Frac sand mining spurs rural rail

On average, railroads are four times more fuel efficient than trucks. In west-central Wisconsin, which is in the midst of a frac sand boom, that fact has increased business for railroads and spurred reinvestment in long-disused rural lines.

The region is a rich source of fine quartz sand, a vital ingredient in the hydraulic fracturing process that has opened up fresh reserves of shale oil and natural gas in North Dakota, eastern Montana, Texas and other parts of the country. Over the past five years, more than 40 frac sand mines have either opened or expanded their operations in west-central Wisconsin and in neighboring southeastern Minnesota.

In Wisconsin, many sand mining companies have built facilities adjacent to rail lines—a cost-effective way to ship raw or processed sand, often in “unit trains” of over 100 cars. In response to increased demand, railroads have ramped up their operations and rehabilitated little-used or dormant lines, at a cost of roughly $1 million to $2 million per mile.

Lakeville, Minn.-based Progressive Rail operates a 62-mile line running north from Chippewa Falls to Rice Lake and Almena, in Barron County (see accompanying map). Freight volume has increased fivefold to about 1,800 cars a month since EOG Resources completed a new sand processing plant in Chippewa Falls last December, said company President Dave Fellon. Over 90 percent of that volume consists of frac sand from the EOG plant and other mining facilities along the route.

Rising revenue has allowed Progressive to invest in human capital (payroll has increased from 65 to 100 workers over the past year) and critical line improvements. Fellon said the firm will spend $30 million to $50 million over the next five years on new railroad ties, bridges, loading facilities and other infrastructure.

Canadian National and Union Pacific have also refurbished long-neglected rail lines linking Wisconsin frac sand operations to distant markets. This summer, CN began clearing brush and laying new ties on a 45-mile section of rail between Cameron and Ladysmith to connect existing and proposed sand mines with a main CN line running north into Canada and south to Texas. The railroad backed out of a pending sale to the state that would have let Progressive operate the line, opting to retain ownership of a potentially profitable sand route.

For more on the economic impact of frac sand mining in the district, see the recent article in the July fedgazette.

Rural Minnesota counties still seeing brain gain (yes, with a “g”)

Much is made of the fact that young people are leaving rural communities for jobs and education opportunities after high school. Much less is made of the fact that older households are continuing to move back to many of those same communities, according to new research by Benjamin Winchester, a research fellow at the Extension Center for Community Vitality at the University of Minnesota.

Winchester tracked five-year age cohorts from age 14 to age 65 from 2000 to 2010. He found that nonmetropolitan counties gained population in the 30-49 age range—a continuation of the trend seen in the 1990s, though the pace of growth had slowed somewhat, possibly in part to a slowdown of migration from the recession. Nonetheless, this migration pattern can be seen clearly from a snapshot of three age cohorts moving (generally speaking) from a job-search and career-building mentality to marriage and family-planning mindset (see maps below; due to technical constraints, maps with better clarity can be seen in the report itself).

County-level population change, 2000 to 2010, by age group (25-29, 30-34, 35-39)

Source: "Continuing the Trend: The Brain Gain of the Newcomers," University of Minnesota Extension Center for Community Vitality

The research did find that rural counties continued to lose young adults to metropolitan counties, mostly to the Twin Cities. In fact, Winchester found that migration preferences of all cohorts from 2000 to 2010 “are remarkably similar” to those found the previous decade.

One new finding was that micropolitan counties—those counties with regional populations of 10,000 to 49,000—appear to take on cohort migration traits similar to metropolitan counties. This was particularly the case in the southwestern portion of the state, where Winchester said “rural urbanity” appears to be attracting more 30-to-39-year-olds to places like Willmar and Marshall. He also pointed out that these micropolitan gains might ironically “exacerbate the narrative of rural decline,” because as these places grow, a few might reach metropolitan status, thus possibly shifting the migration ledger without any underlying change to the places people are moving to.

This research is an update of earlier research on rural brain gain, which Winchester talked about in a July 2011 interview with the fedgazette.

Some Ninth District regions seeing strong population growth

Nothing screams economic activity like population growth because, as the saying goes, people go where the action is. And if that’s the case, North Dakota is getting a little hoarse because it’s getting more crowded.

The U.S. Census Bureau recently published 2011 population estimates for states and their largest population centers. Among the Ninth District’s 15 metropolitan areas, Sioux Falls, S.D., and Bismarck, N.D., led the population pack with a 1.4 percent increase last year. In fact, every district metro saw at least slight growth, save for Grand Forks, which dropped one-half a percentage point (see Table 1).

The Census is also gathering and publishing more data on smaller, so-called micropolitan regions, of which there are 41 scattered across the Ninth District. There was wide variation in population growth among these regions (see Table 2), and total growth for micro regions was slower than for district metros (0.6 percent versus 0.9 percent, respectively). Roughly one-quarter (10) of micro regions saw population declines. But six micro regions saw stronger growth than the top metro areas. Half of them are in western North Dakota, where Minot and Dickinson grew by 3 percent or more, and Williston grew an astounding 8 percent last year.

