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OPINION

Ohio giving away its oil, gas

Enquirer editorial board

When it comes to Ohio's oil and natural gas, the state's position with drillers is essentially this: Come on in and take it.

Taxpayers don't get their fair share from the state's oil and gas reserves. Ohio does have a tax that drillers have to pay for the oil and gas they remove from the state's energy resources. But it was set up in a different time – more than 40 years ago, when Ohio's production, mainly of oil, was a local, small-scale affair. Known as a severance tax, it's now embarrassingly low, especially when compared to what drillers willingly pay in other states as they seek to exploit shale gas reserves using the technique of hydraulic fracturing.

Worse, when the tax was first put in place in 1970, it wasn't tied to market prices. That means that no matter how much drillers are profiting by selling Ohio's oil and gas, the state's taxpayers make the same measly amount. That may have made short-term sense in 1972, but it doesn't make sense 40 years on.

Ohio's severance tax is currently one element of the budget battle between Gov. John Kasich and the General Assembly as they debate remaking the state's tax structure. It's possible the severance tax will get shunted to a tax committee.

But regardless of how this tax fits in the budget picture, we don't want taxpayers, or lawmakers, to lose sight of the larger problem: Compared to most other energy-producing states, Ohio is giving away its oil and natural gas.

That needs to stop. Taxpayers deserve a fair share of the resources they own.

Ohio instituted its oil and gas severance tax in 1972, charging 3 cents per barrel of oil and a penny for natural gas, measured in thousand-cubic-feet increments. The General Assembly hiked the tax to 10 cents per barrel and 2 cents for natural gas in the early '80s and tacked on a "regularly cost recovery assessment" in 2010 that essentially doubled the oil severance tax and goosed the natural gas tax by 50 percent.

Yet Ohio's cut of money from removal of its oil and gas is tiny, and declining in value. In 1972 a barrel of oil cost about $3.60. Ohio's tax was 3 cents, or about 1 percent. By comparison, a barrel is worth about $56 now and yet Ohio only takes a 20-cent cut, or less than half a percent of its value. Ohio got a penny per thousand cubic feet of its natural gas when it was selling for around 50 cents and now makes 3 cents – even though the same amount of gas is selling for approximately $3.

It can be difficult to do an apples-to-apples comparison of state energy taxes, since there are myriad ways to make sure taxpayers get a fair share. But most other states either charge more per barrel or charge a percentage based on value. Pennsylvania, a rare energy state without a severance tax, is debating one now that would be based on the market value of oil and gas sold.

Last year Pennsylvania's Independent Fiscal Office compared severance taxes in top gas-producing and neighboring states. Of those who charged a flat price, Ohio's was the lowest. Other states, including West Virginia and Michigan, charge a percentage-based tax, meaning the state's profits rise and fall with the market. Simply put, with the market-based severance tax proposed by Gov. Kasich this year, the state was projected to gain $260 million over two years.

Oil and gas market prices are low right now, so it's understandable that drillers are sensitive to any tax increase that hits their bottom line. But the market will always go up and down. Drillers may grumble about increasing the tax and threaten to leave. That's an unconvincing argument and ultimately a scare tactic. A higher and variable severance tax is not an unfair burden. Other states charge similar or higher rates that what's been proposed for Ohio. Severance tax rates are simply not the breaking point for drillers to stay or go.

Hiking the state's severance tax for oil and gas isn't a new idea, but it's one that gets buried in other discussions, even as drillers continue to remove Ohio oil and, increasingly, natural gas. Kasich's proposal for a bump failed in the Senate last year and seems like it may be dead this year.

As the Ohio General Assembly works on the budget, a severance tax hike needs to stay part of the discussion. This should not be a partisan issue – it's a taxpayer fairness question. The state's oil and gas reserves belong to taxpayers. It's long past time Ohioans get their fair share of the sale of their non-renewable resources. Lawmakers need to make sure Ohio get a better cut of the state's mineral bounty.

Ohio gas tax facts

•Oil and natural gas severance tax here is a steal compared to other states' taxes.

•Tax was put in place in 1972, with only small raises since.

•Oil production is up 200 percent since 2012.

•Gas production is up 350 percent since 2012.

•Kasich proposal tying tax to oil and gas price would raise an estimated $260 million in next two years.

•Severence tax isn't tied to market price, so when oil and gas is worth more, taxpayers don't benefit.