Kasich plan: Raise drilling tax, lower income tax

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RELATED: Kasich proposes $1.74B capital-spending bill

By Marc kovac

and David Skolnick



Gov. John Kasich is proposing a tax increase on fracking, along with a corresponding income tax cut directly tied to how much the state collects from new oil and gas production.

The governor also wants to consolidate more state programs, lower taxes on smaller banks, implement a comprehensive energy policy, improve job-training programs and create closer ties between private business and public education.

Those initiatives and many others are included in Kasich’s midbiennium review, a lengthy bill being offered midway through the current two-year budget cycle.

The resulting legislation, at an estimated 2,000 pages, is full of policy proposals.

“Over the last 14 months, it’s pretty remarkable what’s been accomplished,” Kasich said, adding later, “This is an ongoing process. Frankly, almost every time I turn around, I find another piece of broken Ohio, so there’s so much more to do.”

Kasich, a Republican, and members of his cabinet unveiled details of the budget plan Wednesday during a two-hour press conference. The Ohio House’s finance committee will take up the legislation today, with extensive hearings planning in comings weeks as lawmakers work to pass the bill before breaking for the summer.

Severance taxes levied on oil and gas production from horizontal hydraulic fracturing will increase, with build-in breaks during the first year or two of operation to allow drillers to recoup their upfront costs.

The changes focus on fracking, an emerging means of extracting oil and gas by pumping large volumes of water, chemicals and sand into deep underground shale formations.

The governor also has proposed about $1 billion in income tax cuts — which represents a decrease of about 5 percent per family — over the next five years, with rates reduced in relation to the taxes collected through fracking.

“We believe that by modernizing our energy taxes, we can allow all 11.5 million Ohioans frankly to benefit ...,” Kasich said. “We are going to have low taxes, at the end of the day, on energy. The question is, who benefits? Do out-of-state oil companies benefit or do Ohioans benefit by having lower income taxes.”

He added, “Every dime of the modernized severance tax would go into a dollar-for-dollar income tax cut.”

Some Democratic state legislators from the Mahoning Valley support Kasich’s proposal to increase taxes for fracking but question why the money would be used for what they call minor tax cuts for residents.

The state’s income tax was cut by 21 percent between the mid-2000s and the beginning of 2011.

“I have issues with the policy,” said state Rep. Ronald V. Gerberry of Austintown, D-59th. “I’m glad we’re going to raise revenue, but there shouldn’t be a tax cut when we continue to have trouble with funding for local governments and public schools. Because of the cuts, governments and schools have had to ask for tax levies so people aren’t saving money.”

Kasich had legislation passed last year to cut the Local Government Fund, a major source of revenue for government entities such as cities and counties, by 25 percent in the first year and an additional 25 percent the next year.

Assistant Minority Senate Leader Joe Schiavoni of Canfield, D-33rd, said he favors the additional tax on the oil and gas industry, “but I’m very, very confused and concerned that he wants to give an income tax [cut] to everyone in Ohio. People from Cincinnati, Toledo and Dayton will receive a tax cut and those in the eastern part of the state [where the drilling is focused] will have to deal with issues such as fixing roads and potential health risks.”

Schiavoni favors using the proposed increased tax dollars for infrastructure improvements in the areas where drilling is happening as well as for job training and to restore local government and education funding.

State Rep. Sean O’Brien of Brookfield, D-65th, has a different thought.

“How will this tax affect the oil and gas industry?” he said. “Taxing it could have an unintended consequence of slowing it down. We need jobs.”

The bill also outlines a number of energy policy changes, including many related to fracking.

The legislation splits regulatory duties for oil and gas production from shale among a half dozen state agencies. The Ohio Department of Natural Resources, for example, will oversee well construction and related regulations, including requiring companies to disclose chemicals used in fracking.

Oil and gas companies will be required to prepay taxes to local governments, at a cost of $25,000 per well, to cover road repair and costs from increased truck traffic and other impacts from increased oil and gas production. Those funds would be recouped by companies over time through tax credits.

Kasich said the budget bill includes $90 million in cost savings.

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