Migration and demographics play important roles in population change, as people move into and out of communities, while the existing population experiences both births and deaths. Unfortunately, new population statistics don’t tell us how many of each occurred in various communities. Communities in Ninth District states harbor fairly similar demographics in terms of age and fertility rates that would make local population change from births and deaths reasonably consistent and predictable in a given year.

Migration is likely the biggest factor in population performance, particularly among outliers. In western North Dakota, it’s clear people are migrating to the oil patch for jobs—a topic covered in depth in the April fedgazette online later this month.

 

Flood affects business, banking in the Ninth District

Many communities in the Ninth District were hard hit by flooding this past year (see past reports in the fedgazette). But banks in district states report that, in general, the impact on local economies will be modest overall, according to a fall survey by the fedgazette.

A total of 86 banks responded to the (nonscientific) survey, including 52 from the Dakotas and Montana, which saw the worst flooding. In terms of their local economies, bankers reported that agriculture and retail sectors in general have been hit the hardest. For example, 15 of 25 Montana bankers reported adverse flood impacts on agriculture, and 44 percent of North Dakota bankers said retail has been negatively affected, along with about one-third of bankers in North and South Dakota regarding the transportation sector. Construction saw a mixed response, with roughly equal (and small) numbers of bankers stating there were negative and positive effects from flooding.

But those difficulties were not necessarily flowing through to bank business to the same degree. A large majority of respondents across district states said that loan repayments from existing clients have not been negatively affected across major portfolio areas (construction, agriculture, commercial and industrial, and commercial real estate; see Chart 1). Agriculture saw the highest reports of repayment problems (36 percent in Montana; 24 percent in North Dakota). Among the minority of banks reporting repayment issues with any loans (about one in three), many said they restructured loans or made other accommodations in loan terms.

Maybe more importantly, bankers said they expected little change in future loan repayments (see Chart 2). Agricultural loans were again the area of biggest concern. In terms of loan demand, most banks reported no flood-related changes; in fact, slightly more banks saw an increase in loan demand related to the floods compared with those reporting a decrease.

The survey was conducted in cooperation with state banking associations, who passed the survey along to an estimated 750 members. While overall results appear modestly positive under the circumstances of widespread flooding this summer, results likely vary significantly among individual communities, given the different localized effects of flooding.

Community orgs report struggles among low and moderate income

The current state of the economy is a daily topic of discussion on the news and at dinner tables across the country. Of particular importance to Community Development offices within the Federal Reserve System is the economic state of low- to moderate-income (LMI) communities.

Existing government data provide some insight into how these communities are faring. However, many of the factors that play an important role in their economic health, such as job training opportunities, the availability of affordable rental housing or business owners’ ability to access credit, are not measured well through existing data sources.

To provide a more comprehensive read on LMI community conditions in the Ninth District, the Minneapolis Fed’s Community Development department has launched Community Insight, a semi-annual survey of community development and service organizations that serve LMI communities. The survey is designed to capture their perspectives on changes in local employment, housing, consumer finance and business conditions.

According to the survey, most Ninth District LMI communities experienced deteriorated economic conditions in the second quarter of this year compared to 12 months prior. The most pervasive signs of economic stress among LMI communities were increased demand for financial counseling, decreased availability of affordable rental housing and reduced access to credit for business owners (see Charts 1-3 below).

Survey responses also revealed some positive signs, including increased homeownership opportunities for LMI buyers with good credit and an increase in the number of micro-businesses.

The baseline survey conducted during the months of May and June 2011 contains responses from 335 organizations representing more than 180 cities and townships across the Ninth District. For more on the survey and its findings, view the full Community Insight report.

People-on-a-stick: 2011 state fair attendance

Maybe it was good weather. Maybe it’s all the comfort food. Whatever the sources, district states generally saw strong attendance at their state fairs this year.

State fairs come in all kinds of shapes and sizes. Most occur between late July and Labor Day. Some run longer than others. For example, South Dakota’s fair runs just five days, while Montana and North Dakota go for nine days, and Wisconsin and Minnesota keep the deep fryers roiling for 11 and 12 days, respectively.

Regardless of length, state fairs have been popular of late (see Chart 1). South Dakota saw an estimated 10 to 15 percent increase in its state fair attendance this year, highest of any district state. Montana and Wisconsin also posted small gains.

 

While Minnesota posted a tiny decrease in attendance (0.3 percent), it nonetheless has a lot to crow about: It has the second-largest total attendance in the country, at almost 1.8 million people (see Chart 2), second only to Texas. But at 150,000 people per day, Minnesota has the highest average daily attendance of any state fair in the country. On the final Sunday of this year, the fair drew 230,000 people—more than many fairs will see in total—yet it fell short of the attendance record by about 5,000 people.

