Gov. John Kasich to propose new tax on fracking to give Ohioans a personal income tax cut
Published: Sunday, March 04, 2012, 6:58 AM Updated: Sunday, March 04, 2012, 12:16 PM
COLUMBUS, Ohio — Ohio Gov. John Kasich will propose a new tax on a form of oil and gas drilling known as horizontal fracking and then use the fresh revenue to give a personal income tax cut to Ohioans, The Plain Dealer has learned.
The complicated plan also would make changes to various existing taxes petroleum companies pay for pumping out oil and natural gas from beneath Ohio. And it even contains a tax break for some smaller operators, according to documents obtained by The Plain Dealer and confirmed by the governor's office.
But the moneymaker in the deal is the new tax Kasich wants to apply to Ohio's most sought-after resource, the natural gas liquids trapped deep below in Marcellus and Utica shale formations reached through fracking, a process that shoots a water and chemical concoction down through a drilled hole to break up the shale. Big Oil is salivating at the opportunity to reach these gases -- butane, ethane and propane.
Over the next five years, based on today's market prices, Ohio could net between $666 million and $1 billion through the new oil and gas tax structure, with those dollars funneled back Ohioans in form of an income tax cut. The governor is expected to announce the plan next week.
"There is a need to update a range of regulations and policies in light of the advent of this new industry in Ohio, and we're taking the steps to do that while assuring we keep the environment and public protected," said Kasich's budget director, Tim Keen.
But the proposal is expected to get a heap of criticism from conservatives who see it as nothing more than a tax hike, from liberals who say the proposed tax rates are too low and from oil and gas companies who complain they already pay enough.
Of those issues, the biggest worry for Kasich -- a conservative Republican who scowls at the mention of higher taxes -- is that he is essentially advocating against his own principles by proposing a new tax. But the governor's office is quick to point out that he will be handing out lower income taxes, thus making the deal "revenue neutral."
"No plan would ever be offered that was not revenue neutral, or even better, resulting in a tax cut," said Kasich spokesman Scott Milburn. The tax "is completely offset by the reduction in income taxes. Every new dollar goes back to Ohioans."
Still, Kasich signed a pledge with the influential Americans for Tax Reform vowing to "oppose and veto any and all efforts to increase taxes." Kasich's office is so concerned with his standing with ATR, run by its powerful president Grover Norquist, that it has consulted the group about the proposal.
"The plan, very vaguely as he has started to lay it out for us, is compliant with his pledge," said Josh Culling, state affairs manager for ATR.
"The way that we judge pledge compliance is based on the overall revenue impact of a given piece of legislation," Culling said. "So some taxes can go up. . . but others have to come down in the same piece of legislation in a way that the overall net revenue impact for the state of Ohio is either revenue neutral or a revenue cut."
The proposal, however, would siphon roughly $17 million a year from the tax revenues to pay for state regulation of the oil and gas industry, not unlike what Ohio currently does with taxes collected for oil and gas. Culling is concerned about that aspect of the proposal but said he will give Kasich the benefit of the doubt.
"Any carveout is going to have to be compensated under the auspices of the pledge with a revenue reduction elsewhere," Culling said. "So I haven't seen the final details, but again, I'm giving the guy the benefit of the doubt. He's been great so far. He takes the tax issue seriously."
The proposal would require legislative approval. Ohio House Speaker William G. Batchelder, a Medina Republican, has also signed the ATR pledge. A spokesman for Batchelder said the speaker has been advised of the governor's proposal and that he does have concerns.
"The governor and the speaker and the senate president have been speaking rightfully all year about ways to balance the budget without raising taxes and any form of a tax increase would mostly likely be a concern to the speaker and most members of the House Republican caucus," said Mike Dittoe. "I think what we have to do first is see what the actual language of the bill is."
Batchelder's position won't surprise Kasich. The governor is expecting pushback from some conservative Republicans who will find it hard to accept a deal some will see as a tax hike on big business -- and in an election year, no less.
Senate President Tom Niehaus, a Cincinnati-area Republican, has not signed the ATR pledge but is also said to have concerns about the proposal.
More criticism is coming from the oil and gas industry, which says that Ohio's existing taxes on oil and gas are sufficient. They are livid at the thought of having to pay higher taxes when they figure to generate thousands of new jobs and thus raise Ohio's tax revenue collections, even under the current system.
