BLUMER: Kasich’s severance tax on oil, gas industry may affect OH jobs

By   /   August 28, 2012  /   No Comments

By Tom Blumer | Special to Ohio Watchdog

Tom Blumer

Ohio‘s seasonally adjusted unemployment rate didn’t change in July, while the Buckeye State‘s economy added 11,000 jobs, furthering a 2012 record, which so far is among the best in the nation. (All employment-related figures in this post are seasonally adjusted.)

But as nice as Ohio’s first seven months of 2012 have been, the good news may not last much longer, unless Gov. John Kasich and his administration do what North Dakota and Montana have done.

While Ohio’s unemployment rate held steady at 7.2 percent, other states saw significant increases. Rate jumps of 0.4 percentage points or more occurred in five states, including Michigan and West Virginia. The only two states showing rate decreases, Idaho and Rhode Island, each have workforces much smaller than Ohio’s, and much higher unemployment rates.

As to job growth, Ohio’s has added 98,200 jobs during the first seven months of 2012, the third best employment growth record in the U.S., trailing only two much smaller states experiencing special circumstances.


The special circumstances in North Dakota and Montana have to do with oil and gas exploration and production. In North Dakota, where the industry has been booming for several years, monthly oil production went from 16.6 million barrels in December 2011 to 19.8 million barrels in May, the latest month for which data are available. That’s an increase of 19 percent in just five months. In Montana, an Aug. 7 Associated Press dispatch reports that “Oil drilling and high prices for crops and livestock are boosting the economy in rural eastern Montana,” and that “In the first six months of 2012, the state issued 225 new drilling permits — almost as many as in all of 2011.” Job growth in eastern Montana is more than making up for lackluster hiring in the rest of the state.

Kasich needs to leave Ohio’s oil and gas industry to its own productive devices — with appropriate safety, regulatory, and environmental oversight, of course. Instead, the governor is trying to arm-twist state lawmakers into quadrupling the state’s severance tax on extracted oil and gas. With the industry-targeting tax increase, workers would receive an income tax cut, which most would barely notice.

To say that the passage of such a tax increase would be a shame is an understatement. While the Buckeye State’s unemployment rate may continue to hold steady or decline a bit if the severance tax increase becomes law, it could come down rapidly while 100,000 or more jobs are added if Kasich and the Legislature leave things alone. The oil and gas industry believes there may be the potential for twice that many new direct and indirect jobs. A six-figure increase in statewide employment would bring the unemployment rate down by about 2 percent to a level not seen in more than a decade.

Ohio is in an enviable position to exploit its oil and gas resources, simply because many residents of the affected southern and eastern counties are looking for work. By contrast, the biggest problem in sparsely populated North Dakota and Montana, as described in an April Minneapolis Federal Reserve report, is that “there aren’t enough outsiders arriving to satisfy rising demand for labor in a white-hot regional economy driven by ongoing oil and gas exploration, drilling and production.”

Ohio has the workers who, when properly trained, could meet the labor needs of what may turn out to be, despite some mixed recent news, the nation’s next “white-hot regional economy” — as long as the state’s government doesn’t foolishly penalize the oil and gas industry before it really gets going.

If the severance tax increase passes, the industry will indeed get going — elsewhere, to other more hospitable states.