Is a perfect storm headed towards the county economy?
As County Commissioners consider a property tax increase, a perfect storm may be developing in San Juan County. A worst-case scenario could have catastrophic consequences on the local economy, and eventually on local government.
A three-fold challenge could be triggered by 1) increased property tax rates, 2) lack of new economic growth, and 3) continued decline of the local industrial base.
1) Increased property tax rates
The potential property tax increase in three separate San Juan County funds is under consideration by the San Juan County Commission.
The potential increases will be the focus of Truth in Taxation public hearings on Wednesday, December 5 beginning at 6 p.m. at the San Juan County Commission Chambers in Monticello, 117 South Main Street.
The three separate funds seeking a property tax increase include the San Juan County General Fund, the San Juan County Library, and the San Juan County Public Health Department.
Government expenditures occasionally grow out of sheer necessity, and San Juan County appears to be facing that scenario. Several years of growing expenses has resulted in a depleted general fund account. The general fund has fallen from nearly $7 million in 2015 to less than $1 million in September 2019.
In addition, the county library and public health systems seek an increase in order to squelch a series of losses and to plan for future needs.
2) Lack of new economic growth
The impact of growth in property tax rates can be softened when the tax base is also growing. However, economic growth in San Juan County appears to be stagnant.
While the new San Juan County Commission has expressed support for the concept of economic development, they have also expressed concern about the possible impacts of that development.
Oil, Gas, Minerals
There has been no significant development in the oil, gas, and mineral sectors of San Juan County, which face a multitude of challenges, including a difficult regulatory and political environment in addition to low prices for their product in many cases.
The Commission passed a resolution opposing new oil and gas development efforts in the county.
The development of the Spanish Valley area shows the most promise for economic development in San Juan County.
The proposed Love’s Truck Stop in Spanish Valley has faced a wall of opposition from many residents of northern San Juan County, and the opposition has support in the Commission.
However, the potential impact on local government of the proposed enterprise is undeniable.
Rough estimates are that the proposed truck stop would pay tens of thousands of dollars in property taxes, create up to 40 jobs, and generate hundreds of thousands of dollars in fuel taxes.
The School and Institutional Trust Lands Administration (SITLA) plans on the development of thousands of acres of land that it controls in Spanish Valley. While SITLA has signaled a desire to work with local governments and has cooperated with local planning efforts, it carries a mandate from the Utah State Constitution to develop the properties it owns for the benefit of Utah’s school children.
3) Continued decline of the local industrial base
The only greater challenge than little or no economic growth is the collapse of the tax base.
While this is a worst-case scenario, there are indications that the industrial base in San Juan County is facing significant challenges.
Business leaders in the local industrial sector are hopeful and optimistic that better times are ahead, but they acknowledge that there are challenges in the near term.
These centrally-assessed properties have traditionally carried the majority of the property tax burden in San Juan County. If they fail or continue to decline, that tax burden will need to be assumed by the remaining property owners.
Challenges to the industrial base in San Juan County have parallels close to home. The Navajo Generating Station near Page, AZ, which was the largest coal-powered plant in the West, closed operations on November 18.
As the plant closed, so did the mining operations that fed the plant.
The operation employed as many as 750 workers before operations began to slow down in 2018. The majority of the employees were Native American, including a number of workers from San Juan County.
Oil and Gas Production
A longtime anchor of the industrial tax base, oil and gas production is down to a trickle in San Juan County and any new projects are having a tough time getting through federal regulators and environmental challenges.
Aneth Oil Field
The Aneth Oil field is co-owned by the Navajo Nation Oil and Gas Corporation (NNOCG), but Elk Petroleum handles operations in the oil field. Elk Petroleum, an Australian-based company, assumed the operations from Resolute Oil Company in 2017.
Chapter 11 bankruptcy hearings recently have been held in Delaware that involve Resolute and Elk filing “as debtors for a joint plan of reorganization…” of the two entities.
Details have not been released about the situation, which is difficult to follow through court filings.
When Elk Petroleum assumed management of the field, there was talk of expanded operations, including expansion of CO2 operations to extract oil and gas. However, there has been little new developments since that time.
The Aneth Oil Field has long been the largest valued property in San Juan County, with a total assessed value of more than $350 million as recently as 2012.
The properties were valued at less than $100 million in 2018.
The Aneth Field is one of the largest gas fields in the United States and has produced a staggering amount of oil and gas over the past 50 years.
Production has fallen in recent years, with secondary and tertiary efforts required to extract the remaining oil and gas.
Lisbon Valley Gas Plant
The Lisbon Valley Oil and gas operations have been a major employer in San Juan County for many years. There have been a number of buyers over the years, with the Lisbon Valley plant sold to a new owner in recent months and resumed operations. It is the only operating gas plant in the area.
The previous owner, CCI, consolidated operations to southern San Juan County, with a plant in Kirtland, NM operating under the name CCI San Juan. CCI San Juan is closing operations this month.
The Lisbon Valley Oil and Gas properties were valued at more than $60 million a decade ago. They were valued at less than $12 million in 2018.
Lisbon Valley Copper Mines and Mill
The Lisbon Valley Copper Mining Company owes $1.4 million in property tax to San Juan County, including $248,000 in fees and interest.
Company officials have said that the copper market has been in a downturn since 2015, with prices at times below $2 an ounce. They add that $3 an ounce is needed for the company to secure the profits that they seek.
In addition, trade disputes have created further uncertainty in the copper industry, in part because China consumes half of the world’s metals.
Despite the challenges, Lisbon Valley Mining hopes to develop an additional five or six years to the life of the mine.
Mining operations are on idle now, as milling crews work on existing stockpiles.
The company has 65 employees at the current time. The hope is to restart mining operation in early 2020.
The operation was valued at $21.5 million in 2018. The property value was more than $60 million in 2007.
Energy Fuels operates the White Mesa Uranium Mill south of Blanding in addition to uranium and vanadium mining properties. It is the only federally licensed uranium processing mill in the United States.
While Energy Fuels officials are hopeful about the future, the current situation is a challenge.
For the third quarter of 2019, Energy Fuels reported an operating loss of $8.8 million.
Officials report that the loss is “due in part to an impairment to inventories of $2.3 million as a result of low uranium prices and a decrease in vanadium prices during the quarter; as well as the decision to limit uranium and vanadium sales during the quarter.”
Energy Fuels did not complete any uranium sales during the quarter and is selling only small quantities of vanadium.
The operation was valued at nearly $70 million in 2012. The value was $24 million in 2018.