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Municipalities in Eight Shale States Collecting Adequate Revenue From Oil, Gas Development

A study released by the Duke University Energy Initiative found that oil and gas production is generating significant revenue for local governments in eight states with active shale development, providing them with adequate funds to handle the increased costs associated with industry development.

Duke researchers examined revenue sources generated by the oil and gas industry for local governments in Arkansas, Colorado, Louisiana, Montana, North Dakota, Pennsylvania, Texas and Wyoming. They included revenues from leasing state-owned and federal land, property taxes on oil and gas parcels and state severance taxes, or in Pennsylvania's case, an impact fee, which charges a flat fee for wells drilled in the state each year for distribution to municipalities and state agencies.

Due to limited data, however, the study did not include local sales tax, general corporate income tax, local government oil and gas leases or other sources that ultimately reflect the actual revenue and totals generated by the industry locally.

In interviews with more than 100 local government officials across the country and from examining state and local financial data for fiscal year 2012, the Duke study found that the oil and gas industry generated between 1% and 10% of local government revenues in each state. Most of that money, the study found, mainly went toward school districts, school trust funds, counties, municipalities and grant programs.

While the study showed that the oil and gas industry was generating adequate revenue for local governments in most areas, some rural regions required more and tended to face the greatest challenges where rapid, large-scale operations are occurring such as in the Bakken Shale of North Dakota and Montana and in select counties in Texas, Colorado and Wyoming.

Local governments collected the most revenue in Wyoming, where on average 10% of funds came from the oil and gas industry in 2012. Louisiana generated the lowest revenue from the industry at 1%. The study said the eight-state average was 5%.

According to the study, on average, education receives the largest share of that revenue at 3%, "with school districts benefiting largely through local property taxes and school trust funds benefiting primarily from allocations of state or federal oil and gas lease revenues." Schools in Wyoming, Texas, Colorado and Montana collected the largest share of oil and gas generated revenue at 4-7%, while schools in Pennsylvania and Louisiana collected the smallest share, mainly because they rely on other sources for funding, researchers said.

The report also showed that the state with the highest municipal revenue share is Pennsylvania, due to the impact fee directing a substantial portion of funds to townships across the state. The impact fee is a controversial issue in the state and debate continues about whether to replace it with a severance tax, which townships have argued against, fearing they would lose a large share of oil and gas revenues (see Shale Daily, Oct. 31). Since its inception in 2012, the impact fee has generated more than $630 million for municipalities and state agencies in Pennsylvania (see Shale Daily, April 4).

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