The industry is expected to explode in relatively short order, with industry analysts predicting Ohio's pool of wet gases might be so plentiful it alone could power the state for a decade and grow to a $5 billion-a-year industry. Currently, there are about 50 holes drilled in Eastern Ohio, the epicenter for fracking, but that is expected to grow to over a thousand by 2014.
"This is about the economy and job creation and you run the risk of limiting those benefits by trying to extract some kind of fee for Ohio," said Tom Stewart, executive vice president of the Oil and Gas Association. "That is the biggest threat to all of this, that we give out signals of uncertainty about the tax structure that makes these companies rethink their plans."
Stewart said the companies already pay existing "severance" taxes on the resources they extract, plus special property taxes. Not to mention the sales taxes the companies pay and the additional income taxes that the new hires are expected to generate.
House Democrats Robert Hagan of Youngstown and Mike Foley of Cleveland last week introduced a bill that called for the oil and natural gas from fracking to be taxed at 7 percent, with some money set aside for local infrastructure repairs.
"To say that we as a state are doing enough to ensure financial fairness in natural gas extraction is a flat-out lie at this point," said Hagan. "What we're asking for is a pittance."
Under Kasich's proposal, Ohio would continue to charge companies 20 cents a barrel for oil retrieved through conventional wells. The market price of crude oil on Friday was $107 a barrel.
Oil retrieved through horizontal fracking would be taxed at 1.5 percent of the annual gross sales for companies in their first year of operation. After that, the tax grows to 4 percent of gross sales. The lower rate in year one is to help companies offset their initial start-up costs in Ohio, according to documents reviewed by The Plain Dealer.
Natural gas tax rates would also change, and for the better for most companies. Companies that produce less than 10,000 cubic feet of natural gas per day through traditional wells would no longer pay a tax. That's good news for about 90 percent of Ohio's conventional natural gas producers.
Those producing more than 10,000 cubic fee of natural gas per day would pay a 1 percent tax, which is also a tax break from the current rate of 3 percent. Natural gas collected through horizontal fracking would be taxed at 1 percent regardless of the amount collected. Natural gas prices this week had dropped to $2.62 Mcf. (Mcf is a unit of measure that equals 1,000 cubic feet.)
And the new tax on natural gas liquids through obtained by fracking would follow the same tax rate as the rate charged for oil from fracking, 1.5 percent of gross sales in year one and 4 percent after that.
The revenue would go into a newly created fund requiring legislative approval, which would be used to support the tax cut. The income tax cut would apply when there is annual growth on revenue of at least one-third of 1 percent. If there isn't sufficient growth, Ohioans wouldn't get the tax cut, but the pool of money would carry over to the next year.
The governor's office is projecting the first income tax cuts could come in calendar year 2013, but they are more likely to start in 2014 -- the year Kasich is up for re-election.
So, the amount of the income tax cut would be tied the amount of oil and gas extracted and according to market prices for those products.
The tax rates Kasich will propose are lower than in Michigan and West Virginia, which Keen said was done by design to help Ohio be more competitive in attracting companies to the state.
Pennsylvania, which is years ahead of Ohio in the fracking business, does not charge a severance tax for oil and natural gas but does charge an impact fee to cover infrastructure damage caused by the heavy trucks used in the industry. A portion of that fee, however, goes to that state's coffers and thus acts in some ways like a tax.
House District 73-Hannah Report
Many incumbents are facing primaries this year, but Martin may be the only one without the support of his caucus after a
drunken driving arrest caused House Speaker William Batchelder (R-Medina) to strip Martin of his committee chairmanship
and ask for his resignation. (See The Hannah Report, 8/17/11, 9/7/11.)
The DUI charges were dropped against Martin and he pleaded to a minor traffic violation, but Martin still faces two
opponents in Tuesday's primaries: Greene County Commissioner Rick Perales and Greene County Sheriff's Capt. Eric Spicer.
Martin told the Dayton Daily News that while the other candidates say what they hope to do, he has actually done it.
Spicer and Perales have attacked Martin on issues such as casting the lone vote against legislation banning synthetic drugs.
Spicer has also made known his opposition to collective bargaining reform law SB5 (Jones) that was overturned by voters in
the fall.
Perales is ahead of the others in campaign finance, reporting $25,953 in contributions this year and $64,390 in
expenditures. Martin reported $3,845 in contributions and nearly $6,000 in expenditures, while Spicer reported $18,170 in
contributions and $15,821 in expenditures.
