Panola County entering critical period on property tax decision

The Panola County Commissioners’ Court (the court) is entering a critical period for deciding property tax issues. Panola County (the county) receives approximately 85 percent of its funding from local property taxes levied on the real and mineral assets located in the county. The appraisal district determines the values on these assets and submits a certified appraisal to the court. The court uses the total of these values (the tax base) to set the tax rate (per $100 of appraisal) to fund the county’s operations for the year. On an individual owner bases, the appraised value minus exemptions, multiplied by the tax rate, is the amount owed in property taxes.

This year the preliminary tax base ballooned to over $5 billion, up from $3.6 billion. This means funding for the county will increase, but caution lights are blinking. This increase can be attributed to the additional new drilling for natural gas in the county. Every time a new successful horizontal Haynesville well is drilled in the county, $20 to $25 million dollars is added to the tax base. However, the production from these wells declines exponentially in early life, so the value for the second year will be materially diminished in the tax base. Therefore, in order to keep the tax base at this higher level, more and more wells must be drilled. Drilling will continue as long as there are viable locations for discovery and the price for natural gas remains at elevated levels. The day either of these conditions turn unfavorable (and it will) the drilling will stop, and the tax base will plummet to the previous levels. In other words, this elevated tax base is an anomaly, and will likely be vacated in a couple of years or so.

In my opinion, the court should consider the following strategies to manage this anomalous property tax environment. First, hold spending levels at the absolute lowest level possible. The county budget is experiencing inflationary pressure for road oil and fuel, but conservative budgets are critical. Second, reduce the tax rate, but leave it high enough to build on the unrestricted cash surplus of the county. We’ll need a cash cushion the day the drilling stops and the tax base drops. Finally, temporarily increase the homestead exemption to reduce the tax burden on homeowners. The people should be allowed to keep more of their money during this extraordinary growth in the tax base. The extra homestead exemption will have to be reversed once the tax base retreats, but the homeowner should participate in the prosperity.

These things can be accomplished (barring some statutory prohibition) because the tax base has so aggressively grown. I strongly urge you to consider these strategies and others you may have. Remember, you are employees of the citizens of the county. I am hopeful you will find economies with the funds entrusted to you, while respecting the desire for prudent management of the fiscal affairs of the county.

— Gary G. Kelley, Panola County

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