Ohio seeks to reap the economic benefits of greatly increased oil and natural-gas extraction through the enhanced use of hydraulic fracturing, or
fracking, coupled with modern drilling techniques. Before that can occur, Gov. John Kasich and the General Assembly must figure out how to tax the practice fairly and regulate it effectively.
So far, the governor has gotten it about half right. His fellow Republicans in the legislature, not so much.
Mr. Kasich wants to impose a 4 percent severance tax on oil and natural-gas liquids fracked from shale deposits in eastern Ohio, up from the current ludicrously low 20 cents a barrel. GOP legislative leaders, parroting industry lobbyists in Columbus, say the proposed tax would harm Ohio's economy and deprive the state of 200,000 potential jobs.
The governor has the better argument. If drillers want to exploit the state's nonrenewable natural resources -- and they do -- they should pay adequately for the privilege. The tax rate Mr. Kasich seeks is less than the 5 percent tax levied in neighboring Michigan and West Virginia.
Governor Kasich veers out of bounds, though, when he proposes using the projected $1 billion the severance tax would raise over five years to pay for another state income-tax cut for individuals and businesses. A new Quinnipiac poll suggests that three out of five Ohio voters approve of Mr. Kasich's proposed tax swap.
Analyses suggest that the cut would give Ohio's wealthiest taxpayers thousands of dollars a year. But the middle 20 percent of the state's households would get an average annual tax cut of just $42.
It would be better to use that revenue to start to restore the deep gouges the state has made in aid to local schools and governments, as well as vital state services. The advocacy group Policy Matters Ohio proposes a 5 percent severance tax, which it says would keep the state competitive with its neighbors while enabling communities to rehire laid-off teachers and police officers.
Any tax also must raise enough money to provide adequate regulation of fracking, to protect public safety and the environment and to help communities meet road and other infrastructure costs associated with the practice. The Ohio Department of Natural Resources says it plans to more than double the number of state inspectors of oil and gas wells.
Good, but not good enough: The Cleveland Plain Dealer reports that the state inspected fewer than one out of five of the state's 64,000 operating wells last year. And that was before the anticipated fracking boom in Ohio, which is expected to create thousands more shale wells.
GOP lawmakers say a bill approved last week by the state Senate would strengthen regulation of the oil and gas industry while promoting job growth. The measure would require drillers to disclose the toxic chemicals and the sources and amounts of water they use for fracking, and to help maintain roads near fracking sites. Penalties would increase for violations of some well safety standards.
The value of such changes is dubious: After-the-fact chemical disclosures would be required just once a year, far short of the comprehensive reporting Mr. Kasich had sought. Local communities and citizens would be largely denied the opportunity to influence decisions about permits and oversight of such issues as wastewater treatment.
The bill also would gravely weaken the energy-efficiency standard in state law. That standard has reduced consumers' electric bills and curbed air pollution. Gutting it is not an acceptable trade-off for new fracking rules, and lawmakers shouldn't yoke the two issues.
Instead, Governor Kasich and the General Assembly would serve Ohioans best by levying a reasonable tax on fracking, regulating it effectively, and allocating a fair share of its benefits to all taxpayers.
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