Infrastructure & Environment

Why Do Cash-Strapped Governments Have Rich Citizens?

Boom times in oil and agriculture have brought new wealth to people in many rural counties. But the money in bank accounts isn't translating into more money for government.
by | April 2014
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This story is part of a special series on America's rural/urban divide.

In rural Wells County, in eastern North Dakota, local officials have been talking for years about the deteriorating condition of the roads. Of the roughly 1,400 miles of road that crisscross thousands of acres of farmland, only about 110 are paved. And even those have been hard to maintain properly. State and federal funding have helped, but it hasn’t been enough. County Commission Chairman Randi Suckut says the issue now is which roads they will have to turn back into gravel.

Rural communities across the country are struggling to pay for needed services, and roads are at the top of their lists. But most of those communities are relatively poor. Wells County is rich. Really rich. In the five years ending in 2012, the average personal income per capita in Wells grew by three-quarters, reaching about $78,000. That compares to a national average of $44,652 for last year. Local government is strapped for funds here because the citizens don’t want to spend the money to pay for it.

Rich communities in rural areas are more common these days than you might think. Of the 100 wealthiest counties in the country by income per capita, 60 are outside any metropolitan area. For many of these communities, the status is a relatively new one. As recently as 2007, only 22 of the 100 wealthiest counties were outside metro areas. But over the next five years, while most of the country was mired in the recession and its lingering aftermath, nonmetro counties recorded an average inflation-adjusted per capita personal income growth of nearly 11 percent, according to a Governing analysis of federal data. National per capita personal income, by comparison, actually dipped slightly over the same period.

But the money in bank accounts is not translating into more money for government. Instead, many of these counties are still operating on barebones budgets, struggling to pay for the services their economies require. In some areas, this has meant consolidation and downsizing, while in other areas government is spread thin trying to meet the needs of communities in transition. If the past few years have demonstrated anything in these counties, it’s that wealth is not a cure-all for a government’s limitations.

The rise in incomes in the newly rich counties, which generally paint a vertical strip down the center of the country, can largely be attributed to rising farm profits and the oil fracking boom. Incomes for farming households across the nation have increased by one-third over the last five years (see the graph below), and the country’s total net farm income has nearly doubled, according to the U.S. Department of Agriculture. The picture is even more gilded for oil country—between 2011 and 2013, North Dakota alone collected about $3.5 billion in oil revenue, only a fraction of which filtered down to local governments. Mountrail County, in the state’s northwest quadrant, tripled its number of jobs in five years, and has the enviable status of being the only county in the nation that did not experience a recession by any economic measure.

Source: USDA's Agricultural Resource Management Survey and Census Bureau's Current Population Survey

But local government funding needs are up against antitax sentiment in this red-state region of the country. “The only conversation people want to have about taxes is about how to lower them,” says Richard McBride, a county commissioner in Kearney County, Neb., where personal incomes average $74,000 and the chief complaint among residents is rising property tax costs.

Localities are limited in the ways they can raise revenue. Property taxes, the bread and butter for most county governments, are often subject to statutory caps, which is why a rapid rise in property values in many places has not translated to a similar rise in revenue and local government spending. Mountrail County, for example, has seen the total assessed value of its properties quadruple since 2007, to $73.7 million. But property tax revenue has remained relatively flat because the county has reduced its property tax rate by about half.

Oil counties and farming counties are getting rich in different ways. Farming communities have, on the whole, seen a decline in population as farms have gotten bigger but required fewer workers. “There’s been a tremendous amount of out-migration over the years,” says Matt Chase, executive director of the National Association of Counties. The trend has also had the effect of lowering poverty statistics in some areas because it’s generally poor people who are leaving. “It doesn’t mean they’ve left and found jobs,” Chase says. “The common conclusion is they’ve left for more urban areas.”

As a result, governments in agriculture-based communities are adjusting to serving fewer people. “When you have one family that’s basically running an operation that used to be run by five families, it makes a big impact on the schools and everything else,” says Wells County’s Suckut. Ten years ago, the county had five schools—now it’s down to two.

Rural areas reaping the benefits of the oil boom have the opposite problem: how to accommodate rapid growth. The U.S. Census figures Mountrail’s population at around 8,700. But by the estimate of County Auditor Joan Hollekim, it’s closer to 14,000 when temporary workers’ camps are filled every two weeks. The county government staff has dealt with high turnover as employees are quickly burning out from stress. It’s also had to set up what amounts to government housing for its employees, as rents have escalated to as much as $3,000 per month. On the plus side, government salaries have gone up to stay somewhat competitive—the county auditor’s salary has increased by 40 percent to about $72,600 in just five years.

But the common bond for these two booms is roads. Paying for their upkeep has plagued rural areas for years, but with the rise in economic activity, the issue has become even more pressing. Raising the property tax (or any other tax) to pay for the increasing wear and tear is essentially out of the question, so municipalities are relying on state and federal grants to help pay for repaving. But thanks again to the thriving local economy, construction costs have doubled, so those grants don’t go as far as they used to.

The increasing wealth looks impressive on paper. But for the governments in these small rural counties, it’s almost as if it’s brought on more problems than it’s worth. In Sully County, S.D., personal incomes average in the six figures. But the county seat of Onida can’t come up with $260,000 to fix its main street. “All we can do is spot-fill here and there to get the worst of it,” says County Commission Chairman William Floyd. “That’s our main road through town and people deserve better than that.”

Per Capita Personal Income Map

Counties shaded dark green in the following map recorded the highest percentage growth in real per capita personal income between 2007 and 2012. (Click to open an interactive map in a new window.)

*Source for America's Richest Counties chart: Bureau of Economic Analysis

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