Severance tax hike to hurt oil, gas

Gov. John Kasich’s plan to drill into Ohio’s gas and oil industry for new revenue remains controversial. His budget analysts and those working for the General Assembly differ substantially on how much money could be raised.

But whichever estimate is accepted, the amount is enormous. Legislative analysts say the 2.25 percent severance tax the state House of Representatives favors would bring in $231 million over three years. The state budget office, using the 2.75 percent rate favored by the governor, expects $874 million during the same amount of time.

Gas and oil drilling interests object to any increase, of course.

Clearly, northeast and eastern Ohio has become a mecca for drillers and gas processors. The region appears to be rich in the ”wet” gas that is more lucrative because it contains valuable chemicals.

But gas-bearing shale deposits such as the Utica and Marcellus formations lie underneath several states. Buckeye State officials need to be careful to avoid taxes that could make this area of the state less attractive to drillers.

Any severance tax increase would have some effect in that regard. Again, the lower of the two estimates amounts to an increase of about $77 million a year in the cost of drillers doing business in Ohio. On the high end, the Kasich administration’s projections would add about $291 million a year to the gas and oil industry’s expenses in the state.

Kasich insists that even with his proposal, Ohio’s tax structure would remain competitive in comparison to other states.

Severance tax proposals from the governor’s office and the House differ in other respects. For example, the House proposal calls for about 10 percent of the added revenue to go back to communities, such as those in Trumbull and Mahoning counties, in gas-producing regions. Kasich wants 20 percent. Obviously, local legislators should be endorsing the Kasich plan.

The governor’s plan also calls for a legacy fund that sets aside money for problems that arise after the drillers and done and gone.

Another important part of Kasich’s plan is that the severance tax revenue will be offset by cuts that would lower the state’s income tax to below 5 percent. That’s something that benefits everybody.

One way or another, it appears the severance tax will be increased. What the percentage will be and how much money will be produced remains in question.

Kasich and lawmakers need to be very certain they do not kill the goose laying the golden eggs, however. Whatever they agree to, it needs to be compatible with continuing the drilling boom that is benefiting northeast and eastern Ohio.