Gas revenues a tax windfall
Soaring tax revenues from natural gas production mean more of a windfall for other taxpayers than for tax-funded agencies.Tax rates will drop for two western Garfield County school districts this year despite tax increases their voters approved. That’s because there is a growing property tax base, fueled by natural gas drilling, to generate the funds those districts are authorized to collect.Garfield County School District Re-2 homeowners will pay about a fifth less in taxes this year, even after approving a mill levy override. Taxpayers in the Grand Valley School District also will see a tax decrease even as the district begins collecting on an override.Christy Hamrick, Re-2’s finance director, said district officials had thought the boom in gas tax revenues would minimize the impact of the override.”We didn’t really expect this large of a jump (in gas revenues) but we knew it would be significant,” she said.According to a report Hamrick prepared, the assessed valuation in Garfield County for oil and gas production increased from $251.2 million in 2003 to $568.3 million in 2004. Of the $317.1 million jump, $212.1 million was in Re-2’s tax district.The total increase in assessment in the county was $333 million, Hamrick said.This year, Re-2 taxpayers paid a total of 26.64 mills. This year, they will pay about 21 mills, even after approving an override that will total about 4.9 mills.”I think they will be happy, and they should be,” Hamrick said.Rose Belden, Hamrick’s counterpart for Grand Valley schools, said that district’s assessed valuation is up 59 percent. So its total tax bite also will be lower for taxpayers, despite approval of a mill levy override of 4.278 mills in 2003.The district is only starting to collect on that override now because the county clerk’s office had originally determined the measure was defeated at the polls. The secretary of state’s office later found there had been irregularities in counting ballots, and decided it had passed by 17 votes.Because of the increase in assessed valuation, the district’s general fund mill levy will drop from 9.571 to 6.418, and a bond mill levy for the new high school will fall from 8.415 to 5.282. The result is an overall decline in the mill levy, even with the override taking effect.When campaigning for their mill levy override this fall, Re-2 officials and supporters pointedly avoided projecting that a growing tax base would minimize the impacts of the override on taxpayers. A year earlier, it had factored in such a projection in a measure that voters ultimately defeated.”I think people kind of got confused so we tried to stay away from it this time,” Hamrick said.Some voters said that when the district estimated in 2003 what the mill levy would do to property owners’ tax bills, it failed to clarify that it was factoring in projected growth in assessed valuation.The impact of rising assessed valuation on taxpayers is immense. Jim Evans, executive director of Associated Governments of Northwest Colorado, said about 60 percent of a property tax bill goes to schools.But the increase in assessed valuation does little for the districts themselves. Under state school finance laws that equalize spending between districts, extra revenues will go to other districts with lower property tax bases.Evans said about a quarter of property taxes go to counties. But again, the increase in the property tax base due to gas development and growth in the county has only limited benefits for Garfield County. The county faces restrictions in how much more money it can collect from year to year for its general fund as property tax revenues increase.However, the county can hold a hearing and decide to direct excess revenues toward capital improvements.Garfield County Commissioner John Martin said the alternative is to give rebates back to the taxpayers, which in large measure “probably would be the oil companies, not the citizens, so we choose to keep that and use it on capital projects.”That will allow the county to do things such as build a new social services building in Rifle with cash, rather than having to finance it, Martin said.But he noted that the county must be careful not to overextend its capital purchases. The limit on increases in its general fund can limit its ability to staff up for new facilities and maintain them.”We can buy ’em, but if we don’t watch our p’s and q’s we can’t operate them,” Martin said.County administrator Ed Green said the county recently added about $1.3 million into its capital fund because of rising property tax revenues.He said the county probably received about $5.2 million in total revenues from gas development last year, when mineral lease and severance tax sources are included.He estimated that could increase to $6.6 million this year.Doug Dennison, the county’s oil and gas auditor, said he doesn’t think the revenues generated by gas development get enough public attention, and part of the problem is that the subject is complicated so much by the laws governing where it goes.He said it’s important to remember also that the price of natural gas plays a big role in the property taxes energy developers pay.”If the price were to drop drastically, then the assessed value of that goes down and the tax revenue goes down,” he said.As the county’s gas fields mature over the years and production decreases, it needs to be ready for a drop in revenues, Dennison said.He said residents of La Plata County have enjoyed low tax rates for years due to heavy gas production, but the county is starting to look at having to raise taxes as production begins to wane.Evans remembers when the Unocal oil shale operation closed in the early 1990s, eliminating a third of the county’s tax base.”The county was in trouble there for a few years,” he said.The county’s natural gas boom also will bust some day, Evans said.”It definitely is a long-term problem but in the short run there will be a benefit to the other taxpayers in the county,” he said.He said the state’s energy impact program can help provide a cushion when a downturn arrives, but he would like to see a mechanism that allows more money to be set aside during the current windfall as a kind of rainy-day fund.”In a perfect world you could project out and maybe put some money aside, maybe in bigger reserves to anticipate that inevitable downturn,” he said.Contact Dennis Webb: 945-8515, ext. firstname.lastname@example.org
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