Blog Post

Government Finance in the Barnett, Home of the Shale Gas Revolution

Dec 23, 2013 | Daniel Raimi

The Barnett Shale in northern Texas holds a special place in the history of shale gas development. It was here, in and around Fort Worth, that companies such as Mitchell Energy “cracked the code” to economically produce natural gas from shale rock. This discovery has led to unprecedented growth in natural gas and oil production around the United States, which in turn has had important implications for energy prices, debates over local environmental protections, energy-related greenhouse gas emissions, geopolitics and the subject of our work: local government finances.

Despite icy weather and treacherous road conditions, I managed to meet with officials from cities and counties in Tarrant and Johnson counties, the most prolific natural gas producing counties in the region.

Annual natural gas production in select Texas counties.

In both Johnson and Tarrant Counties, heavy drilling activity from 2007 through 2009 increased the costs of maintaining and repairing county roads. However, increased revenues from property taxes — in part attributable to drilling and production — more than offset these costs. This increase in revenues is striking given the fact that the nation as a whole was experiencing a severe recession during the same period.

In fact, Johnson County reduced its property tax rate from 2007 to 2008, though the rate has since returned to its 2007 level. Although reducing the county’s most important source of revenue could potentially create funding shortfalls during a “boom” period, this cut was effectively required under Texas state law. If local government property tax revenues increase by more than 8 percent each year, local voters may petition to “rollback” the tax rate so that total revenues do not increase that fast. As a result, local officials adjusted the rate so as to not trigger the rollback provision.

Johnson County revenues and expenses, 2007-2012.

In Fort Worth and Cleburne, the respective seats of Tarrant and Johnson counties, revenues increased substantially due to higher property and sales tax revenues, along with a new type of revenue source: leases and royalties from natural gas production on county-owned land. In Fort Worth, property tax revenues from natural gas properties increased from $1.5 million in 2009 (the first year the city began keeping track of such figures) to over $8 million in 2013. The city has also received more than $200 million in revenues from leasing and royalties on city land, most of which it invests in capital improvements and a “trust fund” for future expenses.

Mural in Cleburne, Texas

In Cleburne, a much smaller city than Fort Worth, revenues from leases and royalties were also substantial: more than $2 million in 2011 and roughly $1.5 million in 2012. Like Fort Worth, the city plans to invest most of these funds in capital projects.

One concern that multiple officials expressed is that extensive drilling in the area may make future development more costly. For example, Johnson County’s population is expanding rapidly, and with the completion of a new tollway to the Dallas/Fort Worth metroplex expected in 2014, officials expect a significant increase in housing development. But thousands of gas wells now spread across the county, along with hundreds of miles of pipeline to transport the gas. Developers and/or local governments would face additional costs if they were forced to reroute existing pipelines to make way for new homes, businesses, or other development.

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.