COLUMBUS — State Rep. Jack Cera, D-Bellaire, has introduced House Bill 162, a gas and oil severance tax plan that allocates much of the revenues collected for funding local governments and statewide infrastructure projects.
“I give the governor a lot of credit for pushing this,” Cera said of Ohio Gov. John Kasich’s proposed 6.5 percent severance tax on unconventional oil and natural gas production, which was removed from the governor’s state budget proposal earlier this year.
“I hope the state takes a broader view of how volatile a funding source (a gas and oil severance tax) would be to build into the budget.”
Similar concepts
HB 162, Cera said, is similar to the HB 375, which was passed in the chamber in 2014, but stalled in the Senate. It also bears some similarity to Kasich’s original severance tax proposal, he said.
“The governor and I both give funding for ODNR regulation, and for idle ‘orphan’ wells,” he said. “The first thing that differs is that (Kasich’s proposed) tax rate was 6.5 percent on oil and gas and 4.5 percent for liquids. HB 162 calls for 2 percent (on all) in the first two years of operation, 3 percent in the next two, and 4 percent from then on.”
The primary goal of HB 162 — to fund infrastructure projects across the state as well as support local governments in shale-producing counties — is also the primary difference between it and the Kasich plan, Cera said.
Citing the recent depressed oil prices, Cera said the severance tax is a more volatile source of funding.
“Building it into the budget is not a good idea. Using the severance tax as a means of collecting income tax is ill advised.”
Instead, Cera said, such a revenue source is better suited to fund projects that are needed, but can be funded at various levels year to year. HB 162 proposes that half the revenue collected go to such projects.
LGF funding
Cera’s bill also provides a tax deduction for landowners if a landowner’s lease calls for him to pay some of the severance tax.
That leads to a loss in the Local Government Fund, or LGF, “so the bill holds local governments and libraries harmless.”
Cera explained that 20 percent of the remaining half of severance tax revenues would be distributed to local governments, with an extra 5 percent given to townships where production is taking place.
A committee made up of local government leaders would determine what projects would be funded, Cera said.
HB 162 also provides funding to the Ohio Department of Transportation, local school districts, soil and water conservation districts and safety services.
In addition, 15 percent of the severance tax revenues would be collected in a “legacy fund” until 2026, ostensibly to provide support beyond the industry “bust time” Cera said.
“We know with any material, it goes away,” he said. “We had that with coal.”
Work continues
Kasich spokesperson Jim Lynch said the governor is “no stranger to the persistence and patience required to drive change,” and the severance tax issue is no different.
“It took him 10 years in Congress to balance the federal budget for the first time since man walked on the moon, but in the end he got it done,” Lynch said.
“He will continue to advocate on the need to modernize our outdated severance tax model in order to drive down the state income tax, eliminate the income tax for virtually all small businesses and help those counties who are in the shale play.”
For his part, Cera described his proposal as a conversation starter and said he is open to suggestions from all parties involved.
“I am talking to county and township associations, municipal leagues, and will hopefully gain the support of the governor’s office,” he said. “I expect to have one hearing on it.”
Cera said he is under no illusion that passage will be easy, however.
“The House majority feels they passed it, with HB 375, and the Senate did nothing,” he said. “And I know some in the industry are still against it due to market conditions. I agree to some extent, but I don’t think it’s a reason to not move forward.”
He said that while he recognizes how the glut in the worldwide oil market is an issue, the industry outlook in some local areas remains positive. That being the case, Cera said, the industry bears some responsibility for supporting local government and safety services.
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