By Carol McIntire
CARROLL COUNTY -When Ohio Governor John Kasich visited the Momentum oil and gas fractionation facility at Scio in 2014 and proclaimed, “There’s gold in them there hills,” he knew exactly what he was talking about.
That “gold”, aka oil and gas, is padding the coffers of governments in the state in the form of ad valorem taxes (a property tax) and Carroll County is leading the way.
The Ohio Oil and Gas Association (OOGA) and Energy in Depth Ohio last week released the first part of a series called Ohio’s Oil and Gas Industry. The first segment focused on property tax, particularly six counties in Eastern Ohio – Carroll, Belmont, Guernsey, Harrison, Monroe and Noble – and the amount paid to those counties, based on figures reported to the Ohio Department of Natural Resources (ODNR) from 2011-2013.
The report showed oil and natural gas production generated over $43 million in property tax revenue (95 percent is generated by horizontal wells) for local schools and governments in these six counties during fiscal years 2010-2015.
Carroll County led the way during the report period (2010-2015), receiving $14,275,280 in property tax from oil and gas production. Harrison County received $11,034,253; followed by Guernsey, $4,899,450; Monroe, $4,799,837; Belmont, $4,633,870.43; and Noble, $4,063,575.
Shawn Bennett, executive vice president of OOGA, said because oil production increased by 496 percent from 2013 to 2015, it is reasonable to project local communities in shale producing counties will realize $200-$250 million from real estate property tax on wells over the course of 10 years (2016-2026).
Carroll County’s payment in 2010 totaled $177,732. The payment reached just over $1 million in 2013 and climbed to $3.3 million in 2014 and $9.2 million in 2015.
Carroll County leads the way in oil and gas development in the state of Ohio. The county has 509 Utica Shale wells in various stages of activity. According to figures from ODNR, there are 46 wells permitted, five being drilled, 28 drilled but not producing and 430 that are producing. The highest level of production took place in 2015. From 2010 t 2015, a total of 11,803,906 barrels of oil and 434,285,990 billion cubic feet of gas produced.
In comparison, Harrison County received $45,875 in real estate taxes from shale production in 2010. That number increased from $796,460 in 2013 to just over $2 million in 2014 and reached $7.9 million in 2015.
The county has 385 Utica Shale wells in various stages of production. To date, there are 56 wells permitted, 10 being drilled, 41 drilled and 278 producing, according to ODNR figures. There have been 10,745,556 barrels of oil and 204,616,108 billion cubic feet of gas produced.
FIGURING THE TAX
Ohio’s real estate tax is the state’s oldest tax, dating back to 1825. The Ohio Revised Code stipulates oil and natural gas wells, or the value of any to those minerals, are assessed as real property, just as a home is assessed and taxed as real property.
Statutory documents outline the components used by the Ohio Department of Taxation to value oil and natural gas deposits. The state tax commissioner uses the formula to determine the taxable value for production, which is paid in the form of real estate taxes. Prior to 2016, that tax was paid by the oil and gas producer or the mineral rights owner, depending on wording in the lease. Producers now collect any tax due from royalty owners and submit the entire amount to county governments.
The tax is paid two years in the rears, which means gas and oil produced by a well in 2011 will not show as a payment for that well’s production until 2013.
“One hundred percent of the tax goes to local communities,” Bennett said during a phone teleconference on the report last week. “Between 60 and 70 percent of the total goes to school districts.”
Jackie Stewart, state director for Energy in Depth Ohio, said taxes on shale wells accounted for 22 percent of all real estate taxes paid in 2016.
Taxes paid in 2016 came from wells drilled in 2011, 2012 and 2013, or the first three years of drilling,” she said. “It is important to note 100 percent of that money stays local.”
In Carroll County, the ad valorem tax accounted for 29 percent of the total real estate tax ($31,894,655.10) collected in 2015. In comparison, the ad valorem tax accounted for 13 percent of the total real estate taxes ($26,956,614) in 2014.
WHERE THE MONEY GOES
Schools receive the lion’s share of the funding.
The Carroll County Auditor’s Office provided figures showing the total real estate tax distribution (real estate and oil and gas combined) to the Carrollton Exempted Village School District for the years 2013, 2014 and 2015. That revenue grew from over $6.7 million in 2013 to nearly $6 million in 2014 and jumped to $11.2 million in 2015.
Roxanne Mazur, Carrollton Schools treasurer, said the district received a “significant increase” in real estate taxes the last couple years.
“We have seen a huge increase in the valuations of minerals we receive ad valorem tax for in the last few years,” she said. A tax valuation sheet for the school district shows an increase in mineral valuations from $7.1 million in 2012 to $168.5 million in 2015.
“It’s important to note that money will peak and then fall off,” she noted. “When forecasting for the district, I cannot include that money as guaranteed for future years.”
She noted the increase in real estate taxes will help offset any decrease in funding that might come with the new state budget.”
County Commissioner President Jeff Ohler said the county general fund will receive about seven percent, or $223,000 in 2016.
“In 2015 they are saying the tax will generate about $9.2 million, or about $625,000 for the general fund,” he said, adding that is presuming the taxes are paid on time, which, he noted, is not always the case.
“We are not going to base our budget on that increase,” he said. “We stand to lose about $228,000 in the Medicare tax and we are still making payments back to the state on an overpayment by a business on county sales tax. This year is the final payment of $125,000 so when you combine the two, we could be down about $350,000 in income.”
Townships and villages in the county also receive a small portion of the funds in different percentages. Real property tax rates are levied locally and vary by taxing jurisdiction (villages, townships, etc.). The total tax rate for any particular parcel includes all levies either enacted by a legislative authority or approved by the voters of all taxing jurisdictions in which the property is a part. Each unique combination of these taxing jurisdictions creates a separate taxing district, which results in different districts receiving a different share of the funds.
Nick Homrighausen, executive director, Community and Economic Development for Harrison County, said his county is seeing an “energy renaissance”.
“This is just the beginning of an economic spark in the area,” he said during the call. “Harrison County has four producing plants built and a fifth scheduled to be built when the market dictates. We have a new school planned outside the village of Cadiz and we are creating a master trail plan for the county. There is also a great deal of potential for downstream businesses to locate in this area of the state.”
“The increase in oil and natural gas production is becoming a windfall to counties which previously were cash strapped,” said Bennett. “Energy production has helped save budgets in some of the hardest hit regions of the state. Without a doubt every Ohio resident is benefiting from oil and natural gas production via lower gas prices, home heating and home electricity costs as well as investment that has been spurred all over the state, creating jobs and boosting the overall economy. The people who benefit the most are the residents of the local areas where mineral production is occurring. We are only six years into the play. We aren’t done. This is just the beginning,” he said.
Bennett and Stewart said they plan to continue the series by producing reports on the effects of the oil and gas industry on sales tax figures in eastern Ohio and on Road Use Maintenance Agreements (RUMAs).