COLUMBUS, Ohio - Gov. John Kasich is expected on Wednesday to release details of a plan that would deliver modest income tax cuts to residents in two or three years by raising taxes on drilling for oil and natural gas liquids.
The tax plan will save taxpayers a combined $500 million a year by 2016, a person close to the administration with knowledge of the proposal told The Associated Press. The person requested anonymity because the information had not yet been released.
Kasich, a Republican, also plans to propose education policy changes that include better aligning college and vocational courses and state workforce development programs to meet job opportunities and authorizing Cleveland Mayor Frank Jackson's proposal to overhaul public education in his city.
Additional legislation would continue overhauling of the state Medicaid program, propose a "very austere" state construction budget containing no new community projects and cut or revamp a series of agency programs that his Cabinet directors identified as wasteful or redundant.
During his 2010 gubernatorial campaign, Kasich pledged to phase out Ohio's income tax.
His sweeping second-year energy agenda begins the process by hiking the severance tax to 4 percent on oil and natural gas liquids extracted from under the state and setting aside the proceeds for income tax relief. Tax benefits would grow as the fund does, the person close to the administration said.
The severance tax on natural gas would remain at 1 percent.
The new tax rate for resources obtained through hydraulic fracturing, or fracking, falls above current Ohio rates of 2.5 cents per 1,000 feet of natural gas and 10 cents per barrel of oil. But the rate keeps Ohio competitive by coming in under the 5 percent levied in West Virginia and the 7 percent charged in Texas and Michigan.
Neighboring Pennsylvania, which has no severance tax, recently passed legislation requiring companies drilling in the Marcellus Shale region to pay an impact fee to help fund various state and local government programs but retaining an effective tax rate that's well below what many other major natural-gas producing states require.
Kasich has expressed public support for such impact fees in Ohio, and he is expected to unveil a program to provide funding for local governments to help them manage local impacts from drilling activity. But the person close to the administration said the administration believes hiking severance taxes and cutting income taxes statewide would have a broader potential impact on Ohio's struggling economy.
About 70 percent of Ohio small businesses pay their taxes through the income tax.
By exempting smaller wells, those producing less than 10,000 cubic feet of natural gas annually, the administration expects to spare 90 percent of drillers and focus the tax hike on big producers.
Hydraulic fracturing involves blasting huge amounts of chemically laced water into the earth to force oil and gas deposits from shale.
Big energy companies would pay a 1.5 percent severance tax for the first year of the plan and could apply to extend that rate for a second year if they hadn't yet recouped their start-up costs.
Gary Gudmundson, a spokesman for the Ohio Department of Taxation, said the effective tax rates currently are 3 cents per 1,000 cubic feet of natural gas and 20 cents per barrel of oil, higher because of fees assessed on producers for reclamation projects.
The Service Employees International Union, District 1199, which represents 35,000 health care, social services and public sector workers across Ohio, West Virginia and Kentucky, called for Kasich to take further government cuts - particularly those affecting local governments - off the table in favor of a higher severance tax on oil and gas producers.
"We've tried the cut-and-see approach, and it has not made Ohio's economy stronger compared to other states, and it is unlikely that any further reduction in revenue will have a different outcome," president Becky Williams said in a statement.
U.S. Bureau of Labor Statistics figures released Tuesday found Ohio gained 62,500 jobs from January 2011 to January 2012.
Like the tax proposal, Kasich's intent to implement Jackson's plan for Cleveland schools was facing opposition even before it was formally introduced.
The mayor controls schools through an appointed board. He wants to overhaul failing schools and work closer with high-performing charter schools through a plan that calls for reassigning teachers without regard to seniority.
The Ohio Education Association joined the Ohio Federation of Teachers, which represents Cleveland teachers, on Tuesday to condemn Jackson's plan as a repeat of a collective bargaining overhaul Ohio voters rejected last fall.
The union called it "a renewed effort to scapegoat teachers by attacking collective bargaining rights and silencing classroom professionals."