The Democratic primary for the seat features Bill Connor, a retired Air Force major, and Linda Borgert, a Montgomery
County Law Library worker.
Ohio's Unemployment Rate Continues Drop- Hannah Report
Ohio's unemployment rate continued to fall in the first month of the year, going from a revised 7.9 percent in December to
7.7 percent in January, the Ohio Department of Job and Family Services (ODJFS) said Friday.
The latest numbers, released later than normal due to annual benchmark revisions, showed the state added 32,800 jobs
over the month. Those numbers also showed 11,000 fewer unemployed workers, going from 458,000 in December to
447,000 in January.
The national unemployment rate was 8.3 percent in January.
According to ODJFS, service-providing industries increased 25,200 over the month to 4,291,100. The most significant
increases were posted in leisure and hospitality (+6,800), education and health services (+6,000), professional and
business services (+5,300) and trade, transportation and utilities (+3,200). Financial activities (+2,400), other services
(+1,400), and government (+100) also experienced over-the-month gains. Information technology remained unchanged.
Goods-producing industries, at 836,000, were up 7,600 from December 2011. Construction gained 6,200 and
manufacturing added 1,400 jobs. Mining and logging remained unchanged.
Over the past 12 months, nonagricultural wage and salary employment grew 62,500. Service-providing industries added
39,700 jobs. The most significant gains occurred in trade, transportation and utilities (+16,000), education and health
services (+15,400), and professional and business services (+12,000). Also showing improvement were other services
(+2,400) and information (+1,300). Government (-6,700) and financial activities (-700) declined over the year. Leisure and
hospitality was unchanged.
Goods-producing industries rose 22,800. Manufacturing added 17,700 jobs as a gain in durable goods (+18,000) exceeded
a loss in nondurable goods (-300). Construction added 4,500 jobs while, mining and logging employment were up 600.
U.S. Sen. Rob Portman said the economy is moving in the right direction, but added that the unemployment rate is still too
high. He also noted rising gas prices while taking aim at President Barack Obama.
"Washington can also get the economy back on track by enacting spending restraint to address the record debt and deficit
that are dragging down the economy; stopping job-killing regulation; reforming the tax code to make America more
competitive; expanding domestic production of energy; and reducing the cost of health care," he said.
House Speaker William Batchelder (R-Medina) said the numbers are not "mission accomplished," but that House
Republicans are nonetheless delighted that the state is showing signs of recovery.
"Ohio was recently recognized as being the number-one job creator in the Midwest, an exciting distinction for our state,"
Batchelder said in a statement. "House Republicans are committed to making continuous improvements in Ohio's business
climate and are working tirelessly towards reducing the overall cost of doing business here. Together, we can ensure the
long-term financial stability of our state and prove that Ohio is once again a leader in job creation not just in the Midwest,
but throughout the United States."
Meanwhile, Cleveland economist George Zeller noted that the annual benchmark revision processing resulted in a large
downward revision by ODJFS and the U.S. Bureau of Labor Statistics (BLS) to job estimates over the past few years,
including 73,300 fewer jobs in September 2010.
"It turns out that the revisions this year are truly massive in scope," Zeller said. "ODJFS and BLS did not only revise every
month in 2011 downward, but to my surprise they also revised every single month since January 2006."
He said the massive revisions "obscure and overshadow" the latest job numbers, saying that the revisions mean that job
losses were underestimated during every month of the 2007-2009 national recession.
93rd House District: Gongwer
When former Rep. John Carey announced last year he was stepping down from office at the beginning of 2012, three southern Ohio Republican candidates saw their chance to be his successor.
Bill Dingus, an economic development officials in Lawrence County, Ryan Smith, a school board member in Gallia County, and Jackson County Commissioner James Riepenhoff are betting on their past experiences to boost them to victory in the downtrodden southeast Ohio district.
A spokesman for Speaker Bill Batchelder (R-Medina) said House leadership plans to appoint the winner of the primary to Mr. Carey's former seat, which could give the candidate an advantage in November's general election. (See Gongwer Ohio Report, February 21, 2012)
The political index continues to favor Republicans at 54% and remains relatively unchanged from Mr. Carey's former 87th House District.
Husted Gives redistricting proposal a thumbs up, questions plan to vet through study committees: Gongwer
Secretary of State Jon Husted endorsed a bipartisan group of lawmakers' proposal to overhaul the redistricting process and said Republican leaders' plan to vet it in multiple study panels was simply an attempt to drown it.
