As oil prices remain bearish on the global markets, — effecting everything from the price of fuel to jobs — Gaines County’s governmental entities are bracing for another tough financial year.
On Thursday, local governmental entities had their first official peek of how grim the upcoming taxing cycle could be for the 2016 calendar year, as officials with the Gaines County Appraisal District released their first set of preliminary mineral values to the county’s ad valorem taxing entities ahead of their late July official release.
According to figures obtained Thursday from the Gaines County Appraisal District (GCAD), local entities could see anywhere from a projected 19.6-percent drop in mineral values as quoted to the City of Seagraves, to a 38.5-percent drop in mineral values a quoted to the City of Seminole by the local district.
Thursday’s release comes on the heels of a taxing year (2015) which saw most Gaines County taxing entities fall victim to over 33-percent declines in certified values.
“(The 2016 taxing cycle) has the potential to have another significant impact on our budget and our tax rate with the projected decline in our values,” said Rick Dollahan, Gaines County Auditor in a Thursday afternoon interview with the Seminole Sentinel.
Gaines County, which operates on an Oct. 1 through Sept. 30 financial year calendar, will see their respective elected officials begin the budget planning process over the next several weeks, with the entity’s first budget workshop slated to take place in early June.
“We have already began planning and formulating ideas on how to address the budget with the projected decline,” said Dollahan.”But, at the same time, it’s still too early to tell what we will truly be facing until we receive the official certified values in late July.”
In a July 2015 news account published by the Seminole Sentinel, Kenneth Hitt with Capital Appraisal Group — an Austin-based firm charged with assessing mineral and industrial property valuations within Gaines County for the Gaines County Appraisal District — stated there are five variables which effect the establishment mineral values: start rate of oil producing wells, decline (of well production), (market)price, expenses and (well) life. Variables which, when assessed, play a major factor in the assessment of mineral values for local taxing entities.
“While life is dependent upon production (start rate and decline) and expenses, the life of the lease is determined by economics in our property tax system,” said Hitt.
Mineral rights owners — primarily petroleum based companies operating within Gaines County — serve as the largest taxpayers for Gaines County. According to past news accounts published by the Sentinel, local petroleum companies paid in the range of 70-to-90-percent of property/mineral values for local entities in Gaines County, with the remaining values paid for by local taxpayers.
According to Hitt, the start rate and decline determine how much product will be produced.
“On wells that have been producing for period of time, start rate will trend downward based upon decline,” wrote Hitt. “Decline on the other hand is how fast the production is being reduced.”
Hitt added start rate and decline will determine the amount of production a lease owner will get from any lease.
“As a county though, there is also one other factor that comes into play, drilling,” said Hitt. “As long as there is enough wells being drilled to replace the production loss from depletion the effect of decline and start rate on single existing leases will not be felt. There will be enough replacement reserves to replace the depletion.”
Hitt continued to state price, on the other hand, has a big factor to play in the final values realized by the county.
“Price effects every barrel of oil and MCF of gas sold in the county and effects the net realized income to the operator and the royalty interest,” said Hitt. “Assume you have a lease that produces 10,000BBLs of oil a year, and you receive $100/BBL for the production. The operator would receive $1 million of gross income that year. Now assume it is the next year and the price drops to $50/BBL the income for the operator is cut in half $500,000 all other things remaining equal. The prospects for an investor in purchasing the lease has been reduced by half since the expected income is half of the previous year.”
Hitt added: “Not only has the operators income decreased, but, let’s assume the operator spends $500,000/ year in expenses. Where the previous year the well may have many years of remaining economic life because the income is twice the expenses. Now with the income cut in half but the expenses not changing he may not be able to continue operating the lease for very long since the economic limit of the cash flow is reached by year end.
“So what was a lease with perhaps 10 years of life has been reduced to 1 year and reducing the value to the perspective investor looking to purchase the lease.”
Property Valuation Process Continues
Officials with the Gaines County Appraisal District are continuing their work in assessing real estate properties within the Gaines County boundaries ahead of a planned May 9 release of “Notice of Appraised Values” to local property owners.
According to the Texas Comptroller’s Office, a Notice of Appraised Value informs the property owner if the appraisal district intends to increase the value of a property. Chief appraisers send two kinds of notices of appraised value.
A detailed notice contains the description of the property; taxing units allowed to tax the property; preceding year’s appraised value; preceding year’s taxable value; current year’s appraised value; allowed exemptions; estimate of taxes based on previous year’s tax rates; statutory language; explanation of how to protest; ARB hearing information; and an explanation that the appraisal district only determines a property’s value and does not decide on tax increases. A detailed notice is sent if:
• the value of a property is higher than it was in the previous year (The appraisal district’s board can decide that it will send detailed notices only if a property’s value increases by more than $1,000.);
• the value of a property is higher than the value the property owner gave on a rendition (see next section);
• the property was not on the appraisal district’s records in the previous year; or
• an exemption or partial exemption approved for the property for the preceding year was canceled or reduced for the current year.
Tax Code Section 25.19 requires the chief appraiser to send the notice of appraised value by May 1 or April 1 for residence homesteads, or as soon thereafter as possible. If a property owner disagrees with this value, the property owner may file a protest with the appraisal review board (ARB).
The notice of appraised value includes a protest form and information about how and when to file a protest with the ARB if the property owner disagrees with the appraisal district’s actions.
According to the Texas Comptroller’s website — www.window.state.tx.us — each county’s appraisal district determines the value of all taxable property within the county. Before the appraisals begin, the district compiles a list of taxable property. The listing for each property contains a description and the name and address of the owner.
The appraised home value for a homeowner who qualifies his or her homestead for exemptions in the preceding and current year may not increase more than 10 percent per year.
Property Tax Code Section 23.23(a) sets a limit on the appraised value of a residence homestead, stating that its appraised value for a tax year may not exceed the lesser of: (1) the market value of the property; or (2) the sum of: (A) 10 percent of the appraised value of the property for last year; (B) the appraised value of the property for last year; and (C) the market value of all new improvements to the property, excluding a replacement structure for one that was rendered uninhabitable or unusable by a casualty or by mold or water damage. The appraisal limitation first applies in the year after the homeowner qualifies for the homestead exemption.
How is your property valued?
The appraisal district must repeat its appraisal process for property at least once every three years.
The appraisal district is required to use mass appraisals to appraise large numbers of properties.
In a mass appraisal, the district first collects detailed descriptions of each taxable property in the district.
It then classifies properties according to a variety of factors, such as size, use and construction type. Using data from recent property sales, the district appraises the value of typical properties in each class. Taking into account differences such as age or location, the district uses “typical” property values to appraise all the properties in each class.
The appraisal district may use three common methods to value property: the market, income and cost approaches.
The market approach is most often used and simply asks, “What are properties similar to this property selling for?” The value of your home is an estimate of the price your home would sell for on Jan.