Blog Post

Vernal, Utah, Benefits from Fossils and Fossil Fuel Tax Revenues

May 1, 2015 | Daniel Raimi

The city of Vernal, an isolated community in eastern Utah with a population of roughly 10,000, has experienced multiple cycles of oil and gas activity over the past several decades. It is the seat of Uintah County and benefits from tourism associated with Dinosaur National Monument, which sits just 30 minutes west of the city center and boasts an enormous store of fossils and excavation sites. The region is also ruggedly beautiful, with snow-capped mountains and a variety of outdoor recreational activities available to visitors.

The city is situated in the heart of the Uintah basin, where large oil and gas resources exist. It has experienced years of rapid economic growth and of unexpected decline as oil and gas price fluctuations dictate the pace of industry activity in the basin. Although tourism is an economic force for the city, local officials describe oil and gas activity as the leading economic driver.

Well completions in Uintah County and sales tax revenues in Vernal, Utah.

From 2006 through 2008, Uintah County experienced sharp growth in drilling activity, increasing the local population and driving up sales tax revenues for the city. But as drilling activity slowed in 2009, revenues followed suit, recovering to more stable levels for the past three years even as drilling has slowed.

The decline in sales tax revenues was due primarily to the combination of three factors: the sharp drop in oil and gas drilling, a regional economic downturn associated with the national recession, and a change in the state’s policies regarding sales tax allocations. During these years, the Utah state government adjusted the allocation of state-collected sales taxes, directing a larger portion towards population centers and a smaller portion to jurisdictions where sales took place, leading to a drop in revenue for Vernal.

During the most active years of drilling, population growth driven by the oil and gas industry led to a variety of additional demand for services. In particular, a noticeable increase in crime led to substantial new expenditures and community concern.

A water line leading to a drilling rig in Uintah County

Local officials describe these demands as substantial, but believe their municipal services were able to manage these challenges due to increased revenues. Along with sales tax revenues, the city has received millions of dollars in grants and low-interest loans from the state government, which allocates a portion of revenue from oil and gas production on Utah’s federal lands to communities impacted by oil and gas activity.

Vernal pursued a strategy that we have observed in a variety of other jurisdictions: saving money when oil and gas activity is robust, and using those funds to cushion any challenges associated with industry troughs. As a result, Vernal has been able to construct a new municipal building and provide additional community events and recreation activities. Local government leaders believe that oil and gas activity has provided a substantial net benefit for the city’s fiscal condition.

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