Gov. Rendell declares shale gas tax dead

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HARRISBURG -- For the foreseeable future, Pennsylvania will retain its dubious distinction as the only state with underground shale that doesn't impose a natural gas extraction tax.

An unhappy Gov. Ed Rendell admitted Thursday that despite weeks of talks, he and General Assembly leaders have failed to agree on key details of a gas severance tax, including how high the rate should be and how the $100 million or more in annual revenue from such a levy should be divvied up.

Democrat Rendell has had been pushing for enactment of a shale-gas tax since his 2010-11 state budget speech in February, but now says it "clearly is dead this year" -- and for a lot longer if Republican Tom Corbett is elected governor on Nov. 2, because he opposes such a tax.

"The refusal of Senate and House Republicans to negotiate in good faith on terms of a promised natural gas severance tax has killed the effort to enact it into law this year," Mr. Rendell said.

Republicans are irresponsible, he claimed "for refusing to compromise and simply turning their backs on these negotiations.

"They signed a pledge to the people of Pennsylvania to enact a tax that requires drilling companies to pay their fair share for removing our state's natural resources from the ground, and now they are walking away from that commitment."

Legislative Republicans, in turn, put the blame back on Mr. Rendell and House Democrats. Senate President Pro Tem Joe Scarnati said he and other Senate GOP leaders had worked hard this summer and fall to find a compromise, but Mr. Rendell himself got involved only in the last few days.

Senate GOP spokesman Erik Arneson said his caucus was "surprised by the governor's unilateral decision" to end the shale-gas talks and said Mr. Rendell should reconsider. But the governor said Republicans have been unyielding, so further talks wouldn't work.

"It's obvious they have killed the severance tax in this legislative session," Mr. Rendell said.

Environmental groups such as Penn Future and the Sierra Club were angry, because some of the gas-tax revenue would be used to protect the environment from drilling-related damage.

Penn Future President Jan Jarrett assailed Senate GOP leaders for the failure to work out a deal., claiming they "stalled, delayed and threw up absurd excuses while claiming they wanted to pass a tax. They refused to take action and then left Harrisburg. Their promise to the people of Pennsylvania was worthless. There is no excuse for this failure."

But Kathryn Klaber, president of the Marcellus Shale Coalition, a group of large gas producers, said Senate leaders "deserve credit for their months of work." in trying to fashion "a competitive, well-balance package" of regulations so Pennsylvania can be a leader in shale gas production.

About 30 other states, including well-known energy states like Texas, Oklahoma and Louisiana, impose some level of tax on natural gas. Besides Pennsylvania, the only other shale state without a shale gas tax is New York, but it has imposed a moratorium on drilling.

The current General Assembly session ends Nov. 30, and a new two-year session opens in January. But if Republican Corbett is the new governor, there may never been an extraction tax, since he strongly opposes the idea. Democrat Dan Onorato said he will push for a tax but hasn't said what tax rate he would seek.

Some critics have linked legislators' inaction on a tax -- or their outright opposition -- to the hefty political contributions some state officials are getting from gas-drilling companies. According to a Common Cause/Pennsylvania compilation (available online at Marcellusmoney.org), Mr. Corbett is the largest recipient by far, at over $700,000. Mr. Scarnati is second, at $143,000. Mr. Rendell and Mr. Onorato are third and fourth.

"Pennsylvanians know that the drillers have spent millions in campaign contributions and high-powered lobbyists to achieve this [death of the tax]," Ms. Jarrett said.

But legislators from parts of the state where Marcellus Shale is located -- the western and northern-tier sections -- said the gas drilling is a long-awaited economic bonanza and fear that a tax would drive gas companies to other states, costing Pennsylvania jobs and land-leasing revenue.

For weeks, House Democrats and Senate Republicans have been pointing fingers at each other over their inability to agree on a severance tax. The House noted that it had approved a shale gas tax in late September, but the Senate went home without acting on it.

But Republican senators said the House had delayed its action until just a day before Oct. 1, the self-imposed deadline that state officials had given themselves for enacting a severance tax, and even then had sent a legally flawed bill over to the Senate.

That bill was a measure previously passed by the Senate, with the language completely changed to include a tax of 39 cents per thousand cubic feet (MCF) of gas pumped from underground areas of Marcellus Shale. But Republicans said that under the state constitution, all revenue-related bills must originate in the House, not the Senate, so the bill would have fallen in a court challenge.

They also said that 39 cents per MCF rate was far too high. Senate Republicans proposed a 1.5 percent tax on the value of the gas at the wellhead for the first five years, rising to 5 percent after that.

Mr. Rendell had proposed a 3 percent tax the first year, 4 percent the second year and 5 percent a year thereafter, but not enough legislators supported it.

The two parties also clashed over how to spend the tax revenue. Mr. Rendell wanted to use $70 million to balance the state's $28 billion budget, but the GOP didn't think the revenue should go for "bureaucratic" spending. Democrats said the failure to enact a tax leaves a $70 million hole in the current budget, which may have to be made up through layoffs.

Some Republicans said the shale tax revenue should go just for repairing environmental damage done by gas-drilling operations or damage to municipal roads caused by drilling equipment.


Bureau Chief Tom Barnes: tbarnes@post-gazette.com or 1-717-787-4254.


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