Industry groups continue to rail against a proposal by Gov. John Kasich to raise tax rates on oil and gas produced via horizontal hydraulic fracturing.
During testimony before the Ohio House’s Ways and Means Committee, representatives of the American Petroleum Institute’s Ohio office and the Ohio Oil and Gas Association told lawmakers tax hike would cost the state jobs and investment.
“The fact is that Ohio drillers have been operating at a competitive disadvantage to other oil and natural gas producing states with our current severance tax,” Chris Zeigler, executive director of API Ohio, said in his submitted testimony. “An increased severance tax is simply illogical for encouraging continued development of shale resources in our state.”
Shawn Bennett, executive vice president of the OOGA, added in separate submitted testimony, “I want to be clear. The Utica is a shale play, not the only shale play around. We are lucky that Ohio is part of the shale revolution. However, when you look or try to compare the Utica play in Ohio to other states, we have to understand that not all shale is created equal. If you look at recent investments, companies are tripping over themselves to gain a larger position in plays like the Permian Basin in Texas. What you don’t see is the same happening in Ohio… The state of Ohio, by implementing this tax, would add itself to a list of deterring parties, and in doing so, risks standing in opposition to those who would suffer the most as a consequence of its passage — Ohio’s working families.”
Zeigler and Bennett likely were preaching to the choir, as Republican legislative leaders, as they have in past years when the governor has proposed a severance tax increase, aren’t supporting the proposal this time around.
“I don’t anticipate severance tax happening,” House Speaker Cliff Rosenberger (R-Clarksville) told reporters. “I’m going to definitely make sure… that comes out of the budget.”
Kasich continues to defend the proposal, however, saying Ohio’s rates are lower than other oil- and gas-producing states. The governor’s executive budget includes a small income tax cut, paid for through the severance tax increase, hikes to rates on alcohol, cigarettes and other tobacco and vaping products and a broadening of sales tax, among other policy changes.
Kasich said the tax shift is appropriate to help bring down Ohio’s income tax rates.
“If we tax a company that’s pulling our resources out of Ohio and moves to Texas where they have no income tax, where we’re essentially subsidizing their no income tax, to be able to tax them and still be able to have one of the lowest severance tax rates and take that revenue to reduce the income tax, that provides for a much better economy,” he said, adding, “We’re saying that it makes sense for people who smoke cigarettes or drink alcohol or take our resources out of the ground to pay more so that we can have a lower income tax.”
He called opposition to his severance tax proposal a “lobbyist’s dream” — “… The governor proposes that some taxes go up so others go down but we don’t care about the ones that are going down, we only care about the ones that are going up, so I can get hired as a lobbyist and go in the legislature and block it. It’s a full employment for lobbyists bill.”
But Zeigler and Bennett said in testimony that the current severance tax setup in the state is working as it should, and upping rates at a time when energy prices are down will further hamper the industry.
“Ohio’s current severance tax system works perfectly for its intended purpose, which is to fund the regulatory program,” Zeigler said in his testimony.
“Increased oil and natural gas production equates to increased funds for Ohio’s oil and natural gas regulatory program. Under today’s system, every producer, from the state’s conventional operators to the recent development by unconventional operators, funds Ohio’s robust regulatory program. … The severance tax should not be used to fund a wide-scale reduction in some other tax of general application or for any other purpose outside current law.”
Bennett added in his testimony, “The reality is that we have a severance tax that works for Ohio. Our volumetric tax is applied to all extractive industries for the sole purpose of funding our regulatory bodies… This current proposal is attempting to pick winners and losers. The oil and gas industry is the only extractive industry being singled out. The coal, salt and aggregate industries all retain their volumetric status while oil and gas is now singled out and given a gross receipts tax and singled out for the sole purpose of generating perceived additional income for the state’s general revenue fund.”
Marc Kovac covers the Ohio Statehouse for GateHouse Media. Contact him at firstname.lastname@example.org or on Twitter at OhioCapitalBlog.