Ohio Drilling Tax Hike Clears Panel; House to Vote

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COLUMBUS, Ohio (AP) — A contentious proposal increasing taxes on Ohio oil-and-gas drillers — but by less than what Gov. John Kasich wants — narrowly cleared a state House committee Tuesday, after objections from both Democrats and anti-tax Republicans.

Ways and Means Chairman Jeff McClain conceded that he hadn’t met one person during months of meetings who liked everything in the bill. It cleared the 21-member panel by a single vote and heads to the House floor Wednesday.

“I would have some changes to it as well,” said vice chairman Gary Scherer, a Circleville Republican. “But when you take the body of work in its entirety, I think this is a bill worthy of passage. It does give the industry some certainty about severance tax liabilities that they will incur moving forward.”

The Republican-dominated Legislature has repeatedly turned back Kasich’s past attempts to raise the tax, amid pushback from anti-tax groups.

The governor wanted to see oil-and-gas extraction taxed at 4 percent, a rate he said was still lower than many other states and yet substantial enough to fund a statewide income-tax cut.

Wednesday’s rewrite of Kasich’s latest proposal would impose a 2.5 percent severance tax on horizontal wells, including those extracting resources through hydraulic fracturing, or fracking, and exempts the industry from the state’s commercial activity tax.

Proceeds of the tax would be divvied up between regulation, abandoned well cleanup, geological mapping, county payouts and grants and, finally, the state income tax reduction fund.

Kasich spokesman Rob Nichols said the governor will continue to fight for a higher tax.

“The governor’s committed to continuing to reduce Ohio’s income taxes,” Nichols said. “Unfortunately, their new plan still falls short of what the governor believes is needed.”

The Ohio Oil and Gas Association and the Ohio Environmental Council, typically at odds on policy issues, were in rare agreement in backing the bill — both while wishing certain aspects were different.

The council’s Jack Shaner said the bill’s $3 million a year for plugging abandoned wells and its ongoing funding stream for Ohio Department of Natural Resources well regulation are positive steps.

The bill sets aside 15 percent of the tax hike’s proceeds for counties, and sets parameters. The money would first go to restore state local-government and library funds, with a quarter of what’s left going to fund budgets in host counties and the rest going to competitive infrastructure grants and a long-term trust fund for drilling counties.

An earlier version of the bill sent 50 percent of the local share directly to counties, with the latest version giving a commission appointed by the governor and legislative leaders control over distributing nearly $7 of every $10 as competitive grants.

Rep. Tom Letson, the committee’s ranking Democrat, was among lawmakers critical of the share that Appalachian counties, where most drilling occurs, ended up with under the bill.

“I’m embarrassed by how much we disregard those people,” said Letson, of Warren. “For some reason, have we assessed that people in large cities with dense populations are worth more? It really does appear to be that way.”

He and others fighting for higher county proceeds said the counties will be saddled with infrastructure and other expenses related to the drilling industry, and Letson said the income-tax cut funded by the bill “does not amount to a full tank of gasoline for the average citizen.”

Legislative analysts estimate that between zero and $69.6 million will be generated for income-tax relief in the first two years, depending on the economy and the drilling industry. Under their worst-case scenario, no tax relief at all occurs for five years.

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