Weld County took an unprecedented $2.7 billion hit to its assessed property valuation last year, a nearly 18% decline from 2019 that county officials largely pin on a sharp drop in oil and gas extraction in Colorado’s top energy-producing county.
That translates into $45 million less in taxes to fund things like road repairs and social services in the fast-growing county of 330,000, where last year proceeds from energy extraction accounted for 43% of Weld County’s total property tax revenues.
It also raises the prospect that the sprawling county northeast of Denver is already on a slow but steady descent from its all-time oil production peak — nearly 170 million barrels in 2019 — forcing county officials to consider a future less tied to fossil fuels.
“If you’re not planning for a future with less dependence on oil and gas, you’re probably missing the mark,” said Steve Diederichs, vice president of energy research firm Enverus.
The drop in production in the last two years in Weld County’s oil fields has been dramatic, with operators pulling just under 150 million barrels out of the ground in 2020. This year’s yield is on pace to fall an additional 30 million barrels, according to production data kept by the Colorado Oil and Gas Conservation Commission.
The reasons for the recent decline are varied and complicated, including the pandemic’s role in crushing demand for travel over much of the past 18 months, international market volatility that briefly brought oil prices to zero and the effects of a major energy reform bill passed by Colorado lawmakers two years ago.
The impacts on the county’s property tax base were stark, however, slicing it from $15.2 billion in 2019 to just under $12.5 billion last year.
“It’s the biggest drop in recent memory,” said Brenda Dones, Weld County’s assessor.
Diederichs’ firm believes extracted volume in Weld County will stabilize over the next five years before shrinking again toward the end of the decade as “inventory starts to dwindle.” How fast production drops off in the years ahead will mean much to Weld County — it generates nearly 90% of Colorado’s oil. And because the commodity is taxed at a much higher rate than residential or commercial property, it plays an outsized role in Weld County’s fiscal picture.
“I think we are diversifying our tax base, but oil and gas drive the lion’s share of assessed value,” Dones said. “Most likely, there will continue to be a decline in assessed value.”
Another boom and bust?
Weld County does have some key cards to play to offset the production declines in the Denver-Julesburg Basin, the giant mineral field that lays beneath it, according to Don Warden, the county’s director of finance and administration.
The county is accustomed to the boom-and-bust cycle with oil and gas and has developed strategies to deal with the ebb and flow over the years, including salting away hundreds of millions of dollars into reserve funds. Weld County has $100 million in a general contingency fund, another $100 million in its public works reserve fund and $36 million in a reserve account for county buildings.
“We’ve been kind of putting this money away for the day it starts dropping,” Warden said.
The county also tends to use its oil and gas tax proceeds for big, one-time expenditures, he said, like the $160 million it spent several years ago on building four-lane County Road 49 connecting Kersey to Interstate 76. It also stood up a new $40 million jail using mineral proceeds.
That keeps Weld County’s day-to-day service obligations less exposed to the vagaries of the energy market, Warden said.
Then, there’s the county’s explosive growth — it grew by more than 30% from 2010 to 2020, according to recently released U.S. Census Bureau figures. Where there were 250,000 people in the county a decade ago, there are now 70,000 more, many settling along the Interstate 25 corridor in bedroom boomtowns like Johnstown, Erie, Dacono and Firestone.
Weld County trailed only Broomfield County for population growth rate in Colorado over the last 10 years. And the state demographer’s office projects the county to top 700,000 residents by 2050.
Warden said all those new houses, grocery stores and strip malls will add to Weld County’s tax base, but they will have to work much harder to make up for any losses from the county’s oil fields: Colorado’s oil and gas sector is taxed at a property assessment rate of 87.5%, three times what commercial property is taxed at and more than 12 times the rate for homes.
Colorado’s explosive home price increases in recent years help to goose that side of the tax ledger, Warden said, but Weld County holds one last ace in hand if it needs it. It can boost its mill levy significantly to the maximum level state law permits, raising homeowners’ property taxes and eliminating the property tax credit they’ve been getting for years.
Warden said that move alone would offset the revenue loss from declining oil and gas yields.
“We’ve warned there will come a day when we won’t be able to extend that mill credit,” he said.
The Platte Valley School District in Kersey, which sits at the center of Weld County’s energy matrix, has long relied on energy extraction tax revenues to operate. Longtime Superintendent Glenn McClain said as much as 95% of the 1,200-student district’s budget comes from oil and gas money.
And the assessed property value in his school district last year went down even more sharply — 34% — than the county as a whole. But McClain, who has weathered production lulls and cratering prices in the past, said prudence and planning will help Platte Valley move forward.
“We’ve put money aside and we’re pretty confident we could make it two to three years before we’d have to make dramatic changes,” he said. “This is a correction — I think it will come back, but it may not come back all the way.”
Joe Salazar, executive director of anti-fracking group Colorado Rising, said the better plan for the Platte Valley School District, and Weld County as a whole, would be to more quickly peel away from energy extraction and place fewer of “its eggs in the boom-and-bust oil and gas basket.”
“If Weld County doesn’t start diversifying its tax base now, I expect some real tough times for its residents, particularly as climate change (caused in large part by oil and gas extraction) starts to affect other Weld County industries such as farming and ranching,” Salazar said.
He pushed back on the notion that Senate Bill 181, a law passed in 2019 that increased setbacks for oil and gas operators and given more control to cities and counties to regulate the industry, has contributed to Weld County’s recent revenue challenges.
“Well prepared to adjust”
But SB 181 has done exactly that, argues Colorado Oil and Gas Association head Dan Haley. No location permits have been approved for new oil wells in Weld County since January, a phenomenon he lays squarely at the feet of the new regulations.
“There’s been a huge slowdown as these rules were written and put in place,” he said.
In the meantime, demand for energy continues to grow globally and the world is nowhere near a full transition to renewable energy sources, despite the increasingly loud conversations being had about the role fossil fuels play in exacerbating climate change.
And that gives Weld County a continuing and vital role in the state’s economy.
“We need this product — where do we want it developed?” Haley asked. “Do we want to get it from places that don’t protect the environment? Or do we want to get it from places like Colorado, which is producing this resource cleaner and better than anywhere on the planet?”
Weld County Commissioner Steve Moreno said his county is not afraid to diversify its tax base, even playing host to two plants owned by Danish wind energy giant Vestas Wind Systems. Several years ago, the county landed a $340 million J.M. Smucker Co. plant near Longmont that could employ 500 people.
“We’re well prepared to adjust in any way we have to,” Moreno said.
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