Report: Shale Development Boosting Local Tax Revenue
“Our research indicates that the net impact of recent oil and gas development has generally been positive for local public finances. While costs arising from new service demands have been large in many regions, increased revenues from a variety of sources have generally outweighed them or at least kept pace, allowing local governments to maintain and in some cases expand or improve the services they provide.” (p. 2)
The report also details the variety of local taxes that can be attributed to oil and gas production, a story that is seldom told. From the report,
“These governments tend to experience increased revenue from a variety of sources, such as severance taxes distributed by the state government, local property taxes and sales taxes, direct payments from oil and gas companies, and in-kind contributions from those companies.” (p. 1).
Just to provide a few examples of the positive impacts:
- In Colorado’s Denver-Julesberg and Piceance basins, “county governments generally experienced large net fiscal benefits.”
- In Pennsylvania the revenue from the state’s impact fee “in some cases doubled the operating budgets of townships and provided substantial new revenue for county governments.”
- In Texas many counties experienced a “large net positive”: Along with property tax and sales tax growth, Texas municipalities “have seen large new revenues from leasing municipal land for oil and gas production.”
The report does explain that not all local governments received net benefits. That’s because some were not able to keep up with the pace of infrastructure improvements needed to sustain the growing populations, according to the authors. However, even so, local governments in these regions still saw substantial new revenues. For instance, in North Dakota,
“…county governments have seen their budgets swell by as much as 10-fold since 2005 due to severance tax revenue (which the state imposes in lieu of allowing local governments to collect property taxes on oil and gas production) and sales taxes….severance tax proceeds coupled with sales and property tax receipts have rapidly increased government revenues.” (p. 9)
The same is true for Montana, which also “experienced large new revenues, primarily from allocations from Montana’s severance tax.”
One of the challenges for the areas with fewer accrued benefits was keeping up with road and highway improvements. However, the report does point out that some states have come up with different solutions to address those costs:
“Some local governments, notably in Arkansas, Pennsylvania, and parts of Colorado, have entered into agreements with oil and gas companies to repair damage to local roadways, which has played a major role in limiting public costs.” (p. 2)
To provide a few examples of this in action, Chesapeake Energy invested more than $300 million between 2010 and 2012 in roads in northeastern Pennsylvania. In parts of the state, Chesapeake actually spent more on roads than the state Department of Transportation. In Ohio, oil and gas companies participate in agreements with municipalities in which the industry invests directly in road and highway maintenance.
This report is in line with what we’ve been seeing in energy developing states and counties across the country. A recent report from Cleveland State University found that the tax apportionment in five Ohio counties — Carroll, Harrison, Noble, Guernsey and Belmont — increased by a spectacular 50 percent from 2011 to 2013, jumping from $15.5 million to $22.9 million due to shale development in those areas. In Texas, some shale counties are seeing sales tax increases of “over 500 percent year over year.” And thanks to shale development, “Texas is on a course to deposit over $20 billion into the Rainy Day Fund — an average of over $3 billion annually, setting new records each year,” according to the Texas Taxpayers and Research Association.
Of course, IHS CERA has found that shale development was responsible for $74 billion in government tax revenues in 2012, and it estimates that it will generate $138 billion in government revenues by 2025. That’s billions of dollars that are not coming out of taxpayers’ pockets – just one of the many reasons to celebrate shale development’s success.