Oil and Gas policy shifts in Kasich budget benefit industry

wellhead2Our sister organization, Innovation Ohio Education Fund, examined the policy changes in the Governor’s two-year budget (House Bill 59) as it relates to hydraulic fracturing for oil and gas. (Read the full analysis)

Two policy changes suggest that the oil and gas industry got a sweetheart deal in this budget, at the expense of local communities and taxpayers.

County Well Loan Program

Ohio communities that are the site of horizontal drilling operations are incurring new, unforeseen costs associated with drilling, forcing them to spend already-limited funds for infrastructure repair and public services to deal with things like heavy truck traffic and an influx of transient workers.

Included in the budget is language that on first blush appears to be good news for local governments. H.B. 59 requires horizontal well developers to pay a $25,000-per-well fee to the benefit of the County in which the well is located. Counties are directed to disperse these funds to local taxing entities to recoup costs incurred due to activities associated with these wells.

But the bill requires taxing entities to pay back the amount of the impact fee, over a period of time, through a reduction in property taxes collected from the developers. While providing some up-front cash, the net effect of the policy change leaves local governments on the hook for 100 percent of the cost of the impact to their communities.

Kasich proposed a similar policy in his mid-biennium budget in 2012. The proposal was stripped from the bill by Republicans in the Ohio House.

Regulatory Cost Recovery Repealed

Currently, oil and gas developers are required to pay a fee to the Ohio Department of Natural Resources which goes into a dedicated fund to cover the industry’s regulatory costs. It is common for regulated industries to fund the state’s regulatory programs through a license fee or assessment.

H.B. 59 repeals the existing oil and gas cost regulatory fee, in turn eliminating the dedicated source of funding for the Oil and Gas Division. Instead, the bill draws upon general revenue funds, paid by all taxpayers, to support the cost of oversight. We expect to hear questions in the House Finance Agriculture and Development subcommittee when the Department of Natural Resources appear about the apparent policy shift toward saddling taxpayers with the cost of regulation of a particular industry.

Read our oil and gas budget briefing and view other budget materials from Innovation Ohio and the Innovation Ohio Education Fund.