State Representative Robert F. Hagan (D-Youngstown) today announced his plan to capitalize on the boom in horizontal shale drilling by using an updated severance tax model to invest in communities through resources for public education, infrastructure and community services.
House Bill 212, introduced this week, would enact a 7.5% severance tax on oil, natural gas and condensate extracted from horizontal drilling. The bulk of the revenue raised from the tax would be reinvested in Ohio’s communities, with an emphasis placed on counties most impacted by drilling activity.
“Ohio’s severance tax is a pittance compared to other states with major shale drilling activity,” said Rep. Hagan. “We need to update the severance tax rate on horizontal drilling to ensure that our precious natural resources are not extracted without appropriate compensation.”
Other major shale states, including Oklahoma, Texas, and North Dakota, have severance tax rates that range from 7% to 11.5%, and collect anywhere from hundreds of millions to billions of dollars in revenue each year. Preliminary estimates from the Legislative Service Commission fiscal staff show that under the rate proposed in House Bill 212, Ohio would collect almost $400 million in 2014, and rising to almost $1 billion dollars in five years’ time.
In addition to restoring the cuts made to local governments over the past several budget cycles, a portion of the severance tax revenue would be diverted to conservation and environmental priorities related to fracking, and 1 percent would be designated for investment in a Severance Tax Trust Fund. Natural resource permanent funds have been established in a handful of resource rich states to ensure long term economic stability.
“We must plan for the long-term health of our state and work to avoid the ‘resource curse’ of overdependence on the oil and gas industry,” Rep. Hagan said. “By designating a small percentage of severance tax revenue for a permanent trust fund, Ohio can create an economic legacy from our natural resources and provide funds critical to the survival of our state’s economy long after our non-renewable resources are depleted.”