EDITORIAL

Bad frack tax

Instead of levying a rational tax on fracking, Ohio lawmakers are surrendering to the oil and gas lobby

5/25/2014

At first, Gov. John Kasich had a good idea: Enact a modest increase in Ohio’s severance tax on oil and natural-gas drilling that uses the technique called hydraulic fracturing, or fracking. The revenue from the tax boost could help pay for expanded regulation of the state’s drilling boom, enable local governments to defray the higher public costs of fracking to their communities, and allow Ohioans to share in the benefits from extracting nonrenewable resources.

The Republican governor’s initial proposal was hardly radical — a 4 percent tax rate on fracking receipts, up from virtually nothing now, but still less than the rates levied in other states with high-volume oil and gas production. Even that plan drew resistance from Columbus’ politically powerful oil and gas lobby, and from the GOP-controlled General Assembly that answers to that lobby.

Click here to read more Blade editorials.

Lawmakers countered with an offer of a 1 percent tax. Mr. Kasich scaled back his proposal to 2.75 percent. This month, the House approved and sent to the Senate a bill that would impose a 2.5 percent tax rate on fracking.

That retreat is even worse than it appears, because the House bill includes other tax breaks for wells drilled in Ohio’s shales. With its giveaways and allowances for producers and landowners, the bill could raise even less revenue than the current, minuscule fracking taxes do.

It seems futile to expect the pliant Senate not to go along with this nonsense, but Governor Kasich doesn’t have to. He can at least insist on legislative approval of his scaled-back proposal, or even seek a reasonably higher rate. That would force lawmakers who are running for new terms in November to show their constituents whom they truly represent.

And if Mr. Kasich is feeling especially public-spirited as he pursues his own re-election, he can drop his plan to use revenue from the fracking tax to finance yet another unnecessary cut in the state income tax that would primarily benefit the richest Ohioans.

A new report by the Pew Charitable Trust notes that Ohio’s tax revenues in the fourth quarter of 2013 were still 7.9 percent (adjusted for inflation) below the state’s peak quarterly tax collections in 2008, before the Great Recession. Given Ohio’s uneven recovery from the recession, and the slashes in vital public services that the state made during the recession to keep its budget balanced, this is no time for another regressive tax cut.

Instead, the severance tax revenue should enable state regulators to enhance their oversight of fracking operations: to monitor drilling sites to prevent earthquakes and water and air pollution, to keep an eye on injection wells that hold fracking-generated wastewater, to seal abandoned wells, and to expand disclosure of toxic chemicals used in fracking.

The state can share more frack-tax revenue with local governments, to help them address the increasing truck traffic near drilling sites that is contributing to auto accidents and damaging roads. And whatever money is left provides a revenue source to restore some of the previous cuts in state aid to schools, communities, higher education, and basic services.

The House-passed tax bill will do none of these things adequately, because it is not designed to. Before it goes any further, Governor Kasich needs to reject this special-interest charade and reassert control of the Statehouse debate.