A new analysis of potential tax revenue impact from oil and gas suggests El Paso County, and other taxing entities, could see a windfall in the millions if the industry takes off here as it has elsewhere in Colorado.
A "primary" well — one that's considered a good producer — could yield $9,100 a year in county taxes alone, says County Assessor Mark Lowderman. But the big bonanza would come for school districts, which usually have higher mill levies than local governments.
That's important in light of plans by Ultra Resources of Houston to drill for oil on 18,000 acres of Banning Lewis Ranch that the company bought last year on Colorado Springs' eastern border. It also has leased other rural county parcels.
In an e-mail, Ultra declined to outline its plans for El Paso County. But last week, county officials approved three temporary-use applications for Ultra to conduct exploratory drilling and production testing at the Brutus, Olive Oyl and Spinach well sites, east and southeast of the city.
Ultra also has asked for pre-application meetings with the county to talk about expanding the Spinach and Brutus sites by adding eight well bores to existing plans for one vertical well and eight horizontal wells. Ultra additionally seeks approval for a new site, the Ponderosa Well near Blaney Road south of Colorado Highway 94, for exploratory drilling and production testing, county planning official Craig Dossey says.
All of that wasn't thought to mean much for the county, though, because the state Division of Taxation advised Lowderman that oil and gas production was taxed as business personal property ("Coming up dry," News, Dec. 1), a tax the county abolished in 2000.
Now, Lowderman has learned that's not true.
A new ballgame
Lowderman recently discovered he got bad information from state officials. He points to a state statute saying: "the assessor shall value such oil and gas leaseholds and lands for assessment, as real property."
That means the county can, indeed, collect taxes from oil and gas production. The assessment rate for primary wells is 87.5 percent, while secondary and stripper wells that produce less oil are assessed at 75 percent.
Lowderman uses a typical primary well located in Weld County, valued at $1,368,408, to come up with a $9,100-per-well figure for the county. Here's how: Multiply the well's value by the assessment rate of 87.5 percent. Then multiply the resulting figure by the county's tax rate of 7.597 mills. One mill is $1 for every $1,000 of assessed valuation. Even a low-producing stripper well valued at $125,000 would net the county $712 a year in taxes, Lowderman says.
If El Paso County saw a repeat of Weld County's experience, where 5,000 wells were drilled in one year, the county's take could be a whopping $45 million in one year, assuming all wells evolved into primary producers.
Of course, nobody can predict how many wells will be drilled, or what kind of production will follow.
"That's the great unknown," Lowderman says. "Exactly how many of these are going to pop up out there?"
If a jackpot materializes, some taxing districts, including the county, would be faced with how to deal with the Taxpayer's Bill of Rights, limiting the new revenue a government agency can collect. If the cap is exceeded, county commissioners could refund excess revenue to citizens or ask voters' permission to keep it. If it's refunded, the money likely would be returned as a credit on property tax bills based on assessed value of each property, meaning not every taxpayer would get the same amount, says County Treasurer Bob Balink. On average, the county's 243,400 property tax bills would see about a $185 credit if the windfall were $45 million.
Commissioner Sallie Clark says it's premature to discuss how any TABOR excess from oil and gas would be handled, but Commissioner Darryl Glenn favors a ballot measure to retain the money, earmarking it for specific uses.
"I would not support simply requesting to de-TABOR this new revenue and thus allowing all oil and gas revenue to flow into the general fund without a specific purpose," Glenn says in an e-mail. Noting the city's past experience, he adds, "If we have a clearly defined objective for the revenue and we provide our citizens with an appropriate check and balance, voters are more likely to support the revenue retention question instead of a complete de-TABORing question."
Commissioner Peggy Littleton agrees with Glenn. Though she doubts Weld County's boom will be seen here, she says money could be directed toward emergency services or bridge repair.
In Weld County, commissioners won voter approval to exempt the county from the TABOR cap and then pumped the extra cash from drilling into a reserve fund that's been tapped during lean years to maintain services.
Boost for schools
A windfall from oil and gas could be a godsend for school districts where drilling takes place.
While new revenue would mean a corresponding loss of state funding year to year, districts would benefit from a healthier tax base when seeking voter approval for bond issues or mill levy increases.
Consider Falcon School District 49, which takes in a slice of Banning Lewis. D-49 has struggled financially, even as enrollment has boomed, because revenue has slipped. Nearly all of its tax base is comprised of homes, and residential property is taxed at only 7.96 percent of market value, as compared to 29 percent for commercial property.
D-49 hasn't won voter approval for a bond issue or a mill levy increase since 2005, says district spokeswoman Stephanie Meredith.
"It's been a constant challenge," she adds.
Declining property values and state funding cuts have combined to reduce the district's budget from roughly $100 million in 2007-08 to about $80 million this year, she says, prompting D-49 to charge for bus rides and trim administration costs.
Lowderman's calculations show D-49 would receive nearly $55,000 per primary well, based on its mill levy of 45.842 mills.
The district would lose an equal amount of state funding, Meredith says, but voters might have incentive to explore a bond issue to build schools, or approve a mill levy increase to pay for the new schools or rising operational costs. After all, their burden would be less than usual, since they could bank on some of that money coming from taxes on oil drillers' production.
Ellicott School District 22 east of the city also covers a portion of Banning Lewis and the eastern plains. It would receive $49,269 for every primary well, based on its mill levy. For a district with a total valuation of only $26 million, oil wells would help retire the district's debt, superintendent Terry Ebert says.
"We've been hopeful that we would get more commercial business coming down [Highway] 94 from Colorado Springs" to shore up the tax base, he says. "So this is certainly a positive for the district."
But local governments can only hit paydirt if drillers do.
"[Oil] has to be brought out of the ground and taken off the site before it's considered income," and, therefore, taxable, Lowderman says.