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Governor, lawmakers to renew fray over Pa. gas tax

| Sunday, Jan. 10, 2016, 9:00 p.m.
File photo from 2015 of an Apex Energy gas drilling site in Penn Township.
File photo from 2015 of an Apex Energy gas drilling site in Penn Township.

Pennsylvania's natural gas industry and lawmakers in Harrisburg are preparing for another battle over a severance tax on production, even before the current state budget is settled.

“It's going to return in a big way as the budget situation remains completely unresolved,” Muhlenberg College political scientist Christopher Borick said about the debate that has lingered since Gov. Tom Wolf campaigned on the promise of a tax in 2014.

“It's a sore point out there for the governor. It's a complicated issue for some of the Republicans in the state. It's not going away.”

Wolf intends to take another shot at imposing the tax when he introduces his next budget package in a speech Feb. 9, said his spokesman, Jeffrey Sheridan.

“Our position on that has not changed,” he said.

Nor has opposition from the industry, which has spent the past year arguing that low prices and a slowdown in drilling make this the wrong time to increase taxes.

“The market dynamics aren't changing anytime quickly,” said David Spigelmyer, president of the North Fayette-based Marcellus Shale Coalition.

A new wrinkle to develop over the past few weeks comes from a Beaver County Republican who described himself as a “very harsh critic” of a severance tax, but he's proposing exactly that.

“It's time to move past this issue. The severance tax is not going to be the panacea that Gov. Wolf wanted,” said Rep. Jim Christiana, who has floated a memo outlining a tax he says would replace the existing per-well impact fee that has raised about $225 million annually for the past few years, a number expected to fall this year.

“It has to be done in a responsible way that is not punitive to the industry,” he said of his bill, which he expects will be introduced this week.

Republicans have lost what Christiana called a “public relations battle” over how the industry is taxed, he said. Wolf and fellow Democrats argue that Pennsylvania, now the No. 2 gas producer in the country, is the only major gas state without a severance tax.

Act 13 of 2012 imposed an impact fee that resulted from a compromise among lawmakers and then-Gov. Tom Corbett. Companies pay annually for each well, and a big piece of that money goes to counties and municipalities that host wells based on several formulas.

A severance — or extraction — tax charges companies based on how much a well produces or the price the gas fetches. Wolf's initial proposals, which he hoped would raise up to $1 billion annually, mostly for public education, did both.

Wolf first proposed a levy of 5 percent of revenue from wells plus 4.7 cents for every thousand cubic feet of gas they produce, with a minimum price floor. Over the months, he dropped the price floor and lowered the tax to 3.5 percent. He also proposed maintaining the impact fee in addition to the tax, which Sheridan said was in response to Republican concerns.

It's unclear what the governor will propose in February.

Led by House Speaker Mike Turzai of Marshall, Republicans who control both chambers of the Legislature have blocked the tax at various stages while several tentative agreements on the larger budget have fallen apart. The position has strained lawmakers whose constituents favor a severance tax, especially in non-Marcellus shale areas in the southeast corner of the state, Borick said.

“It's difficult terrain for some Republicans to continue to not entertain,” he said.

“That's why I thought the messenger was important,” Christiana said. “Someone who has been a harsh critic of the proposals put out so far could put something on the table that's real.”

His plan would start with a 3 percent tax that gives the first $125 million collected to communities. The percentage increases if and when the average price of gas at three major pipeline points in the state rises above certain levels.

Sheridan said, “We look forward to having” a conversation about the proposal, though he noted it does not send money to schools, which he called a priority.

A smaller yield from the impact fee could expedite the conversation. Because low prices prompted a 40 percent decline in drilling last year, some expect the state to collect less this year.

The Public Utility Commission will calculate fees in the next few months.

David Conti is the assistant business editor of the Tribune-Review. Reach him at 412-388-5802 or dconti@tribweb.com.

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