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Ohio Budget Negotiations Near End Without Oil/Gas Severance Tax Hike

With no clear compromise in sight ahead of a full vote that's expected next week in the Ohio Senate, time is running out to include Gov. John Kasich's proposed 6.5% severance tax on unconventional oil and gas production in the state budget.

The state Senate has been at work on the budget since last month and revisions that were rolled out on Monday did not include Kasich's severance tax. Legislators face a June 30 deadline to pass a budget.

Before budget negotiations got under way, Senate Finance Committee Chairman Scott Oelslager said lawmakers would start with a "clean slate," electing to craft their own budget rather than work from a version passed by the state House of Representatives in April or borrow from Kasich's proposed $72.3 billion budget (see Shale Daily, May 15).

The House has already nixed nearly all of Kasich's tax reforms from its budget, including the severance tax (see Shale Daily, April 15). The House reduced Kasich's budget proposal to about $71.5 billion, in a version similar to what the Senate is likely to vote on. Kasich's proposals to increase the state sales, commercial activity, cigarette and severance tax -- floated to help fund a $5.7 billion, 23% income tax cut -- were all removed from the House budget.

Although House Speaker Cliff Rosenberger said the chamber would not vote for a severance tax without further study, the Senate still has time to put a severance tax package together in the final days of negotiations. On Monday, Senate President Keith Faber told reporters that the chamber was working on "what matters" and making efforts to ultimately save taxpayers money.

The Senate's plan keeps the House's 6.3% income tax cut and would give more tax breaks to small business owners.

In February, Kasich unveiled a plan to tax unconventional oil and gas volumes at 6.5% and provide a lower rate of 4.5% for NGLs to reflect the additional processing costs associated with them (see Shale Daily, Feb. 3). Since taking office in 2011, the governor has proposed several severance tax increases, ranging from 1.5% to 4.5%. His latest was the highest yet.

Last year, the state House voted in favor of an industry-supported bill that would have levied a 2.5% tax on unconventional production, but that legislation stalled in the Senate (see Shale Daily, Nov. 19, 2014; May 15, 2014).

The governor's latest proposal was met with immediate opposition from the industry. Kasich believes the issue could eventually be determined on the statewide ballot. He has cautioned that a severance tax rate could be much higher if it passes through such an initiative.

"The concern is that a group could try to raise severance tax rates not to fuel an income tax cut, like we want to do, but rather to just spend more," said Kasich spokesman Rob Nichols.

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