EARLY — An agreement between the City of Early and Solaris Oilfield Infrastructure will likely double the city’s annual sales tax revenue, which currently amounts to about $1.5 million annually, Early City Administrator Tony Aaron said.
The revenue is expected to be doubled once a three-year partial sales tax rebate to Solaris, approved earlier this year by the city council, expires, Aaron said.
That agreement prompted the company to move its leasing office from Houston to Early.
The rebate, which took effect in September, is being paid by both the City of Early and the Early Municipal Development District. The amount rebated to Solaris amounts to about 37 percent, Aaron said.
The city has already seen healthy increases in its sales tax allocations for November and December, which included sales tax Solaris paid after moving its leasing office here.
In November, the city’s allocation from the state — which represented sales tax collected in September — was about $238,000, up from the November 2018 allocation of $142,000.
The city received its December allocation, representing sales tax collected in October, on Wednesday. The December allocation of $223,634 is a 69 percent increase over the December 2018 allocation of about $112,000, Aaron said.
Those numbers represent the combined totals of sales tax allocations to the city and the municipal development district.
A portion of the additional revenue will be applied to property tax relief in the next budget year, and the remainder will go into the general fund for improvements to areas including police, fire, streets and parks, Aaron said.
“We have been working with Solaris Oilfield Infrastructure for quite a while on growing their operations here in Early, and part of that growth model was to get them to move their leasing office to the city of Early,” Aaron said.
“Solaris’ business model is, they build fracking silos for the oilfield here in Early, and then they lease them to drilling sites. The lease of those fracking silos is taxable under the local sales tax. We entered into an agreement to get them to move that (leasing office) here and we are projecting that the sales tax that Solaris will pay the City of Early annually will double the entire sales tax collected for the City of Early on all of its businesses.”
Aaron said the additional sales tax revenue is a “game changer for the economy.”
Solaris Oilfield Infrastructure was formed in 2014 to provide oilfield products, services and infrastructure “to enhance drilling, completions, efficiency and safety in North American shale plays,” the company’s website states.
Equipment is manufactured at its 100,000-square-foot facility in Early, the website states.
“Solaris believes in giving back to the communities where we live and work,” General Plant Manager Chuck Pendry said via email.
“We are pleased that this partnership provides another avenue to continue our contributions to the City of Early.”
Aaron said some citizens might view the sales tax rebate “with a critical eye.”
“Solaris could choose to stay in Houston with that leasing,” Aaron said. “They could choose to set up wherever they felt like that they could to get the best financial benefit. With the partnership already in place with Solaris, it just made sense for that negotiation to happen.”
Referring to the November and December sales tax allocations, Aaron said, “essentially for the last two months we’ve received close to a 70 percent (increase) over what we were last year.”
Aaron acknowledged that oil production has “backed off a little bit. Production has slowed. Nobody is saying recession but it’s slowed. Any time you’re receiving a large amount of sales tax and you’re looking at projecting that into budget, you are concerned with the fluctuation in that.
“We have to be smart about what we do with that money and look at putting it into projects and infrastructures that we can take care of in a year or so.
”It will be essential to “not over-extend ourselves into recurring expenditures like salaries or debt service or something like that, where we’re banking on that kind of money,” Aaron said.
Additional sales tax revenue “gives us an opportunity to look at reducing the property tax rate,” Aaron said. He said he didn’t want to speculate specifically how far but said “it could be a nickel to a dime reduction in property tax rate.”
If on the other hand sales tax revenue decreases, “the counter could happen too,” Aaron said. “We (set) it too low and now we’ve got to go back up. That’s the balance that we’ll be trying to figure out over the next six months, and trying to figure out how we’ll project this forward into the next budget year and how it will impact the property tax.”
Repeating that planning will be required for the “major increase” in sales tax revenue, Aaron added, “the last thing that I would want to do is find ways for this money to disappear. Because it can. You can budget it in a lot of smaller projects and you look up and it’s gone.
“We are going into this very optimistic that this is a long-term relationship with Solaris. We are also going into it with the realization that this is an oilfield industry and things can change. We just have to be wise about the decisions we make with the new revenue.”
In other matters related to the city council, Aaron said the city:
• Received a good report from its annual audit. The audit showed a net gain of $180,000 even after depreciation in infrastructure of nearly $1.7 million. “So Early’s economy is healthy,” Aaron said. “We’re stable. We have a healthy cash fund balance, not in excess but just being fiscally responsible with our funds.”
• Has seen its S&P credit worthiness rating increase to A-plus. The rating “just fell short of a double A rating which is a pretty healthy thing,” Aaron said.
• Approved a contract with Interstate Construction and Coding for the demolition of the city’s now-closed water treatment plant.
• Readopted the Building Early Texas initiative, a program in which the city waives permit, tap and inspection fees for residential construction.