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Revenue from gas, oil severance taxes temperamental

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Counties deal with severance tax revenue fluctuating with resource extraction cycles

Natural gas has elbowed coal out of the way to serve domestic energy needs, but it remains a temperamental revenue source for counties that derive funding from severance taxes. But demand for gas, too, has waned, and with it, payments to counties from which it is extracted. The same goes for oil.

Pennsylvania is the only state without a statewide severance tax, though counties benefit from individual impact fees, which target gas-producing counties but also pay into economic development funding for all counties. The Legislature’s attempt to pass a severance tax that would benefit the state coffers only failed in late October, but Brinda Penyak, legislative director at the County Commissioners Association of Pennsylvania, said it was the first serious attempt to include a severance tax since drilling began in the Marcellus Shale formation, and that’s encouraging, with the right conditions.

“As there’s discussion about a severance tax, our goal is to protect the impact fee,” she said. “It’s been tremendous for counties.”

The state has passed two years of revenue bills without the severance tax.

“We’re not immediately in danger, but I can’t say we’re safe. We could still get a spending cut,” she said.

Heading west, not far from the shuttered coal mines of Delta County, Colorado, Garfield County has done well for itself with natural gas, but it was the lessons of an oil boom and bust 20 years ago that put it in such a position.

John Martin started on the Garfield County Commission in 1997 at the end of the shale oil boom, when much of the county’s budget depended on oil revenue, and cuts to that revenue were felt more broadly across the county budget. Now, after a natural gas boom, he said a $17 million drop in revenue from severance taxes over two years hasn’t hurt the county too much, because county officials planned ahead and saw it as a supplement to the county’s revenues, not the meat on which they should rely to balance the budget.

“We’ve maximized what we have as an asset,” he said. “The (gas) industry came to us for land use, and we’re fair and honest with them, we find innovative ways for them to succeed. We don’t fight anyone, we don’t roll over either. We make them live up to what they say they’re going to do, and we encourage them to hire local when they do their excavation.”

Martin is optimistic the county can see an uptick in gas severance tax revenue, particularly if it can be sold to Hawaii or exported to Japan but he’s realistic.

“The gas will come back, but not in the great quantity that it did from 2008–2012 ,” he said. “We had to pull in our belts, a little, after that boom.”

In North Dakota, even in the four Bakken Shale counties that were the center of the recent oil boom, fluctuating production has taken a toll on budgets. The last two years have seen Dunn County’s budget drop to $42 million from its $60 million peak. Dunn County is the southernmost Bakken shale county.

“We challenged department heads to make cuts wherever they could, and we had to do more cutting for road department budgets,” said Commissioner Daryl Dukart.

That 30 percent drop over two years has not been devastating, however, because like Garfield County, it was not supporting itself on severance tax revenue.

“We were doing big highway projects; they’ve just stopped,” Dukart said. “We’re not adding new road projects. We have about 45 more miles we’d like to get paved, but we’ll only do that when we have the money.”

The cuts started with a downturn in price of oil in 2015. Dukart sees a lot to like in stability that has seen prices hover around $45 a barrel.

“We’re sitting pretty good on a budget that will be able to withstand it and not let it affect personnel or taxpayers at all,” he said.

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