North Dakota’s state fair had been seeing strong attendance gains in recent years, but was canceled this year due to the catastrophic flooding in the host city of Minot.

Maybe the most notable attendance trend is in South Dakota. As recently as 2006, the state was subsidizing the fair to the tune of almost $1 million annually. With tight budgets, lawmakers there have slowly cut back on that support, and this year’s subsidy was $270,000. Yet attendance has steadily climbed.

Inside the mailbox: Proposed post office closures in the district

Many people in small communities, and even some in large-city neighborhoods, might be facing a longer trek to get stamps and to mail those Christmas packages.

Citing high costs and the rise of electronic mail and other delivery alternatives, the U.S. Postal Service faces a significant structural budget deficit. In turn, it is studying the budget ramifications of closing thousands of offices nationwide.

Most recently, in July the USPS released a list of 3,653 offices for possible closure; district states (including all of Wisconsin, and the Upper Peninsula of Michigan) were home to 393 locations on the list (see map). This comes on top of a 2009 proposal still being studied regarding the possible closure of 728 post offices, including 65 in district states plus the U.P. The results of this initial proposal are expected sometime this year or next.

 
 
 Combined, better than 10 percent of the proposed 4,400-odd closings are in district states, with Montana and the Dakotas seeing the biggest potential hits. Each state has about 90 post offices between the two lists. Minnesota is tops in the district with 111 offices, but the state is twice the size of these three states put together.

What those figures represent in terms of fairness and shared pain depends on the comparison. Between the two proposals, Montana and the Dakotas are facing post office location cutbacks of about 30 percent (see chart). But district states also have about 8 percent of the nation’s 32,000 post offices, and just 4 percent of its population, which means on average each one serves about half as many people as the national average. That ratio is even worse in the more sparsely populated Dakotas and Montana (see chart).

 

Wisconsin is the outlier in the group, with just 54 post offices identified for further study, or about half the number as Minnesota. The U.P. reportedly has 25 post offices on the list. On a population basis of about 300,000 in the U.P., that’s roughly on par with Montana. But USPS data do not break out total post office figures between lower and upper Michigan.

District air service: Flyin’ high and dry

In mid-July, travelers in small cities across the district got the unfortunate news that they would be losing air service when Delta Air Lines announced it was dropping service to 24 small regional airports nationwide, 14 of which are in the district, and several others immediately nearby (see map, at end).

Delta cited a few reasons for the cutbacks, the primary one being low usage rates during a period of higher fuel costs. Average occupancy rates on regularly scheduled flights along most of the cut routes range from 60 percent to as low as 12 percent for Thief River Falls, Minn.

But there is another culprit—the uncertain future of the federal Essential Air Service program. Readers of the fedgazette might be familiar with EAS, which subsidizes airlines on flights between (often very) small isolated markets and major hubs. The program is still in effect but expires in 2013, and its renewal in the current atmosphere of budget tightening seems unlikely.

Delta is subsidized for operations in nine of the 14 district airports it is leaving. Those routes were formerly served by Northwest Airlines before its merger with Delta and date back to the era prior to airline deregulation in 1978. But in recent years, flights to and from subsidized locations were operated by subcontractor Mesaba.

Passengers who have already booked flights in and out of those cities don’t need to worry just yet. The EAS program requires Delta to continue operations for at least 90 days, or until another carrier jumps in to take advantage of the subsidy.

 

The wrong kind of job growth?

The combination of huge federal budget deficits, the recession and the November midterm elections (which saw an unprecedented swing toward Republican and Tea Party candidates) has put the size of government—not only spending, but overall employment—firmly under the microscope.

According to the most recent state-level data available, government’s overall share of total employment in the district has risen, from 15.6 percent in November 2007 to 16.4 percent three years later, according to the Bureau of Labor Statistics. It went up even more at the national level, from 16.2 percent to 17.1 percent.

But those figures obscure several tributary employment trends that feed into the broader development. None is more central than the decline in private sector employment (see Chart 1). Government’s overall employment share would have increased even if no jobs were added to the public sector.

 
And that was actually the case at the national level; while federal employment increased by 3.6 percent nationwide, those gains were more than offset by employment losses among state and local governments (which are also much larger in terms of total employment size).

The trend is reversed in the Ninth District; there was no growth in federal government workers in district states, but local and state governments added employees, and overall public sector employment grew by 1.5 percent during this three-year period.

There was little consistency among district states in terms of public sector job activity (see Chart 2). The Dakotas saw gains at every level of government during this three-year period, the likely result of having more robust economies during the recession, particularly in the case of North Dakota. Minnesota, Montana and Wisconsin all saw losses at two levels of government (and in different combinations).

 
Strong economic growth in North Dakota hasn’t made much of a dent in the overall share of public sector employment there (see Chart 3). Montana’s public sector employment continues to be high despite losing about 1,000 government jobs since late 2007.