By Julie Carr Smyth
COLUMBUS: The administration of Republican Ohio Gov. John Kasich is differing with legislative budget analysts on how much a proposed tax increase on big oil-and-gas drillers will generate, as the two sides move toward a compromise this week.
The figure is pivotal as Kasich promotes a midterm budget package ahead of fall elections. He wants the plan to deliver the combination of cuts and revenue increases needed to push Ohio’s income-tax rate below 5 percent, an accomplishment he would certainly tout on the campaign trail.
But fiscal experts disagree significantly on how much would be raised by increasing the severance tax rate on large-volume drillers to 2.75 percent.
Ohio’s budget office places the amount to be raised over two years starting July 1 at $874 million. The Legislative Service Commission has projected an upper limit of $231 million for the same period on a lower rate of 2.25 percent being studied in the House.
State Rep. Matt Huffman, a Lima Republican who is sponsoring the House’s severance tax legislation, said lawmakers are trying to sort out the competing figures from the administration and the industry.
“It’s sort of counterintuitive that [the industry] would underplay how much production there could be, because the likelihood would be we’d just want to raise the rate,” Huffman said. At the same time, he said the administration may be using estimates aimed at paying for Kasich’s proposed income tax cut.
“I’m just a simple country lawyer,” Huffman said. “What we rely on is the research of the economists at [the commission].”
He said he anticipates a compromise bill will be ready as soon as today, containing elements of Kasich’s plan and the industry-supported severance-tax proposal that already had been moving through the House.
Huffman said the final bill can’t contain an overall tax increase if Republican lawmakers can be expected to support it — so the House is working to balance transfers to Ohio’s oil-and-gas regulatory program and to local communities to that end.
Huffman’s bill proposed returning 10 percent to affected communities, while Kasich has proposed 20 percent.
Two key factors help estimate severance tax revenues: volume and price. That is, how much oil and natural gas will be produced, and how much it will be worth.
Legislative economists said because Ohio’s oil and gas industry is growing so rapidly and because the impact on production of raising the tax is unknown, “a great deal of uncertainty exists regarding the revenue from the tax.”
They choose simply to project forward using current prices for oil, natural gas and natural gas liquids to come up with their estimates. A “low scenario” on the 2.25 percent proposal before the House Ways and Means Committee puts revenue from the tax at $111 million from 2015 to 2017, with $231 million being the “high scenario.”
The administration has not divulged its assumptions in coming up with the higher $874 million.