Blog Post

Neighboring Utah Counties See Differing Fiscal Effects from Oil-Gas Activity

May 6, 2015 | Daniel Raimi

Much of the oil and gas production that takes place in Utah’s Uintah Basin occurs on land owned by the federal government, state government and Native American tribes. This fact plays an important role in oil- and gas-related revenue allocation for local governments, and has affected three neighboring counties – Carbon, Duchesne and Uintah – in distinct ways.

Oil and gas well completions in three Utah counties.

The state of Utah collects revenue from oil and gas production through three main mechanisms: a severance tax based on the value of oil and gas produced statewide, leases on state lands, and leases on federal lands. Of these three sources, only revenue from federal lands is allocated back to affected local governments. These funds are distributed through grants and low-interest loans, and awarded on a competitive basis by the state’s Permanent Community Impact Board. County governments also collect revenue from property taxes on oil- and gas-related property within their borders.

In Uintah County, where most drilling and production has historically taken place, the large majority of oil and gas activity occurs on federal land, which means that Uintah County and its affiliated special service districts (such as transportation, recreation and fire) regularly receive large grant awards from the Community Impact Board. In neighboring Duchesne County, where drilling has increased substantially in the past five years, most production occurs on tribal or private land and, because Impact Board grants are based solely upon production on federal lands, the county tends to receive less in the way of grant funding.

While both counties describe oil and gas activity as a large net positive for their fiscal health, Duchesne County faces more challenges maintaining its roads. This is in large part due to the limited grant funds provided by the Community Impact Board. Also, operators in Uintah County often make repairs to any damaged local roads, while these in-kind contributions are less common in Duchesne County. As a result, revenues in Duchesne County have not always been sufficient to meet the needs of the rural road network.

Uintah Basin “black wax” and “yellow wax” oil samples, provided by Duchesne County Commissioner Greg Todd.

Most of the oil produced in the Uintah Basin is known as “black wax” or “yellow wax,” heavy grades of crude oil that do not flow at room temperature. Because of its waxy character, the crude is not easily transported through pipelines, and most of the oil produced in the region is hauled away from well sites by specially designed heated trucks.

These large trucks are destined for refineries in Salt Lake City or to rail terminals in Carbon County, and the high volume of truck traffic hauling this waxy crude has created particular challenges for Carbon County. The county lies to the south of Uintah and Duchesne and is the home of several large rail terminals, where trucks deliver the black and yellow wax for shipment to more distant refineries.

Carbon County has relatively little oil and gas production within its borders, and much of this production occurs on private, rather than federal, land. Since Community Impact Board grants are based solely on production from federal lands, Carbon County has seen less funding than its northern neighbors, despite bearing a large share of the costs associated with heavy truck traffic from the nearby oil fields.

Local officials in Carbon County describe the oil and gas industry as a large benefit to the county’s economic health and its employment base. However, the county government faces a number of high costs associated with the industry and has not always been able to keep up with demand for services.

A heated truck hauls oil over a mountain into Carbon County.

The leading cost has been for maintaining roads affected by trucks heading to rail terminals, along with the need to regularly provide emergency assistance to these trucks as they struggle to climb icy mountain passes. In addition, the county has had to expand its coverage area for emergency services and law enforcement as oil and gas production has increased in remote parts of the county. Finally, the surge in crude-by-rail terminals means that the local fire service requires expensive new equipment to manage potential emergencies, including specialized fire-fighting vehicles and hazardous materials equipment.

The distinct benefits and challenges for these counties highlight the variety of effects oil and gas development can have on adjacent local governments, and illustrates how revenue allocation policies can have important implications for local governments.

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