Tax dollars hidden in shale: Policy Matters says extra money would help budget

Columbus Dispatch - December 20, 2011

By Spencer Hunt

Ohio could collect an additional $528 million over the next four years if it increased taxes on oil and natural-gas production to levels that Michigan and West Virginia charge energy companies, according to a new report.

The money could help offset state budget cuts made to local governments and schools and ease feared environmental and public costs associated with an expected boom in shale drilling, said Wendy Patton, senior project director for Policy Matters Ohio, the liberal-leaning, Cleveland-based advocacy group that issued the report.

Ohio currently collects 3 cents per 1,000 cubic feet of gas and 20 cents per barrel of oil. The state collected $2.55 m illion from oil and gas production in 2010, according to the Ohio Department of Taxation.

The Utica shale in Ohio is expected to hold huge quantities of oil and gas, prompting energy companies from across the country to buy up drilling rights.

“There are upfront costs of drilling, particularly maintenance of roads,” Patton said. “This industry also brings unusual financial risks associated with pollution.”

Officials with Gov. John Kasich’s office wouldn’t say if they would support the idea. But Rob Nichols, a Kasich spokesman, said Policy Matters typically supports “big government” and increased spending.

“They want more money spent and more taxes to support it, period,” Nichols said.

A spokesman for the oil and gas industry said higher taxes would slow the pace of shale drilling in Ohio and the jobs that would come from it.

“All this policy group is saying is ‘Let’s go and rake this industry and see if you can get more revenue out of it,’  ” said Tom Stewart, vice president with the Ohio Oil and Gas Association.

The Policy Matters report, “Beyond the Boom: Ensuring adequate payment for mineral wealth extraction,” is the latest wrinkle in the growing interest in Ohio’s Utica shale, from which oil and gas can be removed with the help of horizontal drilling and “fracking.”

The process injects millions of gallons of water laced with chemicals into wells to shatter the shale and free trapped oil and gas.

More than 3,800 natural-gas wells have been drilled into the Marcellus shale in Pennsylvania since 2005. Pennsylvania doesn’t tax oil- and gas-well production, Patton said.

Last year, Pennsylvania lawmakers defeated a bill that would have imposed a 39-cent tax for every 1,000 cubic feet of natural gas produced, according to news reports.

Elizabeth Brassell, a spokeswoman for the Pennsylvania Department of Revenue, said Gov. Tom Corbett opposes such taxes.

“The position of the Corbett administration is that an additional tax would be unfair,” Brassell said.

The Policy Matters report estimates that Ohio would raise $538 million from 2012 through 2015 if it charged a 5 percent tax on the value of the natural gas that the shale wells produce.

Patton said the state also should charge 5 percent rates on the value of oil, propane, butane and ethane produced.

She said Michigan and West Virginia charge the same 5 percent tax rates, which haven’t slowed drilling. She said Texas’ 7.5 percent tax and Oklahoma’s 7 percent tax haven’t slowed shale drilling in those states, either.

Just how much oil-and-gas tax money could be collected is a matter of conjecture. The Policy Matters report bases its $538 million figure on a four-year shale-drilling production estimate that the Ohio Oil and Gas Association released in a September report.

The Oil and Gas Association also estimated that shale drilling would help create 200,000 jobs by 2015. On Friday, Ohio State University researchers said 20,000 new jobs would be a more-realistic estimate.

Group: Tax dollars hidden in shale

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