Strategies for Promoting Financial Growth in Energy-Rich Cities
Energy boomtowns, communities experiencing rapid growth due to sudden economic shocks tied to natural resources, face unique challenges. A research paper by Tsvetkova and Partridge (2015) explores strategies to promote economic sustainability in these dynamic environments.
Key Economic Sustainability Strategies
- Economic Diversification
- Reducing dependence on the energy sector by developing other industries like manufacturing, agriculture, services, and tourism.
- A boomtown investing in local entrepreneurship and attracting new businesses unrelated to energy extraction.
- Helps stabilize the local economy against the volatility of energy markets, creates jobs outside the boom sector, and ensures long-term economic resilience once the boom ends.
- Infrastructure Investment
- Developing and upgrading infrastructure such as transportation, housing, utilities, and social services to support growing populations and future economic activity.
- Expanding road networks, improving schools and hospitals to not only serve the current population but also attract other industries.
- Enhances quality of life, supports workforce retention, and lays the groundwork for diversified economic growth.
- Human Capital Development
- Investing in education and training to improve the skills and adaptability of the local workforce.
- Local governments or companies funding vocational training or higher education programs aligned with diverse industry needs beyond energy.
- Prepares residents for employment in new sectors and reduces the risk of unemployment if energy jobs decline.
- Sovereign Wealth or Trust Funds
- Saving a portion of resource revenues in funds designed to provide financial stability or invest in future economic development.
- Establishing a local or regional fund from energy revenues to finance infrastructure or community initiatives.
- Provides long-term fiscal stability and a financial buffer during economic downturns.
- Community Engagement and Planning
- Involving local stakeholders in development planning to ensure balanced growth addressing economic, social, and environmental needs.
- Public forums or partnerships that integrate community input into diversification strategies and development priorities.
- Increases public support, improves decision-making, and tailors strategies to local needs.
Summary of Benefits
- Greater economic resilience and reduced vulnerability to boom-bust cycles.
- Improved local quality of life and social stability.
- Sustainable long-term growth not solely reliant on finite energy resources.
- Enhanced capacity to attract and retain a skilled workforce.
Other strategies discussed in the paper include the hidden costs approach, which ensures that hidden extraction costs are compensated through tax or impact fees; the creation of legacy or trust funds, permanent funds to capture new, finite revenues for long-term benefit; and strengthening the capacity of local governments to educate officials about the challenges and opportunities of energy development.
The research series is based on the project "Maximizing the Gains of Old and New Energy Development for America's Rural Communities." Tsvetkova and Partridge (2015) advise oil and gas developers to "do no harm in the long run" to mitigate costs through oversight and policies that generate revenue to offset costs and pay for needed repairs.
In rural areas, there are positive net spillovers for several sectors, with construction benefiting the most. Other sectors that benefit include transportation, warehousing, retail, and wholesale trade. However, in metropolitan areas, the economic effects of energy sector booms are negligible to negative.
By implementing these strategies, energy boomtowns can transition from short-term economic gains to sustainable, long-term growth, ensuring a brighter future for their communities.
- A strategic approach to promote economic sustainability in energy boomtowns involves diversifying the economy by investing in industries such as agriculture, manufacturing, services, and tourism.
- Economic diversification helps stabilize the local economy against the volatility of energy markets, creates jobs outside the boom sector, and ensures long-term economic resilience once the boom ends.
- Infrastructure investment is crucial for energy boomtowns, with the development and upgrade of transportation, housing, utilities, and social services necessary to support growing populations and future economic activity.
- Investing in human capital development by funding education and training programs for the local workforce can prepare residents for employment in new sectors and reduce the risk of unemployment if energy jobs decline.
- To provide financial stability, energy boomtowns can establish sovereign wealth or trust funds to save a portion of resource revenues for future economic development or to finance infrastructure projects.
