Tap the revenue in Ohio’s rocks: editorial

Cleveland Plain Dealer - March 10, 2012
   

Editorial board

Gov. John Kasich wants to offer Ohioans a state income tax cut funded by a new tax on oil-and-gas “fracking” — high volume horizontal hydraulic fracturing — in the state’s Utica and Marcellus shale.

That could produce from $666 million to $1 billion for the state treasury over the next five years and would help regulate a form of drilling that, not without some environmental risk, has stoked an Ohio land rush. The Policy Matters Ohio think tank reported recently that Ohio’s current severance tax rate on gas and oil “is the lowest among neighboring states . . . and among the lowest of states with viable shale formations.”

Kasich’s plan would leave in place Ohio’s existing Income Tax Reduction Fund mechanism. That is, Kasich would create a second route by which Ohio’s income tax rates can drop, if tax collections pull the proper triggers. (Thanks to a 2005 bill that then-Gov. Bob Taft signed, however, Ohio’s state income tax rates are already 21 percent lower than in 2004.) If further tax cuts there will be, they should be targeted to bolster the take-home pay of lower-income Ohioans, who now, as Policy Matters also notes, pay a relatively “larger share of their income in state and local taxes than affluent taxpayers do.”

Kasich’s idea is imaginative and constructive. But besides protecting Ohio’s environment, and bettering perceptions of Ohio’s tax climate, two other policies must have priority.

One is building up the Budget Stabilization Fund — the “rainy day” fund.

The other is facing future costs to Ohio (uncertain, but large) of broader Medicaid eligibility set by President Barack Obama’s Patient Protection and Affordable Care Act.

When Kasich succeeded Democrat Ted Strickland as governor last year, the rainy-day fund totaled 89 cents; under Kasich, it has reached $247 million, and may reach $1.359 billion this summer. (A legal formula determines the amount.)

And in the seven months ending Jan. 31, Ohio collected $920 million more tax revenue than in the same 2010-11 period; year-to-date state spending was just $89 million larger.

Still, 18 per 100 Ohioans are Medicaid clients. And though the number of clients dropped by 31,000 in calendar 2011, Ohio’s general-revenue Medicaid spending was $695 million higher, fiscal year to date, than in the 2010-11 period.

Medicaid demands on Ohio’s budget seem inevitable. That’s why bolstering the rainy-day fund beyond its likely July total might actually be a smarter investment than tax cuts.

Tap the revenue in Ohio’s rocks: editorial

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