A policy analyst for a conservative think tank in Ohio blasted Gov. John Kasich’s plans to levy new severance taxes for natural gas, accused the Obama administration of waging a “war on coal” that hurts the state and urged legislators to repeal renewable energy requirements.
In a 26-page report, “Leveraging Our Natural Resources: Ohio’s Opportunity to Lead the World Again,” Mary McCleary said Kasich’s proposal to raise severance tax rates would hurt the state’s competitiveness and ability to create jobs.
“Raising the severance tax is not only bad for oil and gas companies, it is bad for all Ohioans,” McCleary said. “When companies do not invest in Ohio, they do not create jobs in Ohio.”
McCleary cited a September 2011 report by Kleinhenz & Associates Inc., a Cleveland-based economic research firm, that asserted Utica Shale development in Ohio could create more than 200,000 jobs by 2015 (see Shale Daily, Sept. 23, 2011).
“If oil and gas companies cannot make good returns on their investments, they will either not invest in Ohio or limit their investments because they will be able to make better returns in other states,” McCleary said. “The severance tax hike puts that job creation [from the Kleinhenz report] in jeopardy.
“Additionally, if companies choose not to drill in Ohio, landowners will not receive payments from oil and gas companies for leases and royalties. Equally as bad is the fact that many landowners who have drilling on their properties will receive lower payments from oil and gas companies because they could be expected to foot the bill for the severance tax. One estimate is that 85% of landowners will end up paying the tax instead of the energy companies.”
Kasich had proposed new taxes on hydraulic fracturing and natural gas liquids (NGL), passing the revenue along to Ohioans in the form of a personal income tax cut (see Shale Daily, March 6). But the governor’s Republican colleagues in the House, unenthusiastic about raising taxes, tabled the proposals shortly afterward (see Shale Daily, March 20).
Negotiations over the new taxes were said to be continuing.
“While lowering the personal income tax is good and noble cause, there is a right way to do it, and there is a wrong way to do it. Raising taxes on one industry is not the right way to fund a tax cut for everyone else,” McCleary said. She later added that Ohio legislators “should unequivocally reject Gov. Kasich’s severance tax hike as soon as possible to send a clear message to the world’s energy producers that Ohio won’t adopt a ‘rob Peter to pay Paul’ approach to the Utica Shale formation.”
Kasich’s plan would have taxed unconventional wells producing oil and NGLs at a rate of 1.5% of gross receipts for the first year. Producers that didn’t recoup their investment in the first year could apply to extend the 1.5% rate for a second year, but otherwise they would have paid a standard rate of 4% of gross receipts annually for the remainder of the life of the well (see Shale Daily, March 15).
McCleary conceded that overall tax revenues were expected to increase because of the shale oil and natural gas boom. She said that under one estimate, energy companies would pay an additional $1.05 billion in taxes in 2015, a 4% increase for state and county governments and a 6% increase for municipalities from 2010.
“Whether taxes stay the same or are raised, one thing is certain: all levels of government will collect more money from the energy industry in the future than they do today,” McCleary said. “[But] since the main purpose of increasing taxes is to provide an income tax cut to Ohioans, why not forgo the tax increase and just use the additional revenues collected from increased economic activity to lower taxes?”
On the coal issue, McCleary said the Obama administration was waging a war on coal through tougher federal regulations and the Environmental Protection Agency.
“Ohio has already suffered from the war on coal through the loss of coal-fired power plants and the loss of jobs. Eight of 22 coal-fired power plants in Ohio are scheduled to close before June 15, 2015,” McCleary said. To remedy the situation, she said Kasich “should lead a national effort to aggressively push back on the federal government’s nationalization of energy policy so that states can freely set policies that work best for them, thereby re-embracing America’s federalism principle.”
McCleary also urged the General Assembly to repeal SB 221, which it passed in May 2008 (see Power Market Today, May 2, 2008). The law set a goal of having 25% of all energy generated in Ohio by 2025 come from advanced energy sources, including wind, fuel cells and clean-coal technology, with half from renewables.
“Ohio’s political leaders should repeal the renewable energy requirements in [SB 221] and let the free market determine what percentage of renewable energy companies use,” McCleary said.
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