NORWICH – When a natural gas well’s spacing unit encompasses two towns - or even two counties - it’ll be up to real property tax directors to determine how the receipts get distributed to local governments, fire, school and other special districts.
The learning curve for property assessors is currently steep and will climb higher, say members of Chenango County’s Natural Gas Committee. The cooperation involved will be tedious at best.
“When the time comes, we will have to give up production values to each other,” said Supervisor James Bays, D-Smyrna.
“That can be hard to do,” Committee Chairman Peter C. Flanagan, D-Preston said.
Especially when those values aren’t being supplied by government meter readers, but by contractors hired by the natural gas companies themselves. Neither the state’s Real Property Tax Services nor the Department of Environmental Conservation have apparatuses in place to assure what well the gas is actually coming from before it hits the New York State Electric and Gas, Dominion or Millennium pipelines.
On the flip side, Norse Energy, Inc. attorney and spokesman Dennis Holbrook said the independent, third party meter readers who do the work “have no incentive” not to measure the production properly.
“We are on the same side of the equation as the landowner we’ve leased from. We would be shortened in the same manner the landowners would be. The only beneficiary (of false readings) would be the utility that is taking the product,” he said.
Norse Energy currently has between 130,000 and 170,000 acres leased or owned in the region and continues to receive permits from the NYSDEC to drill into Herkimer and other sandstone formations.
Chenango County Gas Committee members and their counterparts in Madison County met in Smyrna April 2 to discuss strategy for fair distribution of profits from the developing natural gas industry. They say New York State’s recent threat to impose a severance tax on the fuel’s production opened the doors for weights and measures officials to read the meters, and thereby revamp the entire real property tax system in New York.
“This is an opportunity to shed the real property tax method and have readings done by governmental weights and measures officials rather than gas company consultants. Think of that!” said Bays.
According to New York’s Real Property Tax Services office, a well and its transmission lines (until they reach a metered connection with the Dominion, NYSEG or the Millennium) are all part of an economic unit and treated as real property, much like a house.
The concept of gas as real property is “convoluted,” said Flanagan, and making fair and equitable assessments will get tougher as production from wells drilled into the Herkimer (and the Marcellus in the future) continues to flourish.
In 2008, the Town of Plymouth took in about $5,000 and Smyrna about $24,350 from Norse Energy’s natural gas sales. One of the 11 producing wells in Smryna was estimated to bring in about $183 million for the company and shareholders. Of that amount, only $8,000 ended up in town, school and county’s coffers.
Chenango County Real Property Tax Director Steve Harris said determining how to distribute taxes levied from gas production for new well units that have been found to cross town lines and county lines will be time consuming and difficult.
Flanagan called for a uniform method for assessing. “I would hate to see 20 towns doing it in 20 different ways. ... If we don’t do anything that’s uniform, this is going to be a joke,” he said before the committee last month.
Town of Columbus Supervisor George Coates pushed for all assessors to be better educated, not just those who have wells in their towns. “We need to warn them all about this freight train coming down the track,” he said.
An equitable distribution of revenues is necessary to help cover expenses for road damages, emergency management services and possibly environmental disasters. Already three accidents have occurred since Norse began drilling in the region: two rig fires and fracture damage to the water table in the Town of Brookfield in Madison County.
Under the state’s current real property tax calculation, those towns with higher levies will receive more. “Pharsalia and Norwich won’t benefit as much because they don’t levy a significant amount of tax,” said Flanagan.
The timing of Thursday’s Chenango/Madison meeting was critical, Bays said, because if New York’s severance tax proposal hadn’t been pulled from the budget negotiations underway in Albany, it would have been too late for counties. The proposal suggested 5 percent or more on production for the state, leaving counties to share 1 percent between special districts and towns.