Energy Pipeline: Greeley charges impact fees on oil and gas development
March 4, 2016
For the first time in Greeley, local oil and gas companies are paying for their industry's impact to the city infrastructure.
The city of Greeley last year implemented development fees for oil and gas operations, applied to every well developed in city limits. Development impact fees are a way for growth to pay for growth; developers typically pay on their building permits fees to help the city pay for additional pay water and sewer, parks and recreation, transportation and public safety infrastructure to accommodate the growth the developments bring. Oil and gas was added last year for the first time since development fees began in 2000.
"It's a one-time fee and it's when they drill they have to pay that," said Brad Mueller, director of community development for the city of Greeley. "People will look at that number and say that it's too low — that the impact on the roads is very big. But, that is a scientifically figured number."
The fee is $1,999 per well. Pertaining to the oil industry, that fee helps to pay for transportation, police and fire expenses.
Though the fee is new, it wasn't implemented to target the oil and gas industry, Mueller said.
"All new development had new impact fees," he said. Typically, impact fees are reviewed every five years.
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"We have for many, many years had impact fees and regularly review them," Mueller said. "And last year was the end of five years, and we implemented new fees. The whole exercise was not done for oil and gas."
Greeley Mayor Tom Norton said fees on oil and gas at a first were never considered because there wasn't much drilling, or traffic, associated with it. With the advent of horizontal drilling coupled with hydraulic fracturing, as well as locating multiple wells on one pad, the impacts to drilling sites have become much more intense and visible — especially since they've been coming into more urban areas.
Oil and gas pays significant amounts to the county for property tax, and likewise significant severance taxes to the state, which local communities can draw from in the form of grants. Norton said those projects are typically to help build city infrastructure. He said he's seen anywhere from a ski bus in Aspen to a swimming pool in Craig paid through state grants.
But the city has never received compensation for the direct oil and gas impacts, Norton said.
"What we're interested in is how do we recover from the direct impacts we see that aren't covered by other fees," Norton said. "Those don't come back to the local government and pay for the kinds of things we have to pay for."
Housing developers get charged impact fees, as well.
"If you're planning a subdivision of homes with 2,700 people — they are going to impact the existing road network, and the idea is new development should pay for new demand on services," Mueller said. "You're a developer, you get charged a fee and we the city have calculated what that impact is statistically so when you're putting a little more impact on the roads, we're getting money to update the roads."
Impact fees also help to pay for drainage systems, parks and trails and water, for example.
Oil and gas fees include $58 per well for police development fees; $261 per well for fire and rescue; and $1,680 per well for transportation fees; there are no fees for parks and trails or other city fees. The fees are nominal compared to impact fees on a single-family residence, which combined come in at $7,725 per home in Greeley.
An Impact Fee Study prepared for the city of Greeley is a public document that was presented to the city council at the end of 2014.
The city's current impact fees for fire, police, parks and trails are unchanged from those adopted in 2003. The transportation, drainage and trail fees were revised in 2007, but were generally based on the fees adopted in 2003. The transportation, drainage and trail fees have been adjusted annually for the last three years by an "economic adjustment factor," with the result that the current fees for those facilities are about 6 percent higher than those adopted in 2003. The water and wastewater PIFs (plant investment fees) are updated annually.
"In the industrial context of oil and gas, we know oil and gas has some impact on existing road network – so that impact needs to pay its portion," Mueller said.
Though the immediate impact to roads might seem excessive, the impact fee is calculated to consider its longtime use.
"It's not unlike building a Walmart," Mueller said. "When first built, there's a lot of trucks that come to the site, but over the life of the site that number goes down."
Again, it's scientifically calculated. Regarding transportation, the impact study said: The city assesses transportation impact fees on new residential and nonresidential development to help pay for the expansion of the arterial road system. The last comprehensive update of the transportation impact fees was in 2003, although the fees were increased by a total of about 6 percent over the last three years based on the annual application of an "economic adjustment factor."
The oil and gas industry impact fees were studied, too, because well sites weren't as active five years ago, Mueller said.
"In the last five years, it's gone from steady to a huge spike," he said. "The whole fracking and horizontal drilling impacted that."
He estimated that five years ago, the city had about 375 wells. Now, he estimated that number to be 450.
As of January, the city hadn't collected much yet from the oil and gas industry in impact fees.
"If we have collected, it's minuscule," Mueller said. "If I had to guess for 2016, I'm guessing $20,000-$50,000."
Norton acknowledged that it seems agencies, governments and nonprofits all have their hands out for oil and gas collection plate.
"Some days it fees that way," Norton said. He and Mueller said they haven't received a lot of push-back on the fees.
"Most of them I have talked to say they want to pay their way. But it does feel like, and they will tell me, that every once in a while, someone else is trying to" fleece them.
"We need to be careful. They are paying a lot of tax, which goes to a variety of schools, transportation," Norton said. "The object is to have everyone pay their fair share."