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HomeMy WebLinkAboutResolution 2012-044 RESOLUTION NO. 2012 -044 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 on Uses of Revenues from Gas Exploration /Production" is hereby adopted. PASSED AND APPROVED this the 10th day of December, 2012. CITY O ORTH HLAND HILLS By: Oscar Trevino, Mayor y r r r' i -a-H t ,66, ity Secretary APP TT ED TO FORM AND LEGALITY: George A. Staples, Ci Attorney AP OVE A TO TENT: J J red Mill r, Assistant City Manager ATTACHMENT Policy on Uses of Revenues from Gas Exploration /Production December 10, 2012 I. Introduction This policy is established to avoid over - reliance on gas exploration and production related revenues and to establish how the revenues may be used. The reason for caution is that there are no guarantees that the gas wells within the City will produce a significant or stable source of revenue. Gas exploration and production related 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 use "one time" revenues for one time projects or non - recurring capital needs; 2. To bridge the gap of sales tax revenue reductions; 3. To use the revenues for expanding the City's economic base and for economic development. Gas exploration and production related revenues take the form of one time payments. One time revenues, such as bonus money, could be reserved for one time expenditures like significant capital projects, park development projects, or other one time projects. Utilization of these revenues for one time projects could save on the cost of issuing debt as well as interest expense. Bonus money could also be used for capital purchases or provide a temporary, non - recurring infusion of revenue into existing programs such as the preventive street maintenance program or economic development. With the decline of sales tax revenues in recent years, it is reasonable to provide the option 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. 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, lease bonuses, royalties, 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, royalties 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. III. Proposed Revenue Uses Property Taxes /Permitting 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 cover the additional costs incurred as a result of monitoring gas drilling activities. These costs include well inspections, well permitting, publications, and other expenses related to gas drilling permitting, monitoring, and operations. These revenues are reasonable for covering associated operating and program expenses. 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 expenditures. Appropriate one time expenditures could include significant capital projects, park development projects, or other one time projects. Utilization of these revenues for one time projects could save on the cost of issuing debt as well as interest expense. Bonus money could also be used for capital purchases or to provide a temporary, non - recurring infusion of revenue into existing programs such as the preventive street maintenance program or economic development. Royalties /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 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 of challenged retail activity. They could "bridge the gap" until sales tax revenues increase. Royalty 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 All revenues derived from gas exploration and production will be allocated to the Gas Exploration Drilling Fund in total for the uses described above.