Taxing natural gas is a political football in Pennsylvania
Joshua Knicely stands at the podium Jan. 20 as a proponent of shale drilling as residents gather for a public hearing on proposed ordinances affecting Marcellus Shale drilling in Mount Pleasant Township. Mr. Knicely is an employee of Red Oak Water Transfer, a business that could benefit economically from its use by shale drilling companies.
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HARRISBURG -- Let's say you're a gambler on a losing streak and you're a whopping $4 billion in the hole. But things have started turning around, and a few hot hands have brought you $300 million or so.
Then you stun the other players by just quitting the game and leaving all that cash on the table.
Some critics say that's exactly what state officials are doing by not passing a severance tax on the huge amount of natural gas being pumped from the Marcellus Shale deep underground in much of the state. Unlike 30 other states, Pennsylvania doesn't have a tax on extracting that particular nonrenewable energy source.
"For us to be the only state that doesn't tax shale gas makes no sense," said Rep. Dan Frankel, D-Squirrel Hill. "Eliminating that important revenue option from the upcoming budget is irresponsible."
Sharon Ward of the Pennsylvania Budget and Policy Center, a liberal group, views a severance tax as "no different than the sales tax or any other tax that the state levies to pay for basic services such as schools, public safety and Medicaid."
Gov. Tom Corbett acknowledges the state faces a deficit of about $4 billion for the 2011-12 budget, which starts July 1, and he'll unveil his spending and taxing plan on March 8. To erase the large deficit, he is expected to call for major spending cuts in many programs -- but no severance tax or any other new tax.
His pledge of no new taxes was a major reason for his victory in November. Asked last week if the governor has changed his mind on taxes, spokesman Kevin Harley said flatly, "The answer is no."
Shale drillers already pay a number of levies. The state now gets up to $13 million a year from fees on drilling permits, said former state Environmental Secretary John Hanger, who favors an extraction tax. During his tenure from 2008-10, the permit fee cost (after being unchanged for years) rose from a flat $100 to a range of $5,000 to $10,000 each, depending on how deep a well is. That money was used to increase state well inspectors from 88 to 202.
The state also leases 700,000 acres of state forestland for drilling -- about half of the forestland within the Marcellus footprint. That leasing has produced $525 million for the general fund over the last three years, said former Conservation and Natural Resources Secretary John Quigley. Gas royalties collected by the state bring in another $30 million or so per year.
Mr. Corbett is likely to lift a moratorium on further forest leasing that then-Gov. Ed Rendell imposed last year. That would increase the lease payments to the state, but critics fear it could hurt sensitive forest land.
Mr. Harley said drilling companies also pay corporate taxes and their employees pay income taxes to the state. Drilling companies have added hundreds of jobs in the past three years, many in rural areas where jobs have been few, and more hiring is expected as more wells are drilled.
While a severance tax seems dead, the millions such a levy could raise might take on a new appeal if Mr. Corbett proposes huge program cuts and layoffs March 8. But House Democrats, along with environmentalists and a handful of Republicans, aren't waiting for Mr. Corbett's budget message.
Rep. Greg Vitali, D-Delaware County, and others are pushing a two-part severance tax: 5 percent on the gross sale price of each 1,000 cubic feet (mcf) of gas, plus a second levy of 4.6 cents per mcf. The first tax would fluctuate with the market price of gas, while the second charge would be constant. It's akin to an extraction tax in West Virginia.
Mr. Vitali estimates his tax would generate $245 million this year, $320 million in 2012, $400 million in 2013 and more in later years. The Vitali plan is a variant of one proposed in 2010 by then-Rep. David Levdansky. D-Forward. He proposed a tax of about 35 cents per mcf, which he thought would bring in nearly $300 million a year.
Last year, discussion was held concerning a tax like the one in Arkansas -- 1.5 percent per mcf -- which some Senate Republicans, including President Pro Tem Joe Scarnati of Jefferson, supported.
But Mr. Rendell, a Democrat, couldn't reach a tax agreement with legislators. Republicans couldn't agree on a rate and didn't like Mr. Rendell's plan to sock some severance tax revenue into the state's general fund.
Mr. Scarnati now favors a "local impact fee" on shale gas, meaning money for municipalities and counties where gas drilling is going on. Details must be worked out, such as: What would the money be used for -- just roads, or other local costs? Would towns that abut towns with drilling rigs also get some money? Would some of the fees go for state environmental programs?
Some critics wonder if the reason state officials are reluctant to enact a severance tax is related to campaign contributions that have flowed from the powerful gas drilling companies
Critics say that with more than $900,000, Mr. Corbett easily led all other politicians last year in gas industry political contributions. Mr. Scarnati also was high on that list, at $117,000.
These suspicions have grown stronger in light of the recent disclosure that Mr. Scarnati and Sen. Tim Solobay, D-Canonsburg, had their trips to the Super Bowl paid for by Consol Energy. Both Mr. Solobay and Scarnati aide Drew Crompton said there is "absolutely not" any connection between the Super Bowl trip (for which they are reimbursing Consol) and their stand on a tax.
Mr. Crompton noted his boss supported a 1.5 percent severance tax last year and now supports a local impact fee to help affected communities.
Special interests "don't do these things without expecting something in return. Anyone who says otherwise is trying to fool people,'' said Tim Potts of Democracy Rising PA, a government watchdog group.
First Published February 27, 2011 12:00 am