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Hagan Seeks Severance Tax on Horizontal Drilling
COLUMBUS, Ohio – Ohio would enact a 7.5% severance tax on oil, natural gas and condensate extracted from horizontal drilling under a proposal introduced by state Rep. Robert F. Hagan.
Hagan, D-58 Youngstown, announced his plan Wednesday to capitalize on the boom in horizontal shale drilling by using an updated severance tax model to invest in communities through resources for public education, infrastructure and community services.
House Bill 212, introduced this week, would enact a 7.5% severance tax on oil, natural gas and condensate extracted from horizontal drilling. The bulk of the revenue raised from the tax would be reinvested in Ohio’s communities, with an emphasis placed on counties most impacted by drilling activity.
Earlier this year, Gov. John Kasich also advocated increasing the state’s severance tax for horizontal wells to fund an income tax cut for businesses and individuals, a proposal that has met with resistance in the oil and gas industry.
“Ohio’s severance tax is a pittance compared to other states with major shale drilling activity,” Hagan argued in a news release issued by his office. “We need to update the severance tax rate on horizontal drilling to ensure that our precious natural resources are not extracted without appropriate compensation.”
Major shale states including Oklahoma, Texas and North Dakota have severance tax rates that range from 7% to 11.5%, and collect anywhere from hundreds of millions to billions of dollars in revenue each year. Preliminary estimates from the Legislative Service Commission fiscal staff show that under the rate proposed in House Bill 212, Ohio would collect nearly $400 million in 2014, rising to almost $1 billion dollars in five years.
In addition to restoring the cuts made to local governments over the past several budget cycles, a portion of the severance tax revenue would be diverted to conservation and environmental priorities related to fracking, and 1% would be designated for investment in a severance tax trust fund. Natural resource permanent funds have been established in a handful of resource rich states to ensure long term economic stability.
“We must plan for the long-term health of our state and work to avoid the ‘resource curse’ of overdependence on the oil and gas industry,” Hagan said. “By designating a small percentage of severance tax revenue for a permanent trust fund, Ohio can create an economic legacy from our natural resources and provide funds critical to the survival of our state’s economy long after our non-renewable resources are depleted.”
Published by The Business Journal, Youngstown, Ohio.
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