Topeka ? For most consumers, the plunging price of oil in recent months has been an economic boon as gasoline prices have fallen below $2 a gallon for the first time in years.

But for the state and some local governments that receive taxes from the production of both oil and natural gas, which has also fallen in price, the market drop could have a significant impact that could result in higher property taxes for homeowners or cuts in public services.

Falling gasoline prices have no impact on two key taxes that state and local governments rely on: sales taxes and motor fuel taxes. Sales taxes are not charged on gasoline, and the motor fuel tax that’s included in the price at the pump is charged on a per-gallon basis, not on the price of the gasoline itself.

But the falling prices of oil and natural gas will have an effect on two other taxes that are tied to oil prices and production: the state severance tax; and property taxes that are levied by the state and most other local units of government.

The severance tax is a tax on minerals extracted out of the ground in Kansas. It’s based on the “gross value” of those minerals, mainly oil and natural gas at the time they are sold. How much the state receives depends on the price paid at the wellhead and the amount of oil and gas produced.

Property taxes are also levied on oil and gas wells. Each year in late January, the state sends out guidelines to county appraisers for how to appraise the value of those wells. The tax rate is based on how much the well produced the previous year and an estimate of how much the oil and gas will sell for in the coming year.

Falling prices in Kansas

The price of oil and gas produced in Kansas fluctuates along with global prices. But oil prices in particular tend to be lower than the national and world average because most of it is a lower-quality oil that is often called “sour crude” oil because of its high sulfur content.

Higher prices are paid for what’s called “sweet crude,” which has a much lower sulfur content.

In the last fiscal year, which ended June 30, Kansas oil sold for an average price of $93.79 per barrel. Kansas natural gas sold for an average of $3.87 per million cubic feet, or MCF.

Since about May, however, prices for both have fallen dramatically. State budget officials took that into account when they published new revenue estimates in November, projecting that oil prices would fall to an average of $80 per barrel in the current fiscal year and to $72 per barrel in the next fiscal year that starts July 1.

Natural gas prices were projected to fall to $3.70 this year and $3.55 in the next fiscal year.

But now, state officials believe even those estimates may have been overly optimistic because, as of Wednesday, Kansas oil was selling for less than $50 a barrel, according to Independent Oil and Gas Service Inc.

“We may not have anticipated the full extent of the drop in crude oil prices and possible production cutbacks that we are currently seeing,” Revenue Department spokeswoman Jeannine Koranda said. “Thus, we may possibly miss the estimate on severance tax revenues.”

Impact on spending and mill levies

A drop in severance tax collections won’t have much of an impact on the overall state budget. All told, severance taxes generated about $126 million for the general fund last year, only part of which goes into the state’s $6 billion general fund budget.

The bigger impact will likely be seen in property tax collections. Kansas levies a statewide property tax to fund public education. And property taxes are the primary source of local revenue for school districts and most cities and counties.

According to the Department of Revenue, oil and gas wells account for almost 7 percent of all assessed property value in Kansas, or about $2.1 billion worth of taxable value. Last year, that produced $45.9 million in state property taxes, most of which goes into the school finance system.

Officials say when revenue collected on that class of property falls, it forces local governments to either cut spending or raise their mill levies to make up for the loss, resulting in higher property taxes for homeowners and businesses.

For school finance, any reduction in statewide property tax collections means the state has to spend more out of its general fund to finance the base budgets of all 286 school districts.

Although oil production has been growing in Douglas County, county appraiser Steve Miles said it makes up only a small part of the county’s tax base. There are 197 oil “accounts” in Douglas County, he said, and some of those are exempt from property taxes because they have very little production.

“The counties that have the largest oil valuations will likely feel the effect of a significant price drop,” said Lynn Kent, who heads the oil and gas section of the Department of Revenue’s Property Valuation Division.

She said the top 10 oil-producing counties in Kansas are Ellis, Haskell, Finney, Ness, Barber, Barton, Russell, Rooks, Harper and Lane.

But state officials say there may be a positive impact from falling prices that would offset the loss of severance and property taxes.

“The large decline in gasoline prices will put more money in consumers’ pockets, giving them more income, which should be a boost to economic activity and both income and sales tax receipts,” Revenue Department spokeswoman Koranda said.