Cash-strapped states weigh tax policy on drilling

By Julie Carr Smyth

Associated Press

Published: Wednesday, Oct. 3 2012 10:15 a.m. MDT

ADVANCE FOR THURSDAY, OCT. 4, 2012, AND THEREAFTER - In this photo taken Wednesday, Sept. 19, 2012, personnel work on a drill rig in Carrollton, Ohio. Rural Carroll County boasts more active oil and gas wells than any other county in Ohio, and the tax dollars are flowing right along with the crude.

Tony Dejak, Associated Press

COLUMBUS, Ohio — For decades, one tiny county in the rolling hills of Ohio's rural reaches was a depressed farm community saddled with double-digit unemployment. Now, Carroll County boasts more active oil and gas wells than any other in the state, and the tax dollars are flowing right along with the crude and natural gas.

And in the same county, where unemployment reached 13.4 percent in 2009 amid declines in agriculture, there's now bustling activity at Carroll restaurants, car dealerships and the area's one hotel.

While the economic surge has been a welcome relief, Carroll County and others enjoying the newfound prosperity aren't all that interested in sharing the wealth. But that decision might not be theirs to make.

Ohio lawmakers and policymakers in other states are weighing how to use taxes and fees on oil and gas production to bolster state budgets and economies without alienating local communities or scaring away energy development.

In Ohio, many Carroll residents are up in arms over a proposal by Republican Gov. John Kasich to raise severance — or taxes on high-volume drillers — and then share the wealth from the state's oil and gas boom through an income tax cut.

"I'm not for supporting everybody else with what we're doing, when this has been an area that's been depressed for a long time and nobody's done anything to help us along the way," said Amy Rutledge, who directs the visitors' bureau and local chamber. "Why should Appalachia Ohio support the rest of the state?"

A dozen states since 2011 have seen proposals to impose a new tax on oil and gas production, or to raise, lower or amend an existing tax, according to the National Conference of State Legislatures. Most of the proposals have died or never got off the ground, though Florida passed a measure reducing severance taxes to offset the higher cost of new technology needed to extract the hard-to-get oil remaining in those fields.

At least 36 states impose some sort of severance tax on oil, gas, coal, timber and minerals, generating more than $11 billion in revenue in 2010. Of those, 31 states levy severance taxes specifically on production of oil and gas, according to the legislative conference.

Pennsylvania is the only state that's part of the recent Marcellus and Utica boom that imposes no production tax. For now, state lawmakers have opted for an impact fee based mostly on the number of wells. Proceeds are targeted toward boosting regulation and repairing or upgrading roads and bridges around burgeoning well sites.

Of the first $202 million that Pennsylvania collected since approving the impact fees in February, the state gets $23 million off the top and $107 million is being split among 37 counties and some 1,500 municipalities hosting gas well. The remainder is ticketed for state regulatory agencies.

West Virginia also opted to increase permit fees rather than raise its severance tax.

Proponents of the production tax approach, including Kasich, argue that taxes on the extracted oil, natural gas and natural gas liquids can bring long-term benefits to state economies that impact fees can't. Once the resources are tapped and well construction is completed, wells could continue producing for half a century, according to some experts.

The Pennsylvania Budget and Policy Center, a liberal think tank, estimated the state lost $300 million between October 2009 and January by not passing a proposed tax on oil and gas production.

Kasich's tax plan is similarly stalled, as fellow Republicans who lead the Legislature grapple with the political fallout.

Though the national Americans for Tax Reform has sanctioned Kasich's plan as compatible with its anti-tax hike pledge, that doesn't mean the well-funded energy industry couldn't run ads against lawmakers who support the increase when they come up for re-election in two years.

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