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Home My WebLink AboutCP 263 CIT FO WO , TEXAS 0 � o COUNCIL PROPOSAL Date: File Number: Subject: Council Proposal that the City Council direct staff to Amend the Current Policy 03-06.07 263 Establishing the Allocation of Revenues Generated from the Barnett Shale and Oil and Gas Operations on City Property within the City Limits and the Extraterritorial Jurisdiction. Proposed By:Jungus JordanCity Manager's Review: 0— - Page: City Attorney's Review: df PAGE 10F 3 It is proposed that the City Council direct staff to prepare an amendment, as described below, to the current policy establishing the allocation of revenues generated from the Barnett Shale and oil and gas operations on City property within the city limits and the extraterritorial jurisdiction. DISCUSSION: On April 26, 2005 (M&C G14767) the City Council adopted a policy for the distribution of gas well revenue which was incorporated into the City's Financial Management Policy on September 13, 2005 (M&C G14918). The policy assigned and specified the distribution of bonuses and royalties received by the City from gas well development leases. The major elements of the policy included the assignment of program administrative fees, distribution of bonuses and the appropriation of royalties to the applicable fund or the fund established for the department that owns or manages the land where the gas well leases were located. Bonuses were directed to be recorded in the Municipal Airport Fund, the Water and Sewer Fund, Lake Worth Gas Revenue Fund, Nature Center Trust Fund, Street Maintenance Fund, Capital Projects Reserve Fund, Parks and Community Services Department Capital Improvement Fund (earmarked for well parks). Royalties were applied to the Municipal Airport Fund, Water and Sewer Fund, Contract Street Maintenance Fund (rights-of-way), Lake Worth Gas Revenue Fund, Nature Center Trust Fund, the Capital Projects Reserve Fund (general city properties), and the Parks and Community Services Department. The Park Department royalty revenue was to be distributed as follows: Citywide Parks and Community Services Capital Improvement Fund (2/3); Citywide Park Endowment Fund (1/3). Upon establishment of a $2 million balance in Park Endowment Fund, 75% of the interest earned is directed to be allocated to the Citywide Park CIP and 25% of the interest earned reinvested in the endowment fund. The policy included a five year Sunset Review upon enactment. The use of funds received from drilling on airport property are restricted per FAA Policy, funds received from property held by the Water and Sewer Fund are restricted per bond covenants/enterprise fund, some general City properties are earmarked to Capital Projects Reserve Fund and all bonus revenue from Park property is allocated to the park where the well is drilled and the annual royalty allocation is 2/3 to Citywide Park CIP Fund and 1/3 to Citywide Park System Endowment Fund. LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS ❑ CITY POLICIES MANUAL C1T FCS WO , TEXAS COUNCIL PROPOSAL Date: File Number. Subject: Council Proposal that the City Council direct staff to Amend the Current Policy 03-06-07 263 Establishing the Allocation of Revenues Generated from the Barnett Shale and Oil and Gas Operations on City Property within the City Limits and the Extraterritorial Jurisdiction. Proposed By:Jungus Jordan City Manager's Review: A 0— Page: City Attorney's Review: Alw,41Z, PAGE 2 OF B Amendment of the current Policy would allocate, budget and expense the annual revenues generated from the Barnett Shale and oil and gas operations in the city limits and ETJ in the following manner: (1) 25% of the revenues will be allocated for immediate (current budget/ fiscal year) capital and infrastructure needs. (2) 25% of the revenues will be allocated to general fund needs and will be used for proportionate reduction of the Fort Worth ad valorem tax rate for citizens. (3) 50% of the revenues will be allocated to endowment funds to be saved and appropriately invested for future generations. The corpus will be set aside and invested while the earnings may be budgeted/expensed for appropriate capital improvements and maintenance in accordance with established legal restrictions, for example, one endowment will be for Fort Worth parks. If the revenues must be used for specific lands / use that generate the revenues due to existing regulatory and legal restrictions on these proceeds, the revenues do offset general fund and capital funds that would otherwise be necessitated. Thus, these revenues would offset both current and future revenues. LEGALITY: The City Attorney finds that this proposal is legal and within the authority of the City Council FISCAL NOTE: Since revenues received will be allocated for capital projects, additional operating costs will likely be incurred. Based on this proposal endowment funds will be established for Aviation, Solid Waste, Golf, Water & Sewer and the General Fund (a Park Endowment Fund currently exists). Due to the proposed expenditure of earnings, endowment fund corpus 411 not grow and is subject to shrinkage due to inflation. This proposal will require annual adjustment to the ad LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS ❑ CITY POLICIES MANUAL CIT FO WO , TEXAS e o � o 0• COUNCIL PROPOSAL Date: File Number: Subject: Council Proposal that the City Council direct staff to Amend the Current Policy 03.06-07 263 Establishing the Allocation of Revenues Generated from the Barnett Shale and Oil and Gas Operations on City Property within the City Limits and the Extraterritorial Jurisdiction. Proposed By:Jungus Jordan City Manager's Review: 6L_ Page: City Attorney's Review: PAGE 3 OF 3 valorem tax rate depending on the amount of revenues realized. It is difficult to determine what the exact fiscal impacts will be due to the uncertainty of the revenue. CITY MANAGER'S COMMENT: Reliance on gas well lease and ad valorem tax revenues to pay operating expenses is not recommended due to the volatility of these revenues. Change in production levels, market conditions or combinations thereof, result in the uncertainty of these revenues. This temporary increase in revenues should be treated as excess revenues above and beyond the base capital and operating budget projections incorporated into the City's long range financial plan. Therefore,the City Manager believes the following would constitute poor financial policy: 1. Reliance upon gas revenues to pay debt service 2. Reliance upon gas revenues to pay ongoing operating expenses 3. Reducing fees for service based on a temporary increase in revenues from gas production 4. Reducing the property tax rate based upon a temporary increase in property values related to mineral interests 5. Implementing financial strategies that erode the "real" value asset of the endowment corpus due to inflation, investment or spending policies, by not reinvesting the interest PROPOSED BY: C nci ember Councilmember , �jlV�r CITY COUNCIL MAR -- b [00PAd— � LEGALITY ❑ FISCAL NOTE , ❑ CITY MANAGER'S COMMENTS 0 se�ot the ❑ CITY POLICIES MANUAL G,Ly of Fort Worth,Texas