Gov. Kasich had to reject oil/gas industry tax break

Ohio Gov. John R. Kasich has made it crystal clear that the state’s next biennial budget will be extremely tight, which means any attempt to reduce revenue must be viewed with a healthy dose of caution.

Thus, Republican Kasich, who won a second four-year term in 2014 on the strength of his management of the state’s finances, had no choice but to veto a retroactive windfall tax break granted to the oil and gas industry by the GOP-controlled General Assembly.

The tax break, which was included in Senate Bill 235, would have cost state government $215 million and local governments $49 million, according to the Columbus Dispatch.

Because the bill was multifaceted and included a spending measure, the governor had the authority to line-item veto provisions he opposed – instead of rejecting the entire measure.

The veto of the windfall tax break was a no-brainer for two reasons: The state cannot afford to lose such a significant amount of revenue; and, the governor has long argued, – with some justification – that Ohio must increase the severance tax on oil and natural-gas exploration.

Indeed, in 2015, Kasich included in his 2016-17 budget blueprint a 6.5 percent tax that would have generated $180 million. Not surprisingly, representatives of the oil and gas industry strongly objected, contending that the steep decline in oil and natural gas prices because of oversupply globally made it the wrong time to increase the severance tax.

Kasich dismissed the objections, saying “It’s never a good time” as far as the industry is concerned.

The Oil and Gas Association launched a statewide campaign to build political, community and media support and the General Assembly responded by rejecting the governor’s severance tax proposal.

But with the passage of SB 235, the Republican majority in the Legislature went a step further in opposing the governor’s push for an oil and gas exploration tax increase.

Lame-duck session

According to the Dispatch, the heavily amended bill, approved by the House and Senate during the recent lame-duck session, would have expanded the sales-tax exemption for tangible personal property for the oil and gas industry, resulting in tax breaks estimated by the Ohio Department of Taxation at $264 million.

“In an unusual move, the General Assembly made the tax breaks retroactive to June 20, 2010, requiring the state to make sizable refunds,” the news- paper reported.

It quoted state taxation officials as saying the move would amount to $211 million for oil and gas conduit pipe companies, $46 million for horizontal-well operators, $7 million for injection-well operations and an indeterminate amount for other mineral producers.

But proponents of the tax breaks contended that the amendment in SB 235 merely clarifies existing law and practices.

“We view it as something that should never have been taxed,” said state Rep. Ryan Smith, R-Bidwell, chairman of the House Finance Committee.”

Smith contended that the Department of Taxation interpreted the law differently than what was intended, adding, “If the state has to issue refunds, it’s because they collected taxes they should have never collected.”

But it isn’t as simple as that.

Earlier this month, Gov. Kasich told the Ohio House that he was worried the state was on the verge of a recession, and he and others in his administration have made it clear that they won’t be funding big spending increases over the next two years. On the contrary, tax revenues have been softer than earlier projected.

Several days later, Kasich noted that there are people who are talking about the state’s economy perking up, but he insisted government cannot budget on the basis of “rosy scenarios.”

“That’s what Washington always does, and we’re not going to do that here. I don’t want to be crying wolf. I just want to say we have to be careful.”

State legislators who pushed for the windfall tax breaks must realize that it is irresponsible to be taking revenue out of the state’s coffers at a time when the future is uncertain, at best.

It isn’t just state government that will suffer from the tight budget the governor is projecting: local governments, which have been forced to absorb cuts in state funding, are also on thin ice.