Thursday, June 11, 2015

Severance Tax Increase Could Be Ready For Budget Amendment

Senate President Keith Faber said he still hoping to get buy-in from the oil and gas industry on a plan to hike the severance tax, but indicated that agreement wasn't necessary for the chamber to move on the contentious issue. The Celina Republican told reporters during a Monday news conference to unveil changes to the biennial budget, he was "very optimistic" about the Senate's ongoing effort to broker a deal between the oil and gas industry and the Kasich administration.
The American Petroleum Institute-Ohio, however, has not budged in its opposition to altering the severance tax in the budget and is still running ads warning that a tax hike could jeopardize the state's economy.
Gov. John Kasich has long said the current severance tax of 10 cents per barrel of oil and 2.5 cents per 1,000 cubic feet of natural gas is far too low to recover the value of stripping Ohio's natural resources. He argues that much larger petroleum producing states have imposed significantly higher taxes without driving the industry away.  The governor's third attempt to increase the severance tax in the executive budget called for a fixed rate of 6.5% on the value of oil and gas produced at the wellhead, with a lower rate of 4.5% for natural gas and natural gas liquids taken downstream. 
Despite his optimism about the Senate's ongoing discussions, Sen. Faber expressed frustration with the industry's refusal to budge on the issue.  "The governor's folks have shown a great willingness to negotiate, the industry has shown a great willingness to show up, and at times negotiate," he said.  "But let me let everybody know: willingness to have total agreement is not a limitation on us putting a severance tax provision in the bill before it leaves the Senate. I don't like people who show up to negotiate and say, 'I'm not negotiating,'" he added.
Ways & Means Committee Chairman Sen. Bob Peterson, who is overseeing discussions on the issue, anticipated an agreement could be ready for inclusion in next week's omnibus amendment to the budget.  "Sometimes the pressure of the budget's very helpful," he said. "I think maybe the news next week is: we've reached compromise on severance tax reform."
Chris Zeigler, executive vice president of API-Ohio, offered a less optimistic assessment about reaching a compromise so soon.  "We certainly appreciate the conversations that we've had with Senate members on this issue," he said in an interview. "But at no time has this association ever given any indication that we're willing to negotiate on severance within the context of a budget."  Mr. Zeigler said he believed the proposal warranted separate legislation because of the complexity of the issue  "Unlike other tax proposals that are being considered, this isn't just an increase in a rate. This is a fundamental change in tax structure," he said.  While the industry is willing to discuss changes to the severance tax, the sharp downturn in commodity prices has already resulted in drilling rigs leaving Ohio's shale fields, he said, arguing for a very cautious approach to taxes.  The many months of deliberations on the House's severance tax plan last year, on which API was neutral, show how difficult it is to tackle in a last-minute budget amendment, Mr. Zeigler said.  "Considering that we're fundamentally changing going from a volumetric tax to a value-based tax, I think it deserves its own attention and isn't caught up in all the other machinations of budget time," he added.

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