Ohio, Pennsylvania, and West Virginia should take a common approach to taxing gas and oil drilling in the Marcellus and Utica Shale, leaders of research and policy organizations from each state said Monday.

Leaders of Policy Matters Ohio, the Pennsylvania Budget and Policy Center, and the West Virginia Center on Budget & Policy sent a letter to the governors of their three states, urging them to enact a severance tax with a rate no lower than that of West Virginia. Such an approach would “provide important long-term predictability for the industry,” and “take taxes out of the competitive equation,” they wrote.

“A comparable tax rate will allow our states to invest in a stronger economic future,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “It will create consistency for the industry, ensure that our communities are benefiting, and allow our states to address the impacts of drilling.”

The three organizations recommend that West Virginia’s severance tax rate be considered a floor, not a ceiling, for the three states. Doing so will bring the region more in line with gas-producing states in the West and the South, which mostly have higher severance tax rates than West Virginia.

West Virginia’s severance tax rate is in the middle range of gas-producing states and has not deterred shale drillers, but Ohio and Pennsylvania have lagged far behind. Ohio has a very low production-based severance tax, while Pennsylvania had no extraction tax until 2012 when it adopted a small statewide drilling impact fee. Legislation has been introduced in both Ohio and Pennsylvania to put more adequate severance taxes in place.

"A severance tax would help us to repair the damage from years of budget cuts and help us better meet the needs of people with disabilities, public schools, and our environment," said Rep. Gene DiGirolamo (R-Bucks), who spoke on a press call hosted by the policy groups today.

All three states have experienced a rapid increase in shale drilling over the past five years – bringing some new jobs and economic opportunities but also growing costs to address environmental risks, increased demand for emergency services and public safety, a rapid jump in housing costs, and greater road maintenance needs.

Leaders from the three states said there is an opportunity now to take a more coherent approach to tax policy that will benefit the entire region and its residents.

“Communities have been hit hard with costs related to oil and gas drilling and waste disposal. These costs must be covered by the industry,” said Wendy Patton, Senior Project Director at Policy Matters Ohio. “Interstate competition for the lowest tax rate is a race to the bottom. When our states work together, we can maximize benefits while protecting residents and communities throughout the region.”

“Although our state capitals are separated by hundreds of miles, the gas fields in our states are in some cases separated by only a few miles,” said Ted Boettner, Executive Director of the West Virginia Center on Budget & Policy. “From that vantage point, a common tax rate across the states seems not only simple but logical.”

The three organizations sent the letter to Ohio Gov. John Kasich, Pennsylvania Gov. Tom Corbett, and West Virginia Gov. Earl Ray Tomblin.

A copy of the letter is available online.

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3/17/2014