Thursday, March 15, 2012YOUNGSTOWN, Ohio – Gov. John Kasich formally announced Wednesday what has been suspected for the last week: the state will raise taxes on oil and natural-gas drillers to help subsidize an income tax cut for Ohio residents.
"We believe by modernizing our energy taxes, we can allow all 11.5 million Ohioans to benefit," Kasich said as part of his mid-biennium review proposal delivered in Columbus and streamed live on OhioChannel.org. "Every dime of the modernized severance tax would go into a dollar-for-dollar income tax cut."
Under Kasich's proposal, drillers would pay a 1.5% tax on oil and liquid natural gas during the first two years. Thereafter, the tax would increase to 4%, a number that Kasich said would still keep Ohio "very competitive."
The tax hike could generate as much as $1 billion over the next five years, Kasich said, which would equate to a 5% income tax cut for individuals and businesses in Ohio. The Ohio General Assembly must approve the proposal.
Kasich also proposed an energy strategy that he says is designed to create a situation where Ohio can develop its own independent energy policy. "We will be stressing improvements of coal, the sequestration of carbon, clean coal research, and the development of natural gas."
The governor says he wants to put in place regulatory measures that will make Ohio a model for the rest of the country that strikes a balance between job creation and environmental concerns.
"I don't believe there's a trade-off between environmental enhancement at the same time we create jobs in our state," he says.
As an example, Kasich said that the state has started a process of capping and cementing old, "orphan" wells because they could potentially leak and contaminate groundwater.
Nevertheless, the governor's drilling policy spurred a rebuke from the Ohio Oil and Gas Association, which discourages any additional taxes on the industry.
"Ohio's oil and gas producers have serious questions about the proposal put forth by the Kasich administration," said Thomas Stewart, the association's executive vice president, in a statement.
"Crude and natural gas exploration is still in its infancy and increasing the severance tax at this critical juncture will negatively impact the economic future of Ohio and its residents," he said. "We oppose a tax increase of any kind, particularly one targeting an emerging industry."
Stewart points out the state's energy regulations and tax structure were modified just two years ago, and the current policy allows Ohio to be very competitive among neighboring states. Investment from the oil and natural gas industry could hit $34 billion over the next several years, he added.
"We believe Ohioans who have struggled during the economic downturn would prefer to have a good-paying job now, instead of a small tax break years down the road," Stewart said. "We plan to carefully review the administration's full proposal with our membership, but want to reiterate our initial concerns that this policy could be detrimental to Ohio's future prosperity.
The bill also contains provisions to encourage cogeneration and waste-heat recycling, Kasich says. "Capturing waste heat cleans the environment," he says, noting that Ohio wants to concentrate on developing new technology to enhance these processes.
"We want this to serve as a model," added Wayne Struble, the governor's director of policy. "We spent a lot of time talking to North Dakota, Pennsylvania and West Virginia to learn lessons from them – what they did well, what they did poorly, and what to look out for."
Copyright 2012 The Business Journal, Youngstown, Ohio.