Turner Creek Roadless Area Clear Fork Salt Creek Roadless Area Roadless Area Economic Impact of Natural Gas Hu R DevelopmentFlattops/Elk Park on Delta County Roadless Area PROPOSED PROJECT:Elec t ric Mountain THE NORTH FORK MANCOSRoadless A rea MASTER DEVELOPMENT PLAN J U N E 2017 «¬5 Currant Creek Roadless Area Pilot Knob Roadless Area «¬33 GUNNISON CEDAREDGE COUNTY Flatiron Roadless PAONIA Sunset Roadless Area North Fork Recreation District HOTCHKISS Mount Lamborn Roadless Area West El Wilde CRAWFORD Gunnison Gorge Wilderness Wilderness Area Mendicant Roadless Area MONTROSE COUNTY Economic Impact of Natural Gas Development on Delta County PROPOSED PROJECT: THE NORTH FORK MANCOS MASTER DEVELOPMENT PLAN J U N E 2017 Author: Andrew Forkes-Gudmundson Copyright © 2017 by Citizens for a Healthy Community All rights reserved. No part of this publication may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping, scanning or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews. Citizens for a Healthy Community (CHC) is a grassroots nonproft 501(c)3 organization dedicated to protecting the air, water and foodsheds within the Delta County region of Southwest Colorado from the impacts of oil and gas development. CHC is the county’s watchdog for oil and gas development, conducts research and advocacy, and works with partner organizations to fght for the health and safety of citizens and implementation of safeguards to protect public health and the environment. Citizens for a Healthy Community Ofce: Te Harvester Building, 211 Grand. Ave, Paonia, CO 81428 Mailing address: PO Box 1283, Paonia, CO 81428 Phone: (970) 399-9700 www.chc4you.org PHOTO CREDIT: JT T HOMAS Table of Contents Introduction . .4 NFMMDP Revenue. .5 Local Government Oil and Gas Revenue. .5 Oil and Gas Revenue for Delta County. .6 Impact on Other Sources of Revenue for Delta County . .8 Outdoor Recreation. 8 Agriculture and Agritourism . 10 Property Taxes. 11 Local Government Costs Associated with Oil and Gas Development. 14 Conclusion . 15 3 I. Introduction Te majority of oil and gas leases and proposed oil and gas development in Delta County are in the North Fork Valley and its headwaters and watersheds. Te Delta County Board of County Commissioners is in favor of oil and gas development, citing job creation and tax revenues as economic benefts. However, North Fork Valley residents, who would be directly impacted by such industrial activities, are resound- ingly opposed to oil and gas development and believe that such activities, would not only result in degradation of public health and the environment, but are also incompatible with the local economy. While the County would like to make up for lost coal jobs and revenue, North Fork Valley residents want to protect a growing local economy that has been transitioning away from extractive industries towards sustainable agriculture, tourism, recreation, art and music, and renewable energy. Te North Fork Valley has worked hard to develop its brand over the last twenty years as evidenced by its Colorado Creative District designation, award-winning wines, fruits and vegetables, and regional, state, and national recognition as a recreation and agritourism destination. Te North Fork Valley is a magnet for the eco-concious, young families and retirees who value quality of life, and continuously attracts talent and skills from around the world. Paonia has been especially successful in this efort, as the only town in Delta County that has shown growth.1 In addition, the North Fork Valley real estate market has outperformed the overall County since 2011 in terms of average residential home sale price.2 Te North Fork Valley is a unique and beau- tiful place. It is the location of the highest concentration of organic farms in Colorado, and is home to numerous outdoor recreation opportunities. In addition, the Upper North Fork is the headwaters region for critical watersheds to downstream farms and homes. To address these competing visions for the future of the North Fork Valley and Delta County, Citizens for a Healthy Community (CHC) researched the estimated costs and revenues to Delta County of a proposed natural gas project. To CHC’s knowledge, Delta County has not undertaken a cost-beneft analysis of proposed oil and gas development, nor has it compared or projected the efects of oil and gas development on the leading sources of County revenue likely to be impacted by such development— residential property taxes, and sales taxes from outdoor recreation and agritourism. CHC is flling this critical gap in information and decision-making to educate the public and the County on the economic impact of proposed oil and gas development. Tis research focuses on the proposed North Fork Mancos Master Development Plan (NFMMDP), esti- mated property and severance tax revenues, the costs to the County estimated from the total NFMMDP project, current residential property tax revenues to the County, and the direct and indirect economic ben- efts the County receives from an outdoor recreation and agritourism economy that relies on surrounding public lands. Te NFMMDP proposes drilling 35 wells, three of which would be located in Delta County. Our research revealed that the NFMMDP would result in a net economic loss to the County when all fore- seeable costs (for example road repair, lost residential property tax revenue, and lost sales tax from outdoor recreation and agritourism income) are subtracted from estimated property and severance tax revenues. 