ETPI Research Update: School Levies, GRF Tax Revenues, and Shale Drilling

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1 ETPI Research Update: School, GRF Tax Revenues, and Shale Drilling Dr. Howard Fleeter Education Tax Policy Institute OSBA Capital Conference November 14, ETPI Research Projects Analysis of H.B. 136 (Voucher Expansion) Analysis of H.B. 191 (Post-Labor Day school start & school year measured in hours not days Analysis of College Readiness Issue (Board of Regents 41 Remediation Rate figure) Analysis of Taxation of Shale Drilling Casino Tax Fiscal Analysis and Revenue Estimates Analysis of 3rd Grade Reading Guarantee Testimony to Amstutz School Funding Committee (Fairness & Equity and Taxes & School Funding) Analysis of the Mid-Biennial Budget Review (MBR) School Levy Analysis I. Updated School Operating Levy Trends and Analysis 1

2 ETPI Levy Analysis General Trends Operating levies are more likely to pass in Primary and General elections (May/March and November) than in special elections (February and August) New operating levies are less than half as likely to pass (37) as are renewal and replacement levies (84) Continuing property and income tax levies are less likely to pass (40) than are term-limited property and income tax levies (59) Income tax levies (both new and renewal) are less likely to pass than property tax levies by about 10 percentage points Table 1: 2012 School Levy Results Total # of # Operating # Capital Issues Issues Issues* March August November Totals *Capital issues include combination levies that are bond or PI with an operating property or income tax levy Table 2: 2012 Operating, New vs. Renewal & Replacement # New Op. # Renewal & # Pass # Pass Replacements March August November Totals

3 Table 3: School from Total # of # Operating # Capital Issues Issues Issues Table 4: Operating from Total # of Operating # New # Renew & Replacement Table 5: Average Millage Rate of Operating Placed on the Ballot, Regular Operating Emergency New Renew Replace All New Renew All Averages

4 II. State General Revenue Fund (GRF) Tax Revenues Table 6: FY11 and FY12 GRF Tax Revenues ($ in Millions) Tax Revenue Category Source: OBM July 10, 2012 Monthly Financial Report FY 2011 FY2012 Estimated (Conf. Comm.) FY2012 FY12 Actual - Estimate Income Tax $8,120 $8,179 $8,433 $254 Sales Tax $7,578 $7,865 $8,087 $222 Corporate Franchise Tax $237 $220 $117 ($103) Commercial Activity Tax $0 $373 $417 $44 Public Utility Excise Tax $125 $135 $114 ($21) Kilowatt Hour Tax $154 $316 $295 ($21) Natural Gas Consumption Tax $0 $66 $60 ($6) Cigarette Tax $856 $818 $843 $25 Other Taxes $636 $660 $639 ($21) Total GRF Taxes $17,706 $18,632 $19,005 $373 GRF Tax Increase from FY11 $926 $1,299 FY12 GRF Tax Revenue Estimates FY12 Actual GRF tax revenues exceeded original estimates by $373 million. FY12 GRF tax revenues increased by $1.3 billion from FY11 levels (still below FY05 levels, however) FY12 GRF tax revenues increased as a result of both baseline revenue increases (growth in the economy), and as result of tax policy changes that reduced payments from the state to schools and other local governments 4

5 Figure 1:GRF Tax Revenues, FY03-FY13 GRF Tax Revenues FY03-FY13 ($ in Millions) $25,000 $20,344 $19,088 $19,563 $20,000 $19,469 $19,419 $19,005 $17,740 $17,706 $17,094 $16,318 $16,234 $15,000 $10,000 $5,000 $ (EST) Source: OBM Table 7: FY12 and FY13 Baseline and Policy Changes in GRF Tax Revenues FY 2011 FY2012 FY2013 Estimated Total GRF Taxes $17,706 $19,005 $20,344 Total GRF Tax Increase from Preceding $1,299 $1,339 Increase in GRF Tax Revenues Total Baseline Tax Revenues $17,706 $18,135 $18,794 Baseline Tax Revenue Increase $429 $659 Baseline Increase from Preceding 2.42 $3.63 Total Policy Change Tax Revenues $870 $1550 Policy Change Tax Revenue Increase from Preceding $870 $680 Source: Calculations by Driscoll & Fleeter for ETPI Baseline GRF Tax Revenue Changes vs. Policy Change Tax Revenue Changes In FY12, baseline growth in GRF taxes accounted for $429 million (33) of total revenue $1.299 billion in growth from FY11 FY12 revenue growth resulting from tax policy changes was responsible for the remaining $870 million (67) in estimated growth. In FY13, baseline revenue growth is estimated by Driscoll & Fleeter to account for $659 million (49) of projected $1.339 billion in growth from FY12. FY13 revenue growth resulting from tax policy changes is estimated to account for the remaining $680 million (51) in estimated FY13 growth from FY12. 5

6 Figure 2: Baseline GRF Tax Revenues, FY03-FY13 FY03-FY11 and FY12-FY13 Baseline GRF Tax Revenues $25,000 $20,000 $19,563 $19,088 $19,469 $19,419 $18,794 $17,740 $17,706 $18,135 $17,094 $16,318 $16,234 $15,000 $10,000 $5,000 $ (EST) III. Taxation of Oil and Natural Gas from Shale Drilling Table 8: Current and Proposed Ohio Severance Taxes on Oil and Gas Production Production Current Proposed Conventional Well Crude Oil 20 cents per barrel 20 cents per barrel Natural Gas Natural Gas Liquids 3 cents per MCF None 1 of price capped at 3 cents per MCF (no tax on small wells*) None Proposed Horizontal Well 1.5 of price in 1st year 4 of price thereafter 1.00 of price 1.5 of price in 1st year 4 of price thereafter 6

7 Table 9: Oil and Gas Taxes in Other States as Reported by the Administration State Oil Gas Michigan North Dakota cents per mcf Texas * West Virginia Fracking Revenue Potential The Administration estimates that their proposal will generate $500 million annually within a few years. Governor Kasich appears committed to using the revenue to fund a decrease in the state income tax. ETPI analysis suggests that even after the Administration s proposed increase in oil and gas taxes, Ohio s tax rates will still be lower than those in other oil and gas producing states. The oil and gas industries are warning that any increase in Ohio s current tax rates will lead them to invest elsewhere. This argument is unpersuasive in an instance where they must come here to extract the scarce resource that we have and they want. Ohio policy makers owe it to the state s residents to charge a fair price for the privilege of depleting our natural resource. 7