The legislature has twice rejected Gov. John Kasich's proposal to raise the oil and gas severance tax, but the administration hasn't given up on the idea and hopes local officials can help push for inclusion of a new version in the conference committee report later this month. Legislative Republicans, however, appear no more enamored with the new plan to give local governments a cut of the revenue than they were with previous iterations. Under the administration's latest plan, the severance tax rate on high-volume horizontal shale wells would increase from the current 3 cents per MCF to 1.0% of the average price of product produced each quarter for natural gas, according to the Office of Budget and Management. Severance tax rates on oil and natural gas liquids from shale wells would increase from the current $0.20 per barrel to 4.5% after a 1.5% introductory rate during the first year to help operators absorb the cost to drill new wells. One-quarter of the severance tax revenue, which OBM estimates will amount to $375 million through 2018, would be returned to Appalachian counties, where the shale drilling boom is occurring. The remaining 75% would be dedicated for a personal income tax cut.
House Republicans have opposed the governor's attempt to hike the severance tax out of concern that it could stall the new drilling boom in Ohio's Utica Shale. The revamped proposal to earmark revenue for local governments appears unlikely to change their position. Rep. Jeff McClain, a member of the upcoming conference committee on the biennial budget, said members are still considering a wide variety of ideas to raise revenue to pay for a larger tax cut, but a severance tax hike is not one of them. "There's been very little discussion about the severance tax," he said in an interview. Republicans are still trying to figure out how to cut both business income taxes and personal income taxes without a major expansion of the sales tax, as Gov. Kasich proposed in his version of the budget. "If there's going to be some kind of agreement on the business-side tax cut and the personal income tax cut, how are you going to pay for it? There's been all kinds of discussions on that," Rep. McClain said, adding that a severance tax increase is not high on the list of options. "Basically everything else has been thrown up on the wall. Now a lot of stuff, you look at it and say, 'No, that's not going to work,'" he said. "We've really not come to any completion yet."
The proposal would charge a bipartisan commission, in partnership with the local Appalachian leaders and residents, to fairly apply the new severance tax revenue to build sustained prosperity for the region, OBM said. "Local stakeholders would be brought together to continually advance opportunity in Appalachian Ohio, even long down the road when shale resources may no longer be as productive." Seventy-five percent of the local share severance tax revenue would be proportionally allocated for areas experiencing direct impacts from shale drilling activities, based on the number of wells drilled and actively producing, as determined by the Ohio Department of Natural Resources. The remaining 25% would go to the areas of the Ohio Appalachian Regional Commission's Local Development Districts.
The County Commissioners' Association of Ohio has said it supports the plan to increase the severance tax, as long as counties have a say in how the revenue is spent. "We also support a direct and efficient manner for the monies to be given to local jurisdictions, such as a community development block grant model with funds coming to counties for distribution to local jurisdictions," the group said in a recent legislative update. "The association does not support funds going through port authorities or local development districts for distribution purposes."
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