1. Delta County Demographic and Economic Profile, Colorado Department of Local Affairs 2014, p. 1 2. Average Sale Price for Residential Properties Delta County Sales (as reported to the MLS) Delta County vs. North Fork Area 2005-2016, prepared by Bob Lario and the Remax Office in Paonia, based on data provided by the Delta County Board of Realtors, 2016. (hereinafter Average Sale Price for Residential 4 Properties) II. NFMMDP Revenue Gunnison Energy, LLC (GELLC) has proposed a project called the North Fork Mancos Master Development Plan, which would place 35 new gas wells 12 miles north of Paonia, at the intersection of three critical watersheds. Te project requires four new wellpads and expansion of one existing wellpad. Te existing well pad is a part of the Iron Point Federal Unit located in Delta County. Tree new wells will be drilled from this pad. GELLC proposes to produce 700 billion cubic feet of natural gas over the 30-year lifetime of the project from the 35 proposed wells. Although GELLC envisions future development, which could increase the total number of wells within the NFMMDP project boundary to 104 wells, with estimated production of 2.1 trillion cubic feet of natural gas, our research only considered the 35-well project released to the public by the BLM for scoping comments on January 18, 2017. Additionally, we focused on the three wells out of 35 that would be drilled in Delta County. Te NFMMDP proposes a 3-year construction and completion timeline for the project. Te project is still undergoing scoping comments, and will then have to undergo either an Environmental Assessment, or preferably, and Environmental Impact Statement. Depending which one the BLM requires, if the project is approved it could begin as early as Fall 2017 or the beginning of 2018.3 LOCAL GOVERNMENT OIL AND GAS REVENUE Local governments in Colorado derive income from oil and gas wells in two ways—property taxes and severance taxes. Both are based on production volume. County governments assess property taxes, and the state assesses severance taxes. Once the state has assessed the severance tax, it redistributes portions of it back to local governments. Roughly half of the severance collected on production in a county is returned to that county.4 Local governments in Colorado derive income from oil and gas wells in two ways— property taxes and severance taxes. Oil and gas property taxes in Colorado are based on the production value of property. Te taxable assessed value of an oil and gas property is based on actual market value adjusted by an assessment ratio, which is 87.5% for oil and natural gas.5 Headwaters Economics created the following formula for estimating property tax: ((Prior year assessed value * .95) * .87) * (.058636).6 3. Proposed Action NFMMDP for Oil and Gas Exploration and Development Gunnison and Delta Coun- ties, Colorado, prepared by Gunnison Energy, LLC, January 2017, p. 1. (Hereinafter NFMMDP) 4. Oil and Gas Industry Economic and Fiscal Contributions in Colorado by County, 2014, Business Re- search Division, Leeds School of Business, December 2015 p. 16-17 (Hereinafter Economic and Fiscal Contributions) 5. Economic and Fiscal Contributions, p. 13-14 6. How Colorado Returns Unconventional Oil Revenue to Local Governments, Headwaters Economics, 5 January 2014, p. 5 (Hereinafter Colorado Unconventional Oil Revenue) Severance taxes in Colorado are assessed on a sliding scale from 2-5% based on gross income from pro- duction (almost all wells produce enough to be assessed the 5% rate). Severance taxes are complicated by the ad valorem tax credit, which allows producers to deduct 87.5% of their prior year’s property tax burden from their severance tax bill.7 Headwaters Economics created the following formula for estimat- ing severance tax: (((Gross production value * .95) * .05)+ 300,000) – (prior year property tax * .875)8 Over the life of an average well in Colorado, once all available deductions are taken into account, there is an estimated efective property tax rate of 4.87% of total production value, and an efective severance tax rate of 1.87% of total production value.9 With the State returning approximately 50% of collected severance tax from oil and gas operations within the county, the efective county severance tax rate is 0.935%.