Eagle Ford Roads Impacted by Higher Traffic & Inadequate Funding – Tunstall

Current Tax Revenue Mechanisms Do Not Address Road Damage Caused by Development
I-37 Gravel Road Frontage in Live Oak County - TxDOT

I-37 Frontage in Live Oak County – TxDOT | Click to Enlarge

Roads in the Eagle Ford Shale are under intense pressure from the huge volumes of truck traffic that are regularly running up and down South Texas highways – literally hundreds of trips per day in many cases.

The traffic highlights a disconnect in the Texas political economy between how tax revenues are generated and how roads are then funded. With TxDOT’s recent announcement that approximately 83 miles of FM roads have been slated to be returned to gravel (66 miles of them in the Eagle Ford area), it’s worthwhile to examine road funding mechanisms in Texas.

How Is Road Construction Funded?

Let’s start with the state gas tax that we pay at the pump, which is a total of 38.4 cents. Immediately, 18.4 cents goes directly to the federal government, which leaves 20 cents for state use. However, 5 cents of that goes to public education. Only the remaining 15 cents is used to fund TXDOT projects directly. Texas motor vehicle fuel sales taxes are flat taxes that have not been raised since 1991 and are not adjusted for inflation.

The unprecedented activity on the roads in the Eagle Ford Shale area is having an impact that is overwhelming traditional highway funding sources. As an example, it takes nearly 1200 truck trips (equivalent to 8 million cars) to complete a single oil or gas well. Another 350 or so are estimated to be required for annual production.

So, what about other potential funding sources for roads?

Let’s look at sales taxes in Texas, which have a statutory maximum rate of 8.25%. Of that total, 6.25% goes to the state. Cities, counties, transportation authorities and economic development corporations can add up to an additional 2% to their sales tax rates. Some counties charge no sales tax, such as McMullen County, so the maximum rate there is 6.25%. Since city and county sales taxes in the Eagle Ford Shale area have increased significantly starting around 2010, it might seem to make sense for these entities to pick up the tab for increased road wear. In some cases, for example, county tax increases jumped between 300-500 percent in a single year. While this sounds like a lot of money, it pales in comparison to the cost of building roads.

In round numbers, county roads typically cost around $250,000 per mile to build. Farm-to-Market and Farm-to-Ranch (FM) roads cost twice that – about $500,000 per mile. State highway grade roads cost in excess of $1 million per mile. When county and FM roads are repaired to their current standard, the cost can be less – “only” $120,000 per mile – but heavy volumes of truck traffic can tear them back up in less than a year.

Karnes County Example

One of the most active counties in terms of Eagle Ford production is Karnes County. In 2010, county sales tax receipts were $837,038. By 2012 that number had risen to $7,961,495 – a huge increase by any measure. And yet, if every dollar of increased county sales tax revenue were applied to roads in the area, Karnes County would be able to build about 28 miles of county roads, 14 miles of FM-grade road, or only 7 miles of state highway-grade road. Clearly the orders of magnitude for the road impact as a result of oil and gas exploration and production activity is beyond the scope of county budgets.

One the most significant source of potential revenue for roads and perhaps the most applicable is the state’s severance taxes, which are imposed for the extraction of non-renewable natural resources, such as oil and gas. These taxes are on the rise because Texas is producing more oil than it has in over 30 years. In fiscal year 2013, Texas collected $4.5 billion in severance taxes. Overall, about $2.5 billion will go into the Rainy Day Fund (more formally known as the Economic Stabilization Fund) – most of that the result of increased severance tax receipts.

In fact, some of these severance taxes are being channeled to road projects. During the most recent legislative session, $1.2 billion per year was allocated from the Rainy Day Fund for roads across the state (pending approval by voters in November 2014). In addition, a one-time infusion of $225 million was allocated for road systems in South and West Texas areas affected by oil and gas production. And just this month, TxDOT announced that it had identified another $250 million from vehicle registration fees.