The Republican said in a recent interview that he was pleased to see the so-called "Gang of Four" legislators have taken the lead on the redistricting, an issue he worked on during his time in the Senate last session.
"I know the job they have before them is not easy. I thought the resolution they put together was well-thought out, it was sufficiently simple and easy to understand," Mr. Husted said, adding that he thought it could be improved through the legislative process.
Last week Rep. Mike Duffy (R-Worthington), Rep. Ted Celeste (D-Grandview Hts.), Sen. Frank LaRose (R-Copley Twp.), and Sen. Tom Sawyer (D-Akron) introduced constitutional amendment proposals (SJR 4 & HJR 5) that would require support by minority members of a seven-member panel to approve new congressional and legislative maps. (See Gongwer Ohio Report, February 27, 2012)
However, the measure got a tepid response from legislative leaders. Speaker Bill Batchelder (R-Medina) has said he wants any redistricting plan to be vetted first by the Redistricting Task Force and then the Constitutional Modernization Commission, which makes passage of any proposal before the Aug. 8 deadline to put an issue before voters very unlikely.
Secretary Husted said plan to refer the proposed amendments through the study committees was simply a diversion.
"Anytime you hear somebody start talking about process, that is their desire to kill something, okay? That is code for: let me figure out how to kill this," he said.
"Let's focus on the substance of it. All you really need is a vote in the legislature. That's the only process you need, that's what the constitution says. Give them the chance to have a vote," he said.
Mr. Husted, who has expressed concern that delaying action on redistricting will allow outside voting advocates to put an issue before voters instead, said he believed the legislature should act this year.
"The longer you wait, the harder it is," he said. "I think anybody that wants to stand in the way of giving them a chance to be heard on this should stand up and tell us why."
Elections Bill: Mr. Husted said he supported Senate President Tom Niehaus' (R-New Richmond) plan to repeal an elections law (HB 194) that is the subject of a pending referendum and replace it with provisions that have support from both Republicans and Democrats. (See Gongwer Ohio Report, February 21, 2012)
"I don't know how anyone could argue with the position Sen. Niehaus has taken on this and I appreciate what he's doing. You repeal it - that makes a lot of sense," he said. "If you have bipartisan agreement, I think that would be a most welcome development in election law."
Although Democrats have expressed doubt about Republicans' intentions, Secretary Husted was optimistic that the two parties could still reach agreement on certain provisions.
Mr. Husted was skeptical that the legislature could act to eliminate "Golden Week," when residents can register to vote and cast an early voting ballot at the same time, before the fall election.
"As much as I or others might want to, I think that that would be one of those issues that would bump up against the referendum," he said.
"But if there's a bipartisan consensus around that, I think that changes the rules," he added. "If we're going to make a change before the election, I would prefer it be done on a bipartisan basis."
Primary Election: So far turnout in early voting absentee ballots has been relatively light and uneventful, Secretary Husted said.
"It's gone very smoothly so far," he said.
Ongoing debate over changing election law and the referendum campaign have not had any noticeable effect on voter confusion, he said, adding that primary elections tend to draw only the most active and informed voters.
"It's a general election presidential campaign that tends to bring new people into the system that may be unfamiliar with what the rules are, and that's where the concern regarding confusion are most germane," he said.
January Unemployment Rate Falls To 7.7%: Gongwer
The state's unemployment rate for January dropped again to 7.7% from 7.9% in the prior month, the Ohio Department of Job and Family Services reported Friday.
The number of unemployed workers in Ohio during the first month of 2012 totaled 447,000, a decrease from 458,000 in December, according to ODJFS. The number of jobless has dropped by 79,000 to 447,000 in the past 12 months while the state's rate shrank from the January 2011 reading of 9%.
The rate stayed at 8.8% from March-May 2011 before ticking back up to 8.9% during June and July, according to data from ODJFS. Since dropping again to 8.8% in August it has been in a steady decline every month.
January's U.S. unemployment rate stood at 8.3%, which was down from 8.5% in December, ODJFS reported.
Ohio's nonfarm payroll employment increased 32,800 over the month, up from about 5.094 million in December to approximately 5.127 million in January, according to the agency.
Several industries reported significant gains, according to ODJFS. Leisure and hospitality added 6,800 jobs; education and health services saw an increase of 6,000; professional and business services (5,300) and trade, transportation and utilities (3,200) and financial activities (2,400) rounded out the top five areas of growth.
