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HomeMy WebLinkAboutResolution 2006-052 RESOLUTION NO. 2006-052 WHEREAS, the City Council desires to provide guidance for budgeting income from gas well permits and from leases of mineral interests owned by the City; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF NORTH RICHLAND HILLS, TEXAS: SECTION 1: THAT the attached "Policy Guidelines For Uses of Revenues from Gas Exploration/Production" is hereby adopted. PASSED AND APPROVED this the 26th day of June, 2006. Patricia , City Secretary George A. Staple ,City Attorney APPfJV. . /E~ AS TO,C~NTENT /¿tf¿flt,;/01L" Karen Bostic, Managing Director ATTACHMENT Policy Guidelines for Uses of Revenues from Gas Exploration/Production June 26, 2006 I. Introduction These policy guidelines are in anticipation of the City receiving revenues from gas exploration and production over the next several years. The guidelines are being established to avoid over-reliance on these revenues and to establish how the revenues may be used. The reason to use caution is that there are no guarantees that the gas wells within the City will produce much less be high producers. It is worth noting that if the City does receive royalty and property tax revenues in the future, that these revenues decrease over time due to the finite nature of the gas in the ground. Three areas of consideration for use of gas revenues are: 1. To bridge the gap of sales tax revenue reductions; 2. To use "one time" revenues for projects or non-recurring capital needs; 3. To use the revenues for expanding the City's economic base and use for economic development. With the decline of sales tax revenues in the last three years, it seems reasonable to use a portion of the gas revenue to "bridge" the gap of sales tax revenue to fund General Fund services and operations until new sales tax generators come on line. A portion of the revenue, one time revenues such as bonus money, could be reserved for future park development or for continuation of "pay-as-you-go" for park projects. It could also be used to fund needed future capital projects at the golf course, thereby saving the cost of issuing debt as well as interest expense. Bonus money could also be used for capital purchases or infusion of revenue into existing programs such as the preventive street maintenance program or economic development. Gas revenues could also be used to offset the declining hotel/motel tax revenue and allow for the expansion of economic development programs such as business attraction and retention and provide dollars for a more aggressive and competitive economic development initiative. II. Types of Revenue The City anticipates receiving revenues from several avenues including property tax, permitting fees, fines, bonuses, royalties, leases and overrides. Bonuses are a "one time" payment as are permitting fees and any fines assessed. The "ongoing" or longer term revenues include property taxes, leases and overrides. Because of the nature of bonuses, it would appear impractical to use these revenues for ongoing operations due to the problems created with recurring expenses being funded with "one time" revenues. These types of revenues lend themselves to more "project" activities versus operating Resolution 2006-052 Page 2 of 4 ATTACHMENT Policy Guidelines for Uses of Revenues from Gas Exploration/Production June 26, 2006 expenses. Other gas revenues appear to be more appropriate to pay for operations and service related costs. III. Proposed Revenue Uses Property Taxes/Permittinq Fees/Fines Regardless of the location of a gas well, it seems reasonable that the property taxes, permitting fees and fine revenues should go to the General Fund to cover the additional costs incurred as a result of monitoring gas dril.ling activities. These costs include well inspections, well permitting, publications, and other expenses related to gas drilling permitting and monitoring. Property taxes would appear reasonable for covering operating and program expenses and help offset reductions in sales tax revenue. Bonuses Bonus revenue is not practical for funding ongoing, daily operations. As previously mentioned, bonuses are one time payments that ideally could be used for one-time, project or capital type purchases. For example, bonus money could be reserved for future park development or for continuation of "pay-as-you-go" for park projects. It could be used to cash fund needed future capital projects at the golf course or for needed equipment, thereby saving the cost of issuing debt as well as interest expense. Bonus money could also be used for capital purchases or infusion of revenue into existing programs such as the preventive street maintenance program or economic development. Rovalties/Leases/Overrides Revenues generated from these sources are ongoing but the longevity and certainty of the revenues are unknown. Because of this, caution should be taken in using these revenues for daily operations on an ongoing basis. Too much dependence on these revenues for operations, with the uncertainty Of the life line of the well, could create some risks and tough decision in future years. However, these revenues could potentially offset some of the sales tax dollars that have been lost over the last few years due to declining retail activity. They could "bridge the gap" until sales tax revenues increase. Royalty, lease and override revenue could also be used to offset the declining hotel/motel tax revenue and allow for the expansion of economic development programs such as business attraction and retention and provide dollars for a more aggressive and competitive economic development initiative. It has become more and more challenging to maintain a quality economic development program with the diminished revenues, much less have funds available to expand programs. IV. Distribution of Revenues Property taxes, permit fees and fines are recommended to be allocated to the General Fund in total. The allocations below are for bonuses, royalties, leases and overrides. Resolution 2006-052 Page 3 of 4 ATTACHMENT Policy Guidelines for Uses of Revenues from Gas Exploration/Production June 26, 2006 There are an infinite number of ways the revenues could be distributed. The allocations below are based on the premises listed in the introduction paragraphs. A differentiation has been made between a park purchased with General Fund dollars and one purchased with Sales Tax dollars. Park Site Developed with General Fund Reven~e - If a gas well is located within a park or minerals leased within a park that was developed using General Fund revenues, the following distribution will be used: . General Fund - 85% . Economic Development - 15% Park Site Developed with Sales Tax Revenue - If a gas well is located within or minerals leased within a park that was developed using the % cent sales tax, the following distribution of revenues will be used: · Park Development Fund - 50% · General Fund - 35% · Economic Development - 15% Iron Horse - If a gas well is located on Iron Horse property or minerals are leased on Iron Horse property, bonus, royalty, lease and override revenue could go in its entirety to the golf course. Other City Property - If a gas well is located on property that is considered "utility" property, then 100% of the revenue will be allocated to the Utility Fund. If the property is considered General Fund, then 100% of the revenue will be allocated to the General Fund. If the property is a combination of Utility and General Fund property, then the revenue will be split 50/50 between the two funds. V. Establishment of Special Revenue Fund for Gas Revenues These guidelines for use of gas revenues are intended to assist Council in their consideration for approval of needed capital projects in the annual budget process. All gas revenues, except property taxes, permit fees and fines, will be accounted for in a Special Revenue Fund for Gas Revenues as they are received. Appropriation shall be made by City Council after reviewing needs according to the guidelines in this policy, or as determined by City Council to be a pribrity need of the City. This will be accomplished through the approval of the annual budget, or through an amendment to the budget in accordance with the established requirements for amendments. Property taxes, permit fees and fines associated with drilling, or permits of gas operations, shall be placed in and accounted for in the General Fund. Resolution 2006-052 Page 4 of 4