Shale boom provides great opportunity for Ohio families — if taxes kept low

Joe Nichols Oct 23, 2015

“I can honestly say that if it weren’t for the oil and natural gas industry, I wouldn’t be here…My concern is…How many families would miss out on these opportunities if people opposed to fracking are able to stifle an industry with so much promise?”

Madison Roscoe comes from a family that lived in a rural area and struggled just to make ends meet. But her father found a high-paying job with an oil and natural gas transportation company and was able to provide a better life for his family—including sending Madison to college. Madison is now following her dreams of studying political science at Ohio University.

Her story is evidence that the severance tax hike is bad policy. On October 22, a legislative committee issued a closely watched report on Ohio’s severance tax for “fracking.” The Governor has sought to increase the severance tax since oil and gas companies started drilling Ohio’s Utica shale in 2011.

Fracking companies balk at the proposal, citing troubles with low oil and gas prices; on the other hand, proponents of the tax increase claim “Big Oil” is robbing our state’s natural resources.

Unfortunately, stories like Madison’s are often left out of the severance tax debate.

The shale boom doesn’t just benefit oil and gas companies. It benefits thousands of Ohio families like Madison’s—from truckers in Appalachia to steel workers in Youngstown—who are better off today than they were five years ago.

In fact, the National Bureau of Economic Research estimates that every $1 million of oil and gas extracted produces $243,000 in wages, $117,000 in royalty payments to landowners, and 2 and a half jobs within shale regions.

Ohio’s tax policy should encourage this economic activity, not penalize it by increasing the severance tax.

The good news is that the legislative study committee recognizes that raising the tax right now, while oil and gas prices are at historic lows and fracking companies are barely scraping by, would be disastrous. The report recommends either phasing in an increase gradually or waiting until prices recover.

But raising the tax at all, whether gradually or in the future, is bad news. Hiking the severance tax will reduce drilling activity in Ohio, taking away opportunities for many more Ohio families to better their lives.

Plus, the report claims that much of the revenues from the higher tax would go to local governments affected by drilling, but in reality, local governments are already benefitting from drilling activity as well.

For example, county sales tax revenues in shale areas have skyrocketed. In September, oil and gas companies agreed to invest $8 million into Belmont County infrastructure projects.

The report itself explains that fracking companies must ask local governments for road use maintenance agreements (RUMAs), contracts that obligate these companies to maintain the roads. Over 60% of local government already have RUMAs with drillers. The best way to alleviate infrastructure stress on local governments is through mutually agreeable contracts such as these, not a broad and harmful severance tax hike.

The shale industry does indeed show great promise for all Ohioans. Our politicians should be careful not to spoil it with high taxes.