Over the past 12 months, nonagricultural wage and salary employment grew 62,500, according to ODJFS. Service industries added 39,700 during that time, with an increase of 16,000 taking place in trade, transportation and utilities.
Reaction: Two years ago the state unemployment rate was 10.6% but has shown significant improvement, HouseSpeaker Bill Batchelder (R-Medina) said, adding that House GOP members "have never lost sight of creating a job-friendly environment in Ohio and the numbers today indicate that Ohio's economic climate is improving."
"Ohio was recently recognized as being the number-one job creator in the Midwest, an exciting distinction for our state," Mr. Batchelder said in a release. "House Republicans are committed to making continuous improvements in Ohio's business climate and are working tirelessly towards reducing the overall cost of doing business here.
"Together, we can ensure the long-term financial stability of our state and prove that Ohio is once again a leader in job creation not just in the Midwest, but throughout the United States."
U.S. Sen. Rob Portman (R-Terrace Park) said in a statement the news shows Ohio's economy is "moving in the right direction" but the jobless rate is still too high.
"Many Ohio families are struggling, and rising gas prices are making it more difficult to make ends meet. On President Obama's watch, the price of gas has increased by a staggering 102 percent," he said.
"Expanding domestic production is vital to bringing down energy prices, and Ohio provides tremendous resources to do so. This would not only reduce energy prices, it would also strengthen manufacturing, create jobs, and bring economic growth."
Policy Matters Ohio said most of improvement comes from employment gains rather than a dwindling labor force.
Previously, much of the decrease in the unemployment rate was due to workers are dropping out of the labor force, not finding new jobs, the progressive think tank said. This month's data, show a much smaller decline in the labor force, only 0.1%, and a stabilized labor force participation rate of 64.2%.
Nonetheless, Ohio must create at least 293,300 jobs in order to return to the pre-2007 recession employment, according to Policy Matters. At the current growth rate of 1.2% it will take nearly four years just to return to that level.
"While a falling unemployment rate is welcome news, we need sustained, major employment growth to pull people back into the labor market, which we have yet to see," Hannah Halbert, policy liaison with Policy Matters Ohio, said. "Investment in our economy has been too small, and job recovery has been too slow."
Mayor Jackson's school plan merits Democratic legislators' support: editorial
Published: Sunday, March 04, 2012, 8:07 PM
The emergency-rescue package for the Cleveland schools is already in trouble in Columbus from a resistant Republican leadership and Democrats who are missing in action when their support is needed most.
Republican Gov. John Kasich, Democratic Mayor Frank Jackson and Cleveland schools CEO Eric Gordon need to redouble efforts to push their proposal to alter teacher seniority rules, punish nonperforming Cleveland charters and build a better school system from the ground up. To start, they need to get it into legislative language, pronto.
But it's up to lawmakers to set aside the usual partisanship and political myopia to show that state government and schools can be partners in promoting educational innovations when spending more is no longer feasible or even practical.
House Speaker Bill Batchelder needs to be more visible. The Medina Republican in 1997 successfully partnered with then-Cleveland Mayor Michael R. White, a Democrat, to achieve mayoral takeover of the schools. That same broad Republican backing is needed now.
And where is House Minority Leader Armond Budish? The Beachwood Democrat should know firsthand why this proposal is critical. Jackson says bluntly that, without it, the city's academic and economic slide will continue.
What about the other Democratic lawmakers from Cleveland? State Rep. Sandra Williams, who leads the Ohio Legislative Black Caucus, knows how important this proposal is to the vitality of Cleveland and the region.
Why is it a suburban Dayton Republican who most firmly says: "I am personally committed" to acting on Jackson's plan? Those words come from state Sen. Peggy Lehner, who chairs the Senate Education Committee.
If Democrats in the Cleveland-area delegation don't lead, they can't expect downstate Republicans to follow -- especially not in the wake of the voters' crushing defeat of GOP-championed Senate Bill 5. Budish should search for areas of concord with the mayor and across the aisle.
Three factors count mightily at the Statehouse: leadership, bipartisanship and persistence.
Jackson needs an even more aggressive campaign to get this measure passed.
In 1997, White traveled to Columbus to lobby legislators face to face for a bill to let Cleveland mayors appoint the Board of Education. Yet even passage of that bill was a close call, and downstate support was vital.
Jackson and Gordon need that kind of bipartisanship and leadership in Columbus if they hope to resuscitate this moribund district.
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