Ohio Liberty Council
2531 Tiller Lane • Columbus, OH • 43231 • 740-837-4593 • 216-342-1147 (Fax)
January 18, 2012
Governor John Kasich
Riffe Center, 30th Floor
77 South High Street
Columbus, OH 43215-6117
Dear Governor Kasich,
I am disappointed to read this morning in the Columbus Dispatch of your plans to impose a state "impact fee" as a new tax on oil and natural gas wells. Though we agree that damage to rural roads and bridges is an issue that must be addressed, we do not agree that a new state tax, in addition to expanding the state severance tax to include natural gas liquids, is the right answer. Particularly when we are talking about "potential damage" vs known actual damage that this tax would pay to repair.
Clearly, the oil and gas boom in Ohio is going to generate significant growth in tax revenues from personal income tax, sales tax, CAT taxes and now additional severance tax revenue. They will also generate tax revenue for county and municipal governments. Since these are rural roads, which are not maintained by the state, we feel that it is an intrusion for the state to levy this new tax. Instead, local communities should be working with the energy companies to be compensated for actual damages which would be much more efficient in actually maintaining these roads and much less burdensome on this important growth industry.
We have told every state official we have meet that they must resist the short sighted temptation to tax natural gas and oil production at the well head. The engine of capitalism is "Cheap, plentiful, energy". Our goal must be to do everything we can do to encourage development of oil, gas and coal by not imposing burdensome taxes at the source, but instead getting our tax revenue from the downline business that will startup and grow because of the low cost, plentiful energy. Let's not kill the goose that will lay the golden egg. Let us instead nurture it for the benefit of everyone in our state. We ask that you reconsider your plan at this time and continue to help these companies establish this industry firmly in Ohio.
Sincerely,
Thomas R. Zawistowski
President
Ohio Liberty Council
800-846-4630 Ext 104
IMPOSED ON INDUSTRY
Kasich seeks taxes on oil, gas drilling
Assessments would help pay to repair roads
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By Dan Gearino and Joe Vardon
Wednesday January 18, 2012 6:34 AM
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.
