County official hopes for diverted oil, gas tax

LISBON – Columbiana County Engineer Bert Dawson hopes any bill increasing the state severance tax on oil and gas would require some of the money be diverted to those Ohio counties most affected by the drilling boom underway in the region.

A bill introduced earlier this month in the Ohio House would impose a tax of 1 percent on the net value of oil and gas obtained from horizontally drilled wells of the type common in the Utica shale deposits here and in other eastern Ohio counties. The rate would go to 2 percent after five years as production increases and drop back to 1 percent as production declines.

According to other news reports, the tax would generate an estimated $1.7 billion over 10 years, with money used to help reduce state income tax rates, to plug abandoned wells, and help oversee and regulate drilling.

Missing from the proposed bill is any mention of diverting the money back to the counties that are or will bear the brunt of the oil and gas boom. Dawson said the county engineers he has spoken with have another concern.

“The county engineers in eastern Ohio are concerned that if this happens these (drilling) companies will withdraw the money they are spending to upgrade and maintain our roads,” he said.

Drilling companies enter into road-use maintenance agreements, or RUMAs, with local governments when using public roads to get to well sites. These RUMAs require the companies to upgrade the road, maintain it and restore the road to its original condition when completed.

“If they’re paying a state tax and we go to them to get a road fixed, they might tell us to get our money from the state,” Dawson said.

The proposed severance tax, unlike the previous version introduced by Gov. John Kasich, has the support of the Ohio Oil and Gas Association, because it “includes a sensible modification of the severance tax based on actual well economics,” according to statement from association executive vice president Thomas E. Stewart.

While Dawson has not been following the debate closely, he knows their county engineers association had been asking that any version of the severance tax bill require some of the money go to impacted counties to help them deal with the effects of the oil and gas boom.

“This is going to roll on for the next 25 years, not just the next two or three,” he said.

State Rep. Nick Barborak, D-Lisbon, shares Dawson’s concerns and favors a provision returning some of the money to the counties most impacted.

“I would hate to see a severance tax taken from eastern Ohio counties and most of the money go to Cleveland, Columbus and Cincinnati,” he said.

Barborak is also concerned with the bill because it is also a potential tax on property owners with leases, because most leases require a portion of severance taxes to be deducted from royalty payments.

“It’s not just a tax on the oil industry,” he said.

The bill does provide a credit against the state income tax equal to the severance tax paid by the landowner.

Dawson said the RUMAs have been working out for the most part, and he would hate for anything to have a negative impact on that arrangement. “There’s a lot of roads that have been fixed up and are in better shape than they were before,” he said.

The legislature is expected to take up the bill following the Christmas break.