Oktibbeha County officials have learned their lesson when it comes to budgeting for natural gas severance funds.
They”re nearly impossible to predict.
The county in the past has received upwards of $750,000 in a single year from the state in natural gas severance taxes — a result of the state redistributing 1/3 of the taxes collected from 11 natural gas wells located in Oktibbeha County.
But those severance funds have dropped dramatically in recent years for a number of reasons, from decreased production at the wells to a drop in prices on the natural gas market to an accounting error which caused the county to pay back hundreds of thousands of dollars in severance taxes it shouldn”t have received.
For the 2009-2010 fiscal year, the county budgeted for and expected to receive $495,000 in natural gas severance taxes. However, the county only received $278,750, with $68,835 going in the general fund and the remainder going toward repayment of the 2001 road bond.
For the coming fiscal year, Oktibbeha County administrator Don Posey and county comptroller Emily Garrard are preparing a budget with only about $144,000 in projected gas severance tax revenues. About $44,000 would be used to pay off a portion of the 2001 road bond, while the remaining $100,000 would go in the general fund.
For Posey and Garrard, who said the 2010-2011 is the “hardest” she”s ever worked on, the projected drop in gas severance taxes is a result of the dramatic disparity between projected revenues and actual revenues over the past year.
“We”ve learned our lesson,” Posey said Thursday. “You can”t rely on gas severance.”
Living large
The state collects the gas severance taxes and redistributes them to the counties in which the wells are located, said Kathy Waterbury, spokeswoman for the State Tax Commission.
Oktibbeha County ran into problems in 2006, however, when it received a letter from the state saying a well owner was taxed too much and, subsequently, the county was receiving too much severance tax money from the state. The county had been overpaid $482,743.
For the months of March and April 2006, the state distributed no gas severance taxes to the county, but loaned the county $80,000 both months so it wouldn”t be in “financial distress,” according to a letter from the State Tax Commission.
The Tax Commission loaned the county an additional $47,882 in May 2006 to be applied to the normal distribution of $80,000 per month. But the $207,882 in loan money was added on to the $401,102 the county still owed the state after taxes were withheld for two months, which brought the total amount the county had to pay back up to about $608,985.
Over nearly two years, the state then reduced the normal county distribution by 50 percent in order to recoup the $608,985 the county still owed.
From November 2006 to August 2008, Oktibbeha County would have received $1,241,984.64 in gas severance taxes from the state. Instead, the county only received $632,999.51.
Lowered expectations
Beginning in September 2008, the state has distributed to Oktibbeha County 100 percent of the severance taxes it has been owed, but totals are still down, as evidenced by the $277,000 the county received from September 2009 to August of this year. By comparison, the county received $452,105 from September 2008 to August of 2009, which is why Garrard says she budgeted for $495,000 in gas severance for the 2009-2010 fiscal year.
The low severance tax total over the past 12 months comes as a result of decreased production and because the price of natural gas has decreased nationwide, said Lynn Harton, Oktibbeha County”s lease operator for Devon Energy, which operates wells in the county.
“It”s just a natural decline of the wells,” Harton said. “There”s a couple (wells) that they”re probably going to do a little work on. They”re down (in production) a little from what they used to do, but most of it is just a natural decline. If they came in here and did some stimulation work, the production would go back up.”
Harton said he”s “not at liberty to say” how much natural gas the wells in Oktibbeha County produce.
The decrease in severance taxes also could be the result of lower natural gas prices.
In late 2007 and early 2008, natural gas prices were nearly $8 per 1,000 cubic feet. These days, it”s down around $4.
The number of natural gas wells in the U.S. also has increased in recent years, said a Devon Energy spokesman who asked not to be named. With a higher supply, demand has decreased. Additionally, with a “weak” economy, people are saving money and purchasing less natural gas, he said.
Supply
It is unclear how much natural gas is located in the grounds of Oktibbeha County.
Dr. Darrel Schmitz, head of the Geosciences Department at Mississippi State University, was unavailable to comment on the natural gas supply in Oktibbeha County. Additional attempts to gather information on the natural gas supply in Oktibbeha County also were unsuccessful.
The gas severance fee is critical to the county”s budget. The county Board of Supervisors is considering a 4.48-mill tax increase to help make up for the lack of revenues across the board, including gas severance funds.
“That”s $300,000 (in gas severance taxes) we”re not going to have this year,” Posey said when comparing this past fiscal year”s gas severance revenues to those of previous years. “That”s more than a mill (which is worth approximately $295,000) that we don”t have, and we”re not maintaining because of things like that. Our budget is going to be less. Virtually everybody is going to have less budget than they had last year.”
The county”s proposed 2010-2011 budget does not include the 5-percent pay increase for county employees as it has in the past, and supervisors are cutting budgets for the Oktibbeha County Sheriff”s Department, the Building and Grounds Department and other areas.
“Every little nickel and dime adds up,” Posey said.
The county used to give a portion of the gas severance tax to the Oktibbeha County School District as required by state law, but the county is no longer required to do so, Posey said. The last year the county gave gas severance funds to the Oktibbeha County School District was 2005, when the district received more than $32,000 from the county.
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