Could An Ohio Ballot Initiative Unite Severance Tax Foes?

If a recent, underreported AP story turns out to be true, it could become major political news in 2015.

The AP reports that Ohio Governor John Kasich is predicting a ballot initiative will push a new severance tax plan if his severance effort fails to get through the Legislature. Kasich indicated at a March 6 news conference "that a citizen group or aspiring politician would spearhead the effort and seek rates even higher than he has proposed." Kasich put forward his effort as part of his proposed 2016-2017 budget. His severance rate is proposed to be 6.5 percent, with much of the proceeds used to reduce income taxes. He believes that the initiative campaign would probably push a 10 percent rate with earmark proceeds for something popular with voters.

In the last two years, Ohio has become a major producer in the Utica shale play. Literally tens of billions of dollars have been invested in lease rights, drilling efforts, and midstream activities. Yet, Ohio currently levies a nominal severance tax that is significantly lower than other states in the shale play. At the same time, all of the major Ohio producers have indicated that they will substantially decrease drilling activity in 2015 due to depressed oil and natural gas pricing.

While Ohio's severance tax is clearly not in line with other shale producing states, what is the right level in the context of a market in downturn? Can producers come together with the Governor and find a compromise? This compromise would not only be responsible public policy, but could also avoid the possible hammer of a statewide ballot initiative this year that would likely harm the industry and provide no offsetting tax cuts for the Governor.

Finally, as if the stakes were not already high, the possible statewide campaign could be taking place at the same time as Governor Kasich readies any presidential aspirations. Indeed, this story has been underreported.