In coming months, the La Plata County commissioners will be struggling to solve a difficult problem: how to put the county’s finances on a sustainable basis. The Long Term Finance Committee has studied the county’s deteriorating finances and has made recommendations to the commissioners.
The LTFC is a non-partisan committee, comprising volunteers appointed by commissioners to advise on fiscal sustainability. Our members have extensive backgrounds in finance, oil and gas, accounting and technology. Our meetings are posted and always open to the public.
Three major events have negatively affected county finances over the last 10 years. First, due to declining natural gas prices and production, county property tax revenue declined approximately 50% since 2010. Secondly, the county has yet to fully recover from the Great Recession of 2009. Finally, the Gallagher Amendment has forced residential property assessment ratios to fall, making it impossible for property tax revenues to recover as property values climb.
Tax revenues on gas production have fallen 77%, from $18 million to $4.2 million in 2018. These revenues were previously the largest source of money for county operations. Other property tax revenue has not been able to compensate. As a result, total property taxes have fallen 50%. This is because natural gas prices nationwide have fallen more than 50% over this period and are unlikely to rebound. Also, gas production in La Plata County declines about 5% per year.
This is largely due to developments outside of Colorado.
More efficient drilling technology rapidly increased the supply of natural gas in other areas, such as the Permian basin. The Permian is rich in oil with associated natural gas. When drilling for oil, natural gas supplies are uncovered. It must be sold.
This supports our conclusion that gas prices and production in the county will not return to previous levels.
The Great Recession cut sales tax revenues, home values and government transfers. Although sales taxes recovered somewhat, they remain below 2009 per-capita levels, while home values and government transfers have yet to recover.
Budget constraints at the federal level have caused Congress to cut, in some years by 75%, amounts due the county to compensate for non-taxable federal lands.
In a similar manner, the state fund that provided for our grant monies through severance tax is nearly dry. These revenue sources dropped nearly $1.75 million yearly.
The Gallagher Amendment requires that residential property tax cannot exceed 45% of the total property tax collected statewide.
Therefore, as gas valuations have dropped, the residential property taxes collected must also drop.
This reduction occurs through the assessment ratio – the percentage of a property’s value that is taxed.
In 1983, the year Gallagher took effect, the residential assessment ratio was 21%. Now it is 7.2% – a drop of 66%.
If you owned a home worth $200,000 in 1983, its assessed value at the 21 percent ratio would have been $42,000. Today, if that home was worth twice as much, or $400,000, its assessed tax value at the 7.2% ratio is only $28,800.
La Plata County’s property tax rate (mill levy) is unchanged since 1991. At 8.5 mills, it is the fourth-lowest levy of Colorado’s 64 counties, 58% below the state’s median levy of 20.1.
These hits have occurred while county population has grown more than 10 percent and inflation drives up costs. The county took steps to deal with these issues – employee levels cut more than 10%, operating expenses reduced and held below the rate of inflation. Road maintenance has been slashed. La Plata County’s per-capita operating expenses are 40% below average expense levels of seven similarly sized Colorado counties. Meanwhile, state and federal statutes mandate many county services: Cutting them is not an option.
Belt-tightening alone cannot make up for the magnitude of the revenue loss. The Long-Term Finance Committee advised the county commissioners that the current revenue structure is not adequate to maintain operations.
Revenue streams need to be increased to compensate for these pressures on tax revenue. Over the coming months, the commissioners will be struggling with this issue.
No one likes higher taxes. What we have tried to show is that we will not be able to avoid them in the future.
Richard Butler is a retired head of corporate finance for ING and currently serves on the Edgemont Ranch Metro District board. He is a member of the La Plata County Long-Term Finance Committee, a seven-member bipartisan group appointed by the county commissioners.
