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Oil Price Dip Might Hit Colorado Tax Revenues – But It Will Take A While

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City of Greeley
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Flickr-Creative Commons
The city of Greeley, in the center of Colorado's oil boom, is not yet seeing an impact from low oil prices.

While a drop in oil prices may have drivers smiling, Colorado oil towns can get a little nervous about it. That's because the energy economy contributes to tax coffers.

Yet towns in Northern Colorado's gas patch are not seeing a downturn – at least not so far.

This is for a couple of reasons, said Victoria Runkle, the assistant city manager and finance director for the town of Greeley. The county seat for Weld sits in the epicenter of the state's oil boom. As oil's fortunes have blossomed, so have the town's.

Weld County had the highest job growth in the country in 2013.  There's been a concurrent boom in housing prices, home construction, and for the city and Weld County, sales and property taxes.

When the price of oil drops, there's a few ways towns and counties can take a hit, said Runkle.

"Where the cities really see the benefits (of an oil boom) is the secondary impacts, when everybody has a job. Sales tax, car sales. When you have a job, you go out and buy a really nice rig, right?"

To date, Runkle hasn't seen a sales tax drop. In fact, 2014 brought a 10 percent increase in Greeley's sales taxes, at least through October. That's the latest date she has data for. 

Since then, however, oil prices have continued their free fall, and anecdotally, she has heard that December sales tax revenues fell off some. How much? She won't know for over a month, when all the data comes in and she analyzes it.

Runkle meets regularly with area business leaders, including the automobile, banking, and tech industries. At the most recent meeting on Jan. 7, these leaders said the economy is still going strong.

"The general feeling is, at this moment, we talked to everybody last night. everybody thinks that four months is too [early]. We've only been on this downward spiral for four months."

Officials in the nearby town of Windsor, which straddles Larimer and Weld counties, are also anticipating a drop in tax revenue.

The other big impact to oil patch municipalities comes in lost revenues from what's called a severance tax. That's the tax companies pay to the state for the privilege of taking minerals and oil and gas out of the ground, and is tied to the value of that commodity. Most of that money goes to the city or county where the extraction takes place.

Now that oil is worth less, severance tax revenues should go down. But there's a lag, said Runkle.

For example, 2014 severance tax revenue was based on a value of oil set by looking at prices from the prior year. The same goes for 2015. Those were good years.

"I don't think we'll see another year like we did last year [2014]," said Runkle.

She notes that the the oil price drop will be seen in the following year's revenues.

"Where we will get hit hard is in 2016 because it is based on the valuation of the oil in late '14 and '15," said Runkle.

Although a drop in revenue is never welcome, Greeley has a fairly diverse economy, with a strong agricultural sector. The city has also prepared in the event of a bust, officials have said.

There is also an up side to the drop in oil prices for the city. Construction and maintenance costs have been high, and a drop in oil prices means prices for materials like asphalt will also drop. The city's fleet vehicles are also reaping the benefits of low oil prices, said Runkle.

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