City for further growth. It is also expected

that moderate oil price recovery will moderately increase each City’s revenues, however, the rebound in

revenues are not projected to meet the anticipated needs. To this end, the City of Dickinson, the City of

Williston, and the City of Minot will remain heavily dependent on major revenue sources such as GPT to

offset projected capital infrastructure and associated debt service demands. Furthermore, unique funding

and financing strategies will be required to fill the total funding gaps projected and strategies for

addressing these shortfalls will require solutions at both the local and State level.