Governor on the right track with severance tax proposal
It has been almost a year since we first came out in support of Gov. John Kasich’s plan to increase taxes on oil and gas production. During that time, this part of the state has attracted hundreds of millions of dollars from major energy companies, including BP and Chesapeake Inc., looking to exploit the Utica shale formation. The oil and gas deposits hold out the promise of huge payoffs, which is why the governor’s tax-increase proposal makes sense.
Conventional wells (vertically drilled) would not be affected, but for high-volume fracking wells (horizontally drilled) the taxes would be 1 percent for gas and 4 percent for oil, natural gas liquids and condensate. The latter would be taxed at a lower 1.5 percent rate during the first year of production to enable producers to recoup their drilling costs.
The proceeds from collections on horizontal wells would go to the state’s general-revenue fund. The tax increase would generate an additional $45 million for the state’s coffers in fiscal 2014; $155 million in 2015; $305 million in ’16 and $417 million in ’17.
Drillers would also prepay $25,000 per well to local governments to cover associated road repairs and other traffic costs. The companies would recoup those payments over time through tax credits.
Even with the tax increases proposed by the governor, Ohio would still be lower than most other states, including Texas, a traditional oil producer, and North Dakota, which is experiencing an energy boom.
And yet, of all the provisions in Gov. Kasich’s biennium budget, the proposed increase in the taxes on oil and gas production has become the most controversial. That’s because special interests are pulling out all the stops to either kill the plan, or force the administration to go further than it intends.
We aren’t buying the oil and gas industry’s claim that raising the taxes by comparatively minor amounts will cause exploration companies to pull up stakes in Ohio. BP, Chesapeake and others aren’t making such significant investments on pure speculation.
On the other hand, we don’t consider the severance tax proposal inadequate and a gift to Big Oil, as Innovation Ohio, a progressive think tank in Columbus, contends.
We believe the governor has struck just the right balance.
That does not mean, however, that we are comfortable with all aspects of the proposal.
Legislators who are conducting hearings on the biennium budget should pin the administration down as to the distribution of the gas and oil tax proceeds.
We have the same concern with the money that would be generated from the sale of bonds by the Ohio Turnpike Commission under a plan being pursued by the governor to use the turnpike as a source of revenue for transportation projects.
Legislators from the Mahoning Valley have correctly argued that because the turnpike was built and has been supported by communities along the roadway, most of the money generated should be spent in this corridor. But, they have voiced concern that the state would be shortchanging this region if it withdrew the revenue from the gasoline tax that now is spent in Mahoning, Trumbull and Columbiana counties.
We consider the proceeds from the bond sale and the oil and gas tax increases to be windfalls that belong to the Valley. The governor must know that other regions of the state have not experienced the economic dislocation the Valley has had to deal with for more than three decades since the collapse of the steel industry.
In the years we were struggling to keep our heads above water, the wealthier regions of Ohio didn’t assist us. We, therefore, have no qualms about saying that sharing with the rest of Ohio is not a priority for us. It’s our turn.