GarCo tax revenue crash looms
It’s been a wonderful ride for tax districts in western Garfield County in recent years.
The natural gas industry has proven to be a revenue gravy train, thanks to a total assessed valuation now measured in billions of dollars.
But as the recent slowdown in a volatile energy industry shows, a better analogy might be a roller coaster.
“I know we’re still going uphill and it’s great fun, but we can see a little bit ahead and the track is out,” Garfield County Assessor John Gorman said.
County budget analyst Theresa Wagenman used yet another metaphor in a presentation to county commissioners, suggesting they prepare for a property tax “bomb” in 2011.
The challenge won’t arrive until then because of a two-year lag between gas production and taxes paid on it. Fire departments, the county and other tax entities first should see a lucrative 2010 because it will be based on healthy 2008 production, Gorman said.
“They’re going to get all this money, but then their tax receipts in 2011 from 2009 production could drop significantly,” he said.
Property tax accounts for a third of the county government’s revenue, and two-thirds of that comes from the oil and gas industry. Wagenman projects revenue falling from $93.5 million in 2010 to $76.7 million in 2011.
The county has sought to prepare for an eventual drilling slowdown by building up a fund balance, which reached nearly $70 million at the end of last year.
It’s not just the drilling drop-off that will have consequences for assessed valuations — it’s the sharp reduction in natural gas prices that largely precipitated that drop-off. Gorman said if gas production in the county falls by 50 percent this year, and the value of that gas is off by two-thirds, that means a five-sixths drop in assessed valuation.
Soaring natural gas production has been the chief factor behind big increases in assessed valuation in the county in recent years. Gorman’s 2008 abstract of assessment attributes $2.2 billion of the total $3.5 billion in assessed valuation to oil and gas, with $1.8 billion of that coming from the value of production and the rest from personal property.
That is not only a reflection of the high level of gas production in the county. It also points to the fact that the assessed value of that production is 87.5 percent of its actual value, whereas residential property is assessed at just 7.96 percent of actual value, and commercial property at 29 percent.
The industry’s tax contribution is so significant that a single energy company, Williams Production, had a 2008 assessed value that topped $1 billion in the county. The county’s top 10 taxpayers based on assessed value all were energy companies.
The bonanza for taxing districts provided by the industry, and by the residential and commercial growth it helped bring about, is demonstrated by the Rifle Fire Protection District.
In 2005, the district’s total assessed valuation was $405 million, which generated $2.3 million in tax revenue. By 2008 that valuation had risen to $832 million and produced $4.8 million in revenue, even though the district’s tax rate hadn’t changed, Chief Mike Morgan said.
The Grand Valley Fire Protection District saw its assessed valuation more than quadruple during that same time, from $245 million to more than $1 billion.
Chief Dave Blair said that five years ago, everyone on the department except him and one other person was a volunteer. Since then, the department has expanded its paid staff to 12 firefighters covering three shifts.
But as tax revenue from the energy industry has grown for these fire departments, so has demands for service resulting from the industry and the community growth it has fostered. For example, Blair said his department has seen a rise in accidents as more and more energy traffic is funneled through the Parachute area. Service calls nearly doubled from 2003 to 2007, reaching 863.
Morgan said Rifle’s annual call volume has grown from about 275 when he started with the department in 1991 to 1,300 to 1,400 now.
Both Morgan and Blair are hopeful they can maintain staffing levels when tax revenue dips.
Morgan said the big hit will be for capital projects such as new fire stations.
The two departments have taken advantage of the recent years of plenty when it came to such projects. A bond issue in Rifle for a fire station and apparatus was paid off early, thanks to conservative budgeting and increased revenues. The department is debt-free, is paying for construction of a station with money it saved and has accumulated about $7.5 million in a capital reserve account.
Grand Valley is building an $8.5 million fire station on Battlement Mesa and had planned to pay it off in 10 years. Thanks to strong tax revenue, district officials now hope to set aside enough money to cover the project’s cost in three years, so they won’t have to have to worry about paying for it once revenue drops off.
The department is taking a zero-growth approach to its budget in anticipation of that drop-off, and Rifle’s department also is bracing for the uncertainties surrounding the drilling slowdown.
Said Morgan, “I wish somebody knew where the bottom of this thing is … and what the future holds for us.”