OTSELIC – The possibility of collecting what’s being called an “enhancement” tax on natural gas sales from local wells has appealed to yet another Chenango County town.
Prompted by action taken earlier this month in Smyrna and Lebanon in Madison County, the Otselic Town Board last week agreed to request of the state’s Legislature a revision to home rule law that would permit such a tax.
The resolution has the backing of state Assemblyman William Magee, D-Nelson, and state Senator James Seward, R-Milford, and could be introduced in Albany this year. Under the proposal, gas company revenues would be taxed directly on natural gas sales from local production.
Chenango County Supervisor James B. Bays, D-Smyrna, has called the tax an “enhancement tax” because it is necessary for local governments in order to afford the cost of any drilling and exploration, wear and tear on highways, community safety needs, municipal employee training and equipment needs.
By supporting the neighboring towns’ resolution, Supervisor David J. Messineo, D-Otselic, said Otselic would have the opportunity to use the tax if needed.
“We aren’t going to be so greedy that we chase them away,” he said of the gas exploration companies. “We want this.”
Natural gas has been discovered in shallow layers of Oneida sandstone throughout several northern Chenango County municipalities, such as along county Route 16 in Smyrna, Otselic and Plymouth. Many wells have been drilled by Nornew Inc., an Appalachian Basin independent natural gas exploration and development company.
Steve Novakowski, vice president of engineering for Nornew, said the company currently operates 41 wells in Madison and Chenango County, although some of them were drilled in the early 1960s.
Novakowski confirmed that Nornew is actively pursuing leases and plans additional drilling this year. Some property owners have been approached with offers of up to $15 an acre for five years, county officials say.
Town of Plymouth Supervisor Jerry L. Kreiner said his board would research the tax resolution further before taking any action.
Bays requested Chenango County’s support of the pending legislation at two standing committees last week: Public Works and Planning & Economic Development. “We are looking for all the support we can get. Perhaps a county resolution,” he said.
At Public Works, Supervisor Peter C. Flanagan, D-Preston, pointed out that energy companies already pay a type of franchise tax that is calculated through the New York State Equalization and Assessment Board.
Bays said the existing tax is “well below what it should be” and “not sufficient given the impact of exploration and transportation.”
“It is not being implemented the way it’s supposed to be implemented. Local assessors need education. There is extremely minimal oversight on this whole process. We need to have some training for those involved in real property tax,” he said.
Supervisor Ross Iannello agreed that oversight on exploration was minimal. “We have abandoned gas lines that nobody knows where they are or not. The oversight on these things is nil,” he said.
Novakowski, reached at his office in the Eaton Center in Norwich, said the company must report its annual production per well and that the data is assimilated along with pricing information. “A calculation is made for the amount of tax due for production based on the production for each well. We are then invoiced for county, towns and school taxes on those calculations,” he said.
Any additional tax will have to be factored into profit. “It would have some adverse affect on profitability,” he added.
Because the natural gas discovered in the area is in a fairly new area, Novakowski said there is a degree of uncertainty as to the breadth and scope of it. “We’re not sure how long the wells will last. We are still in the exploration phase, gathering data as we drill. ... Ultimately, there is a lot of risk that we are undertaking. It is a capital intensive project to build pipelines.”
Bays said the legislation, if adopted, would ensure that all town property owners benefit.