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Home My WebLink AboutCP 265 C1T FO WO , TEXAS COUNCIL PROPOSAL Date: File Number. Subject: Amendment to the City Policy Concerning the Allocation of Gas Well Drilling 03-20-07 Revenues and Amendments to State Law Concerning the Investment of those Revenues 265 Proposed By:Jungus Jordan City Manager's Review: Page: City Attomey's Review. PAGE 1 OF 4 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 pmperty within the city limits and the extraterritorial jurisdiction and draft proposed legislation to amend the Texas Government and Property codes to enable investment of endowment funds established by oil, gas or other mineral lease revenues. 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, CiLpital 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 . LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS 13 CITY POLICIES MANUAL CST FO WO , TEXAS e COUNCIL PROPOSAL Date: File Number. Subject: Amendment to the City Policy Concerning the Allocation of Gas Well Drilling 03-20--07 265 Revenues and Amendments to State Law Concerning the Investment of those Revenues Proposed By:Jungus Jordan City Manager's Review: Page: City Attorney's Review. PAGE 2 OF 4 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. Amendment of the current Policy would allocate, budget and expend the annual revenues generated from the Barnett Shale and oil and gas operations in the city limits and ED 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 for ten years. From the eleventh year forward, 50% of the subsequent earnings will be used for capital improvements and operations of the respective endowments. The remaining 50% of subsequent earnings will remain in the fund and be reinvested. The proposed endowment funds shall be referred to as the People's Funds, and such endowment funds shall be established in accordance with the assets from which the revenues are derived and any regulatory and legal restrictions. If the revenues must be used for specific land / use that generates 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. J LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS ❑ CITY POLICIES MANUAL 0 C aT FO W01 TExaS COUNCIL PROPOSAL Date: File Number. Subject: Amendment to the City Policy Concerning the Allocation of Gas Well Drilling 03-20.07 265 Revenues and Amendments to State Law Concerning the Investment of those Revenues Proposed By:Jungus Jordan City Manager's Review: Page: City Attorney's Review. -f PAGE 3 OF 4 FISCAL NOTE: Since revenues received will be allocated for capital projects, additional operating costs will likely be incurred. Based on this proposal, fifty (50%) percent of the revenues will be allocated to endowment funds established for Aviation, Solid Waste, Golf, Water & Sewer and the General Fund (a Park Endowment Fund currently exists). This proposal will require annual adjustment to the ad 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 Forecast and/or the City's Annual Comprehensive Plan. Should the -City Attorney determine that legislative action is needed in order to authorize prudent and conservative investment flexibility for the proposed endowment funds, it would be desirable, but not necessary, to seek such legislative amendments in the current state legislative session, or otherwise defer amendments to the 2009 legislative session. 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 J LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS ❑ CITY POLICIES MANUAL C 0TF® WO , TEXAS o ❑. Loa COUNCIL PROPOSAL Date: fK=ber Subject: Amendment to the City Policy concerning the allocation of gas well drilling 03-20-07 revenues and amendments to state law concerning the investment of those revenues. Proposed By:Jungus Jordan City Manager's Review: Page: City Attorney's Review: PAGE 4 OF 4 5. Implementing financial strategies that erode the "real" value asset of the endowment fund corpus due to inflation, investment or spending policies, by not reinvesting a sufficient amount of the interest earned by the fund. PROPOSED BY: IN COU461M ber &ouncilm—ember oe CITY COUNCIL APR 3 2007 auT sear tart'of City of Fort Worth,Texas 0 LEGALITY ❑ FISCAL NOTE ❑ CITY MANAGER'S COMMENTS ❑ CITY POLICIES MANUAL