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APNewsBreak: Kasich revising drilling-tax plan

Julie Carr Smyth, AP Statehouse Correspondent

COLUMBUS, Ohio (AP) -- Gov. John Kasich is trying to line up support in Ohio's drilling heartland for his proposed oil-and-gas tax increase by offering to send a quarter of the proceeds back to Appalachia.

The emerging proposal is likely to surface as part of compromise talks on the $61.7 billion, two-year state budget being debated Thursday in the Ohio Senate. Both GOP-led legislative chambers have thus far rejected the drilling tax increase, but they supported significantly different tax packages that will need to be reconciled.

The Republican governor initially proposed raising severance taxes on Ohio's burgeoning shale drilling industry to 4 percent and directing proceeds toward a statewide income-tax cut. Tax-averse lawmakers, energy companies and economically challenged eastern Ohio counties balked, forcing the administration to regroup.

State Rep. Ross McGregor, a Springfield Republican, said he supported the original proposal and wants to see whatever changes are necessary to move the drilling tax forward. He likened sending money to affected Appalachian areas to earmarking the bulk of Turnpike bond proceeds to northern Ohio, where the roadway is located.

"I'm sympathetic with colleagues whose districts are the most impacted (by drilling)," McGregor said. "Certainly, these areas of the state have had a real draught in economic development, not just over the past couple of years but for decades. I also see taxes from this resource as a benefit to the whole state."

The new plan would raise the severance tax rate to 4.5 percent and send 25 percent of the revenues to 33 Appalachian counties, through their development agencies. The remaining 75 percent would still go to statewide income-tax reductions. That could mean more than $370 million for the region and $1.1 billion in tax cuts over five years.

Kasich spokesman Rob Nichols said that through discussions on the tax, the administration has determined that offering a portion of proceeds to the region where drilling is booming is "the right thing to do."

"All of Ohio stands to benefit enormously from the shale boom, especially eastern Ohio," he said. "As the boom continues to grow it's only right that eastern Ohio communities have the resources they need to both address new demands and also make sure these new opportunities produce significant, sustainable benefits for local families."

The industry remains strenuously opposed to Kasich's tax swap plan, Tom Stewart of the Ohio Oil and Gas Association said.

"It's like taking a 100-dollar bill from eastern Ohio landowners, then ripping off a quarter of that bill and giving it back to them," he said. "What do you do with that?"

Stewart said the industry has supported a doubling of the severance tax in 2010 and is not averse to taxation "for good public policy reasons."

"It's not an issue of whether we like supporting it or not," he said. "In this case, we see the severance tax being used to support a political purpose to achieve a political goal that does not support public safety and trust in the gas regulatory program."

That political purpose is lowering Ohio's state income tax, a campaign promise of Kasich's in 2010.

Columbus Chamber of Commerce lobbyist Michael Hartley said reducing the income tax would help the entire state's economy.

"Our No. 1 priority for state stuff is lowering the state income tax. That helps our members," he said.

But having more of that money returned to eastern Ohio communities is essential, said Tracy Drake, chief executive officer of the Columbiana County Port Authority.

"The area has seen monies for other initiatives, like casinos and Turnpikes, go to local areas," he said. "So if there is to be a tax on this industry here, obviously we would think it would be appropriate for some of that tax to stay local, because it's impacting the area and, historically, eastern Ohio has been under-recognized for economic development by the rest of the state."

Stewart said Kasich's plan still unfairly taxes a single industry for the benefit of other areas of the state.

"That's a question that needs to be asked of Ohio landowners in eastern Ohio, who have been waiting decades for this," he said. "What's that person in Cincinnati getting out of this? They're getting $4 natural gas (per 1,000 cubic feet) when it should be priced at $16, they're getting 38,000 jobs so far."