How New York May Squander Its Energy Boom

By Gary Jason

The Great North American Energy Renaissance is going full-bore, and it offers finally the prospect of true American energy independence.  This renaissance is due to the application of relatively recent technologies, such as horizontal drilling and fracking, to hitherto commercially unviable sources of fossil fuel deposits, such as oil sands and shale rock formations.

Two recent stories -- ironically from the same source, the New York Times -- illustrate federalism in action.  Together, they describe how two different states have reacted to this energy renaissance.

The first piece reports the continued economic transformation to North Dakota due to shale drilling operations.  It describes how mini-communities are springing up on the Northern Prairie to house the (primarily male) workers.  The story talks about two such "man camps," each housing around 3,700 workers.

The problem, you see, is that North Dakota -- with an unemployment rate of 3.5%, the lowest in the country and less than half the national average -- has so many fossil fuel energy jobs open that men are flooding in from elsewhere in the nation, and flooding in so quickly that the housing for them has to be cobbled together on short notice.  These "man camps" are usually made from prefab modular buildings.

The story reports that the explosive growth of the man camps is not surprisingly putting stress on the state's infrastructure and environment.

There are several North Dakota counties in which an amazing one third of the population lives in man camps.  Two such counties have already put a moratorium on any more worker camps.

As the old saying has it, there can be too much of a good thing.  Here, the good thing is high-paying blue-collar work.  In the oil industry, many of these jobs pay well over $100,000 a year.  Men are moving in so fast that motel rooms are booked to the hilt, rents have gone up fourfold, and the man camps are packed.  The North Dakota cops have to warn wannabe workers not to try living in their cars in the infamous North Plains winters.

All of this is reminiscent of the frontier days, when gold-hunters would flood an area, looking for the elusive metal.  There are the occasional fights, and many of the man camps have to outlaw guns, booze, and -- well, how to put it? -- "unauthorized women."  But luckily, twelve-hour shifts at physically demanding work tend to keep the men from becoming too obstreperous.

The second story concerns New York.  New York State -- famous for its hordes of "progressive liberals" who claim to worry so much about the working class -- could also be economically humming by creating those high-paying blue-collar jobs so desperately needed in this "he-cession."  It could also be doing its part in freeing this country from its reliance on foreign sources of energy -- from oil produced in places such as the Middle East and Venezuela to solar panels produced in China.

But no -- of course, New York's environmentalists are up in arms about fracking (and every other method of energy production that actually works -- i.e., reliably produces low-cost energy).  This has led to quite a battle, indeed.

Governor Cuomo's administration is being bombarded from both sides as it comes up to the crunch point when it must decide whether to allow gas production by fracking.  Energy companies are pouring money into lobbying firms, ad agencies, and campaign war chests, hoping to sway Albany to start approving such operations.  The environmentalist groups are spending tons of money the same way, as well as deploying their myrmidons on the streets to demonstrate, all to get the state government to refuse any permits for drilling.

The warring sides seem to be mirrored in Gov. Cuomo's very soul.  He plays the New Deal Democrat who wants jobs for the proletariat, but he also plays the New-Left Hippie Environmentalist oh-so-concerned about the ecosystem.  He has positively begged both sides to be moderate, saying, "I know that the temperature is high.  We have a process.  Let's get the facts.  Let the science and the facts make the determination, not emotion and not politics."

Now, I know that the prospect of a progressive pleading for politics and emotion to be put aside is on the face of it risible.  Progressive liberal governance is all about machine politics and cheap emotional appeals.  However, I am moved by this spectacle to make a suggestion -- one that I think will help the governors of blue states fearful of allowing energy development because of the anti-development environmentalists.  However, those governors will hate me for mentioning it.

Let's start with an observation.  The states of this nation divide into two groups: the energy-makers and the energy-takers.  The environmentalists dominate the politics of the energy-taking states, such as New York and my own wacky state of California.  The energy-takers love the fact that they can import most of their energy, all the while keeping their environments pristine.  In that sense, they have the best of all worlds.  The energy-makers, such as Alaska, Texas, Wyoming, Louisiana, West Virginia, and now North Dakota, freely allow the exploitation of their fossil fuel resources, and bear disproportionately the costs of such production.  But they are also able to prosper from it as well, as shown by their generally lower unemployment rates and more robust economies.

I think that it would help prompt the self-indulgent energy-takers be more supportive of the nation -- more patriotic, in the truest sense of the term -- if the federal government eliminated the state tax deduction for federal taxes.  After all, the governors of those states are already facing resistance to higher taxes.  If the taxpayers of those states could no longer write off the state taxes, those taxpayers would become even more adamantly opposed to higher taxes.

Taking away the deduction for state taxes would thus force the "progressive" states into a dilemma: cut programs, or enhance revenues by increasing economic growth (which would have to involve easing regulations).  But the former option would cost the progressive politicians a lot of support from their base.

I make this suggestion with a shudder: I hate to think of how much my own taxes would rise from such a change.  But my sense of justice leads me to advocate it.  It is simply unfair that the high-state tax states can force the lower-tax states to pick up much of the tab for the former's underperforming economies.

Depriving New York and California residents in particular of that deduction would help motivate them to pay more attention to the narcissistic anti-energy, anti-growth policies their leaders have chosen.  It would help motivate the ordinary citizenry fight the environmentalists.  New York could do like Pennsylvania, Ohio, and elsewhere and let its shale reserves be tapped.  California could do like Texas, Alaska, and Louisiana and let its offshore reserves be more thoroughly exploited, by at least allowing exploration for new reserves natural gas.  But the political leaders in both states are largely opposed as things stand now.

The best way to make eliminating the state tax deduction possible would be by moving to a flat tax, where federal tax rates are lowered on the upper brackets in exchange for the elimination of all deductions.  As Steve Forbes can tell you, this is a tough sell, but it at least has a chance.