Clearly, faced with the prospect of increased tax revenue from fracking, even a top Republican legislator placed assistance to local governments ahead of a tax cut, the only use of the revenue Governor Kasich says he will consider. Kasich is so adamant about not helping local governments, suffering from severe cuts in his two-year budget, [he] actually threatened to veto any measure providing extra cash to communities in the mid-biennium budget review.
In other words, at least one leading House Republican appears to agree with liberal think tanks, the editors of the Toledo Blade, Cleveland Plain Dealer and Akron Beacon Journal and House Democrats that any proceeds from increased fracking taxes should be shared with local governments before we consider cutting the income tax.
From the very beginning of this entire debate, Governor Kasich has talked about assisting local governments in communities that are directly affected. Take this article from way back in January in the Columbus Dispatch.
Ohio’s oil and gas industry would pay an “impact fee” for deep-shale wells to cover the cost of infrastructure damage caused by oil and gas extraction, part of a package of taxes and fees for the industry that Gov. John Kasich soon will propose.Come on, guys, it's in the first sentence! Impact fees would probably be per drilling site and the money would go to the local government or county affected. That's not the only time Kasich talked about impact fees, either. He has been consistent about making sure the communities affected can cope with the increased traffic. Here is another instance, this time from the Cleveland Plain Dealer in March:
Drilling activity in the state is expected to increase truck traffic on rural roads, potentially damaging roads and bridges.
“We have to make sure we have impact fees,” Kasich said. “At some point, these counties are going to benefit, but in the early years, when it comes to the erosion of roads and infrastructure, we need to make sure that these locals are going to be in a position to manage their infrastructure.”
In addition to new "severance" taxes on oil, natural gas and wet gases drawn through horizontal fracking, the proposal is likely to include an impact fee -- money companies would pay to fix the roads their heavy trucks and equipment damage in Ohio's rural and small towns. Pennsylvania and West Virginia, Ohio's closest competitors in this industry, are already assessing such fees, and Ohio has taken notice.
Kasich will propose his own form of an impact fee, likely a dollar figure per hole drilled in Ohio with 100 percent of the proceeds staying at the local level for road maintenance.
Going back to the Dispatch, they reported in March that Kasich's proposal actually included a $25,000 impact fee for each well, but that it was removed from the MBR in the House.
House Republicans stripped Kasich’s tax plan out of his mid-biennium budget review because of opposition raised by the oil and gas industry and by House members like Roegner who are squeamish about the impact higher taxes could have on shale drilling. They also removed a proposed $25,000-per-well impact fee paid to local governments.
So, obviously, there has been plenty of talk from the governor about making sure that local governments would be compensated for infrastructure. What Governor Kasich did threaten to veto, was any additional state spending from the increased severance taxes. He wants 100% of the revenue going back to Ohio's taxpayers.
That brings my attention to Republicans in the legislature. After they return from their next recess, enacting this proposal or one similar to it should be the first order of business. It will be a good shot in the arm for Ohio's economy, and especially help small businesses. 75% of small businesses pay their taxes via their personal income tax forms. 50% of private sector workers in Ohio work for small business. The oil companies are not going to drop their plans to recover Ohio's gas and oil because of increased severance taxes. Suggesting so is silly. Let's get this done.
UPDATE: As you can see in the comments below, there is some confusion here that needs cleared up.
Plunderbund has responded and claims that yes, the proposal contained an impact fee that would go to local governments, but it's a moot point because the driller would get all of his impact fee back through future tax credits. Their claim is that local government would not receive any additional net money at all from drilling activity in their community.
They are wrong. Local governments are going to benefit from drilling activity in their communities in the medium to long term. In the short term however, roads and infrastructure are going to see wear and tear from the activity right away. That's why the impact fees are assessed, to give immediate compensation.
So, lets take a look at the proposed language, directly from Plunderbund's obtained documents.
"In return, the producers are granted a credit against the county's portion of real property (ad valorem) taxes equal to the amount of the assessments paid to the county. In any one year, that credit would be taken against up to 50% of certain county levies applicable to all the producer's taxable property in the county.""Ad valorem" means "according to value" in Latin. And it refers to the property tax on the value of the gas/oil IN the well. The ad valorem property tax is not the same as the property tax on the owner's land and buildings as we normally think of them.
Here is an example:
Farmer John pays $500 a year for his property taxes on his land. Later that year, Driller Mike comes to him and asks to lease the land so he can drill. Farmer John agrees. In January of 2013, the drillers begin the process of drilling. At that time, the local government gets $25,000 from Driller Mike to help pay for the impact to the land. In June of 2013, Driller Mike is able to make an assessment of what is in the ground and reports it to the Ohio Department of Taxation. He does this because he has to pay an ad valorem tax on the VALUE OF PROPERTY IN THE GROUND (i.e. the oil/gas).
Farmer John keeps paying the same $500 a year for his property taxes. Driller Mike pays the ad valorem, or property tax on the value of oil/gas in the ground, to the Ohio Dept of Taxation. The Dept then pays 50% of that revenue back to the driller each year until they get back their $25,000. The other 50% goes back to the local government as NEW money for roads, schools and whatever services they provide.
At no point does the local community lose any dollars. They are given $25,000 up front to pay for managing the infrastructure, then on top of that, they get 50% of the additional ad valorem tax until the $25,000 is repaid to the driller. Once the driller gets back his $25,000, the community gets 100% of the ad valorem. At the same time, Farmer John is still always paying his $500 a year in "regular" property taxes.
The local community benefits greatly long-term, AND short term, because of the impact fee giving them money up front to deal with the infrastructure.
In another example, let's say the driller starts a well and pays his $25,000, but then the well turns out to be a bust. Since there won't be any ad valorem taxes collected, there is no credit to be given against them. The local government keeps the $25,000.
It's a win-win situation here, folks. The governor wants to make sure that local communities and all Ohio taxpayers benefit from the coming drilling boom in Ohio. This proposal does that. What the legislature eventually considers remains to be seen. We hope that they make it a priority.
We expect Plunderbund to find something wrong with everything this governor does. It's what they do. Sometimes you need to hear the other side of the story.