Researchers with the Duke University Energy Initiative studied how oil and gas production generated revenue for local governments, looking at four key methods in eight states (Arkansas, Colorado, Louisiana, Montana, North Dakota, Pennsylvania, Texas, and Wyoming) active in shale development.
In most cases, the existing policies seemed to cover revenue for local governments and increased costs associated with oil and gas development. Some local governments in very rural areas with rapid growth could warrant additional revenue.
Revenue sources for local governments can include state severance tax or impact fees, local property taxes on oil and gas property, revenues from leasing of state-owned land and revenues from leasing federally owned lands. Revenues can also come from local government oil and gas leases or local sales taxes, but due to limited data and methodology issues, the researchers did not include these revenue sources in the study.
A comparison across the eight states was made by determining the percentage of total revenue generated by oil and gas production that went to local governments from the above four revenue sources in Fiscal Year 2012.
Interviews with more than 100 local government officials, analysis of state and local financial data and fiscal policies were taken into consideration to determine if revenues were sufficient for county and municipal governments to keep abreast of service demands associated with the industry.
The percentage of local government revenue received from oil and gas production varied from less than 1 percent to close to 10 percent in the eight states, with distribution to six areas (school districts, school trust funds, counties, municipalities, grant programs and other local governments) also varying within the eight states.
On average, schools and counties tend to receive the largest shares of revenue. Variation in revenues for schools and counties can be attributed to 1) varying methods of valuing oil and gas properties for property tax purposes, if taxed at all, 2) varying ranges of states’ assessment and property tax rates to oil and gas property values and 3) varying allocation methods from the states to school districts and counties.
Municipalities and other local governments in the study tended to collect a smaller share of the revenue. Sales taxes tend to provide revenue for municipalities, but this source of revenue was not included in the study. Of the eight states reviewed, Pennsylvania had the highest municipal revenue share, due to a substantial portion of the impact fee directed to townships.
In Colorado, North Dakota and Pennsylvania, grant programs allocate state-collected revenues to municipal and county governments to provide flexibility in directing revenues where most needed.
Overall, existing policies seem to provide adequate revenue for local government to manage increased service demands in oil and gas development. Local government in rural regions tend to face the greatest challenges where rapid, large-scale operations are occurring, such as in the Bakken region of North Dakota and Montana and in select counties in Texas, Colorado and Wyoming.
While revenue allocation to local governments has played a key factor in its net fiscal impact, other factors can also come into play, such as revenue from other sources, existing infrastructure capacity, local labor force conditions and cooperation with industry.
The full report may be found in the Duke University Energy Initiative Web site.
