COLUMBUS, Ohio — After years of debate, a tax compromise backed by the oil and gas industry cleared the Republican-led state House today amid criticism from Democrats who said it failed to adequately protect local communities and the environment and from Gov. John Kasich, who wanted a bigger tax hike.
Kasich, a Republican who has tried previously to raise taxes on the industry, said the compromise doesn’t raise enough revenue to cover a statewide income tax break.
The legislation passed the House, 55-35, one day after it cleared a committee by one vote. It goes next to the Senate.
Democrats expressed disappointment and frustration over taxing drillers at a severance tax rate of 2.5 percent on horizontal wells, which opponents said isn’t enough of a return to compensate the state for the resources and related infrastructure impacts.
The rate is less than the 4 percent Kasich initially sought and below other states in the region, but the industry has said it’s four times what other Ohio industries pay on gross receipts through the state commercial activity tax.
Oil and gas producers have said a higher tax stands a chance of scaring off potential hydraulic fracturing, or fracking, development that’s taking place mostly in the eastern part of the state.
Rep. Mike Foley, a Cleveland Democrat, called it “irrational” not to raise the tax to a level, in his view, that raises enough to remediate the environmental and infrastructure impacts of drilling.
“I’m frustrated that the science (on climate change) is out there, the science is clear and no one seems to be paying attention to it,” he said.
Rep. Dave Hall, a Holmes County Republican, urged fellow lawmakers to “look at the big picture” and to realize the benefits coming to the state from the shale boom.
Proceeds of the tax would be divvied up between regulation, abandoned well cleanup, geological mapping, county payouts and grants and, finally, the state income tax reduction fund. Because of those earmarks, and relief the bill delivers to drillers on other taxes they currently pay, it is unclear whether any statewide income-tax cut would result.
In an amendment, lawmakers increased the percentage of tax proceeds that would go to local communities from 15 percent to 17.5 percent. Of that share, the first portion would go to restore state local-government and library funds that lose revenue because of tax exemptions and incentives in the bill.
A quarter of the remaining allotment would go directly to county budgets, down from the 50 percent proposed earlier.
The final bill leaves the distribution of competitive county grants, such as for infrastructure, to a commission appointed by the governor and majority party of the Legislature.