Columbus Dispatch...
Kasich seeks taxes on oil, gas drilling
Assessments would help pay to repair roads
Gov. John Kasich also wants to broaden the state’s severance tax to include propane.

By  Dan Gearino  and  Joe Vardon
Wednesday January 18 

Ohio’s oil and gas industry would pay an “impact fee” for deep-shale wells to cover the cost of infrastructure damage caused by oil and gas extraction, part of a package of taxes and fees for the industry that Gov. John Kasich soon will propose. 

Kasich confirmed his intentions to The Dispatch yesterday and said he has maintained contact with industry leaders regarding his plans. 

This is occurring as energy companies invest billions in leases to drill for oil and gas in Ohio’s Utica shale, and amid rising concerns about the environmental consequences of drilling. 

Drilling activity in the state is expected to increase truck traffic on rural roads, potentially damaging roads and bridges. 

“We have to make sure we have impact fees,” Kasich said. “At some point, these counties are going to benefit, but in the early years, when it comes to the erosion of roads and infrastructure, we need to make sure that these locals are going to be in a position to manage their infrastructure.” 

In addition to the fee — the amount has not been determined — Kasich wants to revise the state’s severance tax to include natural-gas liquids. The tax now applies to the withdrawal of coal, natural gas and other resources but does not include natural-gas liquids such as propane. 

The proposals probably will be included in Kasich’s midbiennial budget review, to be introduced in the first half of this year, although they could be announced separately before the budget review is unveiled, he said. 

Partly to head off this talk of new taxes, the Ohio Oil and Gas Association is releasing a report projecting that state and local governments will see a $1 billion increase in annual tax income from the industry by 2015 under the current tax system. That would represent a 4 percent increase in proceeds from all businesses, said the report, produced by Kleinhenz & Associates of Cleveland. 

“It’s just not good policy to start a new tax because you can,” said Tom Stewart, executive vice president of the trade group. 

Environmental advocates say that new taxes are a good idea if some of the proceeds go to communities that need to cover costs related to drilling activity. 

“There will be more and more stress on local communities to have the fire and emergency support there to help fund the infrastructure that’s needed” for drilling, said Trent Dougherty, a staff attorney for the Ohio Environmental Council. 

But lawmakers need to be careful in deciding how to structure a new tax, said Donald Tobin, tax-policy professor at the Moritz College of Law at Ohio State University. “The question is whether the tax is at such a level to discourage the activity,” he said. 

Tobin also has concerns about the state government increasing its reliance on a “revenue source that has significant peaks and valleys.” This could be a problem, particularly if an increase in oil-and-gas taxes coincides with a decrease in taxes from less-volatile sources. 

Kasich said he doesn’t want to “discourage development” by imposing fees and taxes that are too high, but he also said that “you can’t have the local people out there having their roads undone and say, ‘It’s not my problem.’ ” 

“I think we’re going to be in a really good place on this,” Kasich said, referring to the levying of taxes and fees without pricing companies out of investing in Ohio. 

Leaders in the oil and gas industry argue that they already face a substantial tax burden from four state taxes: the personal income tax, sales tax, commercial activities tax and severance tax. They also pay taxes to county and municipal governments. 

The severance tax took in $10.6 million in 2010, most of which was related to the coal industry. That is barely a blip in the state budget, but the sum is poised to triple by 2015, according to the Kleinhenz report. 

Contrary to perceptions, most oil and gas companies do not earn huge profits from which to pay higher taxes, said Jerry James, president of Artex Oil in Marietta and also president of the Ohio Oil and Gas Association. 

“You can kill a business before it has a chance to get started,” James said. 

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