However, plans remain in place to convert the 83 miles of formerly paved FM roads to gravel in order to save money. TxDOT has held public hearings to address community concerns, but the larger issue has yet to be addressed. It is becoming clear that several aspects related to the costs of shale oil and gas production (roads in particular) will not necessarily be remedied by current tax revenue mechanisms. As such, any chance for a more permanent solution will be up to the Texas Legislature, which does not convene again until 2015.

Eagle Ford Counties See Sales Tax Receipts Rise Almost 10 Fold

Receipts Up From $650,000 To Almost $6 Million

Since Petrohawk’s Eagle Ford discovery in 2008, sales tax receipts in local counties have boomed to the tune of almost ten times more than five years ago. The revenue has been more than welcomed in local communities.

State Impact took a deeper look at a sample of five counties: Atascosa, Dimmit, Gonzales, Karnes, and Live Oak. [Read more…]

Smiley Texas Makes Its Mark as the Eagle Ford Comes In

Sales tax revenues are up over 250% year over year

Smiley, TX, continues to top the charts in monthly increases in state sales tax revenues. The community of just 500 in Gonzales County saw its July tax revenues jump over 250% from the previous year.

Texas comptroller Susan Combs said sales tax revenue for the state in July was $2.05 billion, up 10.1 percent compared to July 2011.

“Business spending in the oil and natural gas industry and other sectors continues to be robust,” Combs said. “That spending, along with increases in consumer sectors such as retail trade, continues to boost sales tax collections. State sales tax revenue has now increased for 28 consecutive months.”
 [Read more…]

Pleasanton’s Eagle Ford Shale Location Primes it for Growth

The towns population has grown by over 30% in two years
Pleasanton Map

Pleasanton, TX | Click to Enlarge

Pleasanton is located near the heart of the Eagle Ford Shale in Atascosa County, just 35 miles south of San Antonio. The city’s location provides a strategic hub for many oil & gas companies working the play. Jennifer Hiller published an article over the weekend highlighting development in the area. You can read the full article at mysanantonio.com.

Highlights from the article include:

  • The population sign says 8,622, but utility hookups indicate the population is 11,500+
  • Rentals have gone from $0.60-0.70 per sq ft/month to as high as $1.50 per sq ft/month
  • The city enacted a 180-day moratorium on new RV parks
  • Sales tax revenues were less than $2.1 million in 2010 and have already surpassed $3.5 million this year

 

Eagle Ford Consortium Highlights

Just a few thoughts from the Eagle Ford Consortium Conference last week:

  • Production is outpacing expectations – Almost double early predictions from UTSA
  • Housing remains a concern, but investors are beginning to consider major multi-family developments
  • Peak drilling in the Eagle Ford is expected at 2,500-3,000 wells per year
  • The success/economics of downspacing will ultimately decide how far we go below the range of 65-130 acre spacing currently
  • More than 70,000 direct Eagle Ford Shale jobs will be created by 2020
  • Permits issued over the past three years in the Eagle Ford have gone 2009 – 94; 2010 > 1,000; 2011 > 3,000
  • In the most active counties, sales tax revenue increases have been as high as 500%
  • Oil prices remain the major risk to development [Read more…]

Tax Revenues Rising Rapidly – Eagle Ford Shale

Benefits of the Eagle Ford Shale reach much farther than the drilling rigs. Corpus Christi is realizing a 12% increase in tax revenues year over year and areas in the heart of development are seeing increases several times greater.

George West in Live Oak County, for example, received a monthly allocation of more than $57,000, which is 56 percent higher than December 2010’s payment.

Through the December payment, George West is up 54 percent with more than $616,000, figures show.

Beeville‘s monthly allocation increased about 40 percent over December 2010, and the city is up 26 percent in collections with about $3.4 million.

Alice, away from the heart of drilling activity in Jim Wells County, continues to enjoy the retail and other side benefits of drilling as hotels are built and stores expand.

Alice’s allocations top $15.3 million, which is 44 percent higher than by the same time in 2010.

Read more at caller.com

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