Oil, toil, turmoil: North Dakota has become the second largest oil-producing state in the nation, but not everyone's gushing over it.

• Author: Weiss, Suzanne
• Position: NORTH DAKOTA - Cover story

It's being called "The Luckiest Place on Earth." North Dakota--just 10 years ago struggling with dispiriting, persistent trends of depopulation and decline--today finds itself with the hottest economy in the United States, growing five times faster than the national average. It boasts multibillion-dollar budget surpluses, growing infusions of international investment capital and the lowest unemployment rate in the country, 3 percent.

And the source of North Dakota's good fortune, the 640-square-mile Bakken oil shale formation in the northwestern comer of the state, has only begun to yield its riches. The U.S. Geological Survey earlier this year estimated that more than 7 billion barrels can be extracted from the area over the next three or four decades.

Thanks to high oil prices and technological advances--including horizontal drilling and hydraulic fracturing, better known as "fracking"--production in the Bakken oil fields has increased to more than 800,000 barrels a day, six times more than in 2007. In 2012, North Dakota surpassed Alaska and California to become the second largest oil-producing state in the nation behind only Texas, according to the U.S. Energy Information Administration.

In the past, North Dakotans have seen what looked like booms quickly turn into busts--lignite coal in the 1970s, shale oil in the 1980s and again in the 1990s--so naturally there's an undercurrent of concern about "whether this is going to last," says Senate Majority Leader Rich Wardner (R). "That's something we're still watching, but of course we're hopeful."

Senate Minority Leader Mac Schneider (Dem-NPL) agrees. "No one can predict how long the good times will roll, but this boom does appear to have legs," he says.

"It's got a whole different flavor from past booms," says House Majority Leader Al Carlson (R). "This is mining--it's not exploration anymore."

The revenue being generated by the boom--in the form of taxes on oil and gas production, personal and corporate incomes, and retail sales--"is beyond what we could have imagined 10 years ago--even two years ago," Schneider says. "North Dakota has not seen the likes of this, ever. It's an incredible opportunity."

Average per-capita personal income in North Dakota is rising at the rate of more than 12 percent a year, and has more than doubled--from $25,592 to $51,893--since 2000, according to the U.S. Bureau of Economic Analysis. The state has cut individual and corporate income taxes, taken on a larger share (80 percent) of the costs of K-12 education, and invested several billion dollars in infrastructure-building ranging from roads and bridges to water, sewer and flood-control projects.

Oil and natural gas development is the biggest economic driver, but the state is also experiencing healthy growth in other sectors. Deere & Co. and Caterpillar are both building factories in North Dakota, and an Amazon service center is also in the works. Small businesses are springing up as well--from garbage collection to coffee shops.

Still, a windfall of such proportions and likely longevity, particularly in a predominantly rural state, has a downside.

State and local officials are struggling to get their bearings in the midst of problems ranging from acute housing and labor shortages to rapidly increasing demands on public services to rising tensions between the eastern and western halves of the state. What is taking place in North Dakota brings to mind the old saying, "Be careful what you wish for."

In the Belly of the Boom

Over the past several years, one of the most sparsely populated states--10 inhabitants per square mile--has seen an influx of more than 70,000 workers from across the nation who are attracted to high-paying jobs in the rapidly developing oil patch. Among the many repercussions for locals are a higher cost of living, more traffic, overcrowded schools, businesses losing employees to the oil fields, increased crime and pollution, and a growing shortage of housing.

In Williston, Tioga and other small communities in the western part of the state, one-bedroom apartments that rented for less than $500 a month four or five years ago now go for around $1,500 a month, and two- or three-bedroom units as much as $3,500. Local hotels, motels and mobile home parks are at 100 percent occupancy. Some companies have cashed in on the low...