Ohio Gov. John Kasich, with opposition from all angles, renews call for drilling tax hike to back income tax cut
Cleveland Plain Dealer - July 14, 2012
Against a stiff wind of opposition from several fronts, Gov. John Kasich on Friday renewed his call for steeper oil and gas drilling taxes to pay for an income tax cut for Ohioans.
“The point is for out-of-state oil companies to pay more and all Ohioans pay less,” Kasich said at a Statehouse news conference.
The Republican governor thinks his proposal should be a no-brainer. Ohio has already flung out the welcome mat for oil and gas companies clamoring for access to the state’s vast shale rock formations in Eastern Ohio and using the controversial drilling process called horizontal hydro-fracturing, or fracking.
Kasich said he just wants to be sure Ohioans reap some of the good fortune by making oil companies pay more.
“It’s just a matter of time rather than if it’s going to happen,” a confident Kasich said, hoping to win public favor for his plan with the promise of an income tax break.
But the governor faces plenty of opposition from Republicans, Democrats, business and environmentalists, all crying foul for different reasons. Some say the tax hike is unfair to business, while others say the income tax cut on the back end is too tiny to matter.
Key Republican leaders in the Ohio House and Senate see the drilling tax increases as nothing less than a tax hike on business, which fiscal conservatives say is against their personal beliefs and political philosophies.
In March, House Republicans stripped the proposal out of a mid-term budget bill and shelved it for another day. That day still hasn’t come.
“The more the members of our caucus have learned about this particular proposal, the more concerned I’ve become that there are key questions that cannot be sufficiently answered and resolved within the available legislative time frame,” Rep. Ron Amstutz, Republican chairman of the House Finance and Appropriations Committee, said in a statement in March.
Kasich accused some of his fellow Republican of being controlled by special interests.
Oil and gas companies have tried to make sure some Republicans, who dominate the legislature, hold to their opposition, lobbying both chambers hard and pumping huge money into the campaign coffers of lawmakers. Even some Democrats have benefited.
Campaign finance reports filed in the spring showed that five of the major oil and gas industry political action committees poured nearly $600,000 into Ohio politicians’ coffers since 2010. That includes nearly $100,000 courtesy of Chesapeake Energy, the biggest oil industry player in the state.
Tom Stewart, executive vice president of the Oil and Gas Association, has said that threatening higher taxes might make some oil and gas companies rethink their plans to do business in Ohio. Kasich on Friday, however, said Ohio has not seen any drop in enthusiasm from companies wanting to drill in Ohio.
To counter Republican concerns, Kasich officials argue that because the administration would spend the tax increase revenue to pay for a tax cut, the deal is “revenue-neutral.”
Meanwhile, Democrats, who lost the battle to stop fracking altogether, now say they do not mind raising taxes even higher than Kasich has proposed so long as the revenue generated replenishes local government and education budgets that were sharply chopped under the state operating budget Republicans passed last summer.
“Instead of protecting the oil and gas industry with one of the lowest tax rates in the country, we should be finding ways to prioritize our communities and protect local property taxpayers,” said House Minority Leader Armond Budish, a Beachwood Democrat.
Budish said the impact of the state budget cuts is obvious in that 35 communities are seeking local property tax increases in August’s special elections.
Policy Matters Ohio, a left-leaning public policy think tank, agrees that the proposed rates of increase on oil and gas companies are too low and that the income tax break the governor is trumpeting will mostly benefit the wealthy. It also prefers more money for local governments and education.
“He proposes to give the money raised from a higher severance tax mostly to upper-income Ohioans,” said Wendy Patton, senior project director at Policy Matters Ohio. “Instead, we all must benefit from better education and public services that otherwise are being cut in the current state budget.”
Kasich says that is not going to happen and has repeatedly asked local governments and schools to live within their means while trying share resources to keep their costs down.
Under Kasich’s proposal, Ohio would continue to charge companies 20 cents a barrel for oil retrieved through conventional wells. Oil retrieved through fracking would be taxed at 1.5 percent of the annual gross sales for companies in their first year of operation. After that, the tax would grow to 4 percent of gross sales.
Natural gas tax rates would also change. Companies that produce less than 10,000 cubic feet of natural gas per day through traditional wells — about 90 percent of Ohio’s natural gas producers — would no longer pay a tax. Those producing more than 10,000 cubic feet of natural gas per day would pay a 1 percent tax, down from the current rate of 3 percent.
Natural gas collected through fracking would be taxed at 1 percent regardless of the amount collected.
And the new tax on natural gas liquids obtained by fracking would follow the same tax rate as the rate charged for oil from fracking: 1.5 percent of gross sales in year one and 4 percent after that.
The revenue would go into a new fund requiring legislative approval, which would be used to support the tax cut. The income tax cut would apply when there is annual growth on revenue of at least one-third of 1 percent. If there isn’t sufficient growth, Ohioans wouldn’t get the tax cut, but the pool of money would carry over to the next year.
And then there are those who remain deeply concerned about the potential environmental troubles they say fracking could present and hope that Ohio reverses its decision to fully engage the drilling industry.
“Our state government should be protecting the health and safety of Ohioans and not generating income from this risky, unconventional, highly industrial and polluting process,” said Mahoning Valley geologist Susie Beiersdorfer, of the No Frack Ohio Coalition.
“Private profit at public cost does not benefit Ohioans,” she said.