Oil Taxes Tempt Recession-Scarred U.S. States as Prices Plummet

U.S. states are renewing efforts to pass taxes on oil and gas extraction, but, while falling energy prices may please consumers, drillers say it’s the wrong time to raise their costs.

At least 17 states last year considered imposing or amending so-called severance taxes, which generated more than $16 billion in 2013 in the U.S. Many are expected to introduce similar bills this year, according to the National Conference of State Legislatures in Denver.

Ohio Gov. John Kasich plans to seek a higher levy on drillers to offset an income-tax cut after opposition from the industry and lawmakers in his own Republican Party frustrated past attempts. Democratic Gov.-elect Tom Wolf in Pennsylvania wants a severance tax to fund education and infrastructure. Billionaire environmentalist Tom Steyer is leading a push for a California production tax to raise as much as $2 billion a year.

The price of oil dropped almost 50 percent in 2014 and fell to a five-year low of less than $50 a barrel this week, which drillers say is prompting them to reduce spending and production plans. While the industry says higher taxes would worsen the situation, governors say energy companies can pay more for the natural resources they extract.

“This is a total and complete rip-off to the people in this state,” Kasich said during an Oct. 28 speech in Columbus.

States are still recovering from revenue reductions and spending cuts caused by the 18-month recession that ended in 2009, and severance taxes have been a significant revenue stream for some, said Kristy Hartman, an NCSL policy specialist.

Thirty-five states levy taxes or fees on oil and gas extraction, and while most considering bills will act with the expectation that prices will eventually rise, the short-term drop might prevent “aggressive action,” Hartman said.

Kasich proposed increasing Ohio’s tax in 2013 and 2014, holding up a pair of dimes in speeches to signify the current 20-cent-per-barrel levy on oil. The Republican-led legislature failed to enact a measure, and Kasich has said that “every day they wait, it goes higher.”

The governor is committed to “modernizing” the tax as part of a broader package to be revealed in February, spokesman Jim Lynch said. Senate President Keith Faber and House Speaker Cliff Rosenberger would say only that lawmakers will study the issue.

The Ohio Oil and Gas Association said that while the industry wants a “common-sense” levy, falling prices are squeezing drillers. Energy companies including Range Resources Corp., based in Fort Worth, Texas; Denver-based PDC Energy Inc.; and Rex Energy Corp., in State College, Pa., have announced decreases in 2015 spending.

“I don’t see how you raise taxes on an industry that is currently upside-down,” said David Hill, the association’s president, who operates wells in Ohio and West Virginia.

The industry has been a potent lobbying force, contributing $1.8 million to Ohio officials, candidates and political parties from July 1, 2011 to June 30, 2013, according to a study by Common Cause Ohio, a government watchdog.

“They are effective at getting what they want,” said Catherine Turcer, a policy analyst for the group in Columbus.

This article appeared in print in the January 9th, 2015 edition of Hamodia.