Oil, gas tax hike off table for now

Debate over how revenue from Ohio Gov. John Kasich’s proposed increase of a tax on oil and natural gas drilling should be used may be moot.

House Speaker William Batchelder, a fellow Republican, has indicated the increase of the effective severance tax rate on large-scale drilling from less than 1 percent to 4 percent will be removed from the House version of the biennial budget bill.

“It sounds as though it’s dead for at least a couple years,” said Ohio Rep. Andy Thompson, R-Marietta, who also opposes the hike. “It’s a tax on prosperity, and it’s a tax on exploration and opportunity.”

But Kasich spokesman Rob Nichols told The Marietta Times Friday that the governor still plans to push for the tax hike as a way to recoup money from the booming oil and gas industry and “cut taxes by $1.4 billion so we can be competitive and get people back to work.”

“We will not stop talking about this, and we will not stop pushing for this,” he said. “We will come back again and again because it’s the right thing to do.”

The increase was one way Kasich planned to pay for a statewide income tax cut of 20 percent over the next three years, along with an expansion of the sales tax, which the House GOP also seems poised to nix. They still indicate they support the overall goal of cutting income taxes though.

“We’re going to try to find another way to do an income tax cut,” Thompson said.

Republicans have a majority in both the House and the Senate. And Kasich may not find much support for the severance tax hike among Democrats either.

Ohio Rep. Debbie Phillips, D-Albany, said the burden of the increased tax likely won’t fall only, or even primarily, on the companies doing the drilling.

“I actually have looked at some of the lease language, and many of the leases require the landowners to pay any severance tax from the royalties,” she said. “That’s a big difference between getting out-of-state oil companies to pay.”

Thompson echoed that concern, but also said placing more tax burden on the companies themselves would make the state less competitive.

Nichols said moving the tax to 4 percent would still keep it lower than surrounding states and other oil- and gas-producing states.

Even if the tax increase remained in place, there is opposition to using it to fund an income tax increase. Ohio Sen. Lou Gentile, D-Steubenville, said he and other Senate Democrats are already drafting potential amendments for the budget, including one redirecting 65 percent of the revenue back to the areas from which the minerals are being extracted. The rest would support state oversight of the industry.

“We’re taking and assuming all the risk associated with this oil and gas development,” Gentile said. “I don’t think it’s unfair to ask that a majority of the money from this severance tax increase be spent in the local (community).”

Although the severance tax is not part of Kasich’s proposed school funding formula, Warren and Fort Frye Local Schools Superintendent Tom Gibbs brought the issue up in testimony last week before the House Finance and Appropriations Subcommittee on Primary and Secondary Education and again before the full finance committee on Wednesday. He asked legislators to put at least a portion of the money toward services “for local communities and school districts that may be impacted negatively by the ‘boom’ associated with this industry.”

In his prepared testimony, Gibbs said he learned about some of these potential burdens at a conference last spring at Penn State University.

“It was clearly communicated that small rural school districts there (Pennsylvania) experienced increases in special education population, English language learner populations, challenges with transportation and increased incidences of domestic violence and rural homelessness,” he said. “The current proposal disregards the impacts that the oil and gas industry would have on the local communities and instead takes local wealth from an already depressed region of the state to share broadly among wealthier residents of the state.”

Nichols said there are other resources in the state – for example Lake Erie – that generate revenue that benefits more than just the region in which they are located.

“The whole idea that you would regionalize tax benefits – that’s not a state,” he said.

But Gentile pointed to recently passed legislation dedicating 90 percent of revenue from turnpike bond sales to projects in the northern part of the state.

“I actually said on the floor, ‘I wish we could get the same consideration in southern Ohio,'” he said.