A proposed business license on nonrenewable resource extraction that is expected to raise nearly $4 million in revenue for Letcher County is a fraction of the estimated $47 million to $60 million in natural gas produced annually in the county, estimates by The Mountain Eagle and the county government show.
The tax proposed by Letcher Judge/Executive Jim Ward would require a $2,500 license for every facility extracting non-renewable resources in the county. The tax would be levied on gas wells, coal mines, gravel quarries, and other such operations.
Matt Sawyers, executive director of the Kentucky Oil and Gas Association, said his group would file a lawsuit if the license ordinance is passed.
Gas companies have strongly opposed the fee, and in a letter to The Mountain Eagle gas company land agents Ted Adams and John Reedy said it would force companies to cap off wells, lay off employees and “destroy the natural gas industry in Letcher County.”
“The county wants to tax $2,500 for every well in Letcher County, probably driving the industry out of town,” the letter says.
Judge Ward said it costs more than $1 million to drill a gas well, and he doesn’t think companies are going to shut them down for $2,500.
“For all the coal, all the gas, all the rock that’s been taken out of here over the years, this is a small price to pay,” Judge Ward said.
According to statistics from the Kentucky Geological Survey, gas wells and gas and oil wells in Letcher County produced 15,189,641 Mcf of gas in 2014, the last year for which figures were available. As of Friday, that amount of gas would be worth $47,497,399 on the Henry Hub, an index of spot gas prices named for a natural gas distribution hub in Louisiana. An MCF denotes a thousand cubic feet of natural gas.
Sawyers said he was out of his office and could not dispute the figures, but said, “There’s not nearly as much gas produced in 2017 as there was in 2014.”
With a May contract price of $3.21, that amount would be higher — $50 million, according to Mountain Eagle estimates. Whitesburg attorney and business owner Tyler Ward, whose father is the judge/ executive, said based on the industry’s own figures, the 10-year average from 2002 to 2012 was $60 million.
“Anybody that says they’ll be broke by $2,500 a well is lying about it,” said Tyler Ward.
Again, Sawyers said he could not dispute the figure directly, but he said economics of the gas industry have changed in the past 10 years, and if the average is $60 million, “That would have been in a much different market reality.”
Sawyers said the oil and gas association has “reached out to magistrates to try to walk this back,” and will make a presentation at the Letcher County Fiscal Court meeting on April 10.
Sawyers said he knows of no other county that has such a license fee.
“No we don’t, and if this spreads …” Sawyers said, adding that a lot of counties are short on money, and “some legal and some reasonable tax, we would not be opposed to.”
While Sawyers referred to the proposal as a “tax,” and said the oil and gas industry is being singled out, Judge Ward refers to it as a business license, an important difference since excise taxes are taxes on production and are reserved for state government.
“It’s a business license — nothing to do with production,” he said. “It’s a business license for nonrenewable materials that are going out of here and never coming back.”
Sawyers said his industry already pays taxes, and should not be a subject to the fee.
“What if Jefferson County or Fayette County put a $5,000 license fee on every fast-food restaurant?” he asked.
Lexington-Fayette Urban County Government has an occupational license of fee of 2.25 percent on the net profits of every business in its jurisdiction. Louisville Metro, which includes most of Jefferson County, charges an occupational license of 1.25 percent of net profits, plus a 0.20 percent transit tax. Alcoholic beverage business licenses can range up to $3,000 per year, depending on the type of business. The fees are on the web sites of the respective governments.
Judge Ward said state officials are projecting Letcher County to be $1.3 million to $1.5 million short on revenue next year, and revenue is already down sharply. He said the $3.7 million he estimates the county would gain from the business licenses would put it back to the level it was five years ago. He said the county’s workforce is down from 190 employees to 108, and the next step would have to be furloughs, cutting road department employees to four days a week. He said that would still not bring the county spending in line with revenue, and the pain it would cause the road workers is not acceptable.
“The men couldn’t survive,” he said.
While Judge Ward says the license fee is the only way for the county to pay its bills, Sawyers said it would create more expense for the county.
“How are they going to pay for the lawsuits?” he asked.