Severance tax on shale gas still in Wolf's budget

| Wednesday, Feb. 10, 2016, 11:00 p.m.

The structure of Gov. Tom Wolf's latest attempt to increase taxes on shale gas production might open the door to consideration by Republican lawmakers, a key GOP critic said Wednesday, though industry leaders remain dead-set against the move.

The proposed budget that Wolf announced this week contains a 6.5 percent severance tax on the value of natural gas from wells but would allow drillers to reduce what they pay through a credit for the per-well impact fees they're already paying. That's a change from his failed attempt last year to impose a tax of 5 percent plus a separate fee of 4.7 cents per thousand cubic feet of gas each well produces.

Because of the low prices producers are getting for gas in Pennsylvania — which are averaging $1.23 per thousand cubic feet — the per-well impact fee equates to an effective tax rate close to what the Democratic governor is proposing to impose.

“At first blush, it appears his proposal would not raise any revenue ... at least at this point in time with depressed gas prices,” said Rep. John Maher, an Upper St. Clair Republican who chairs the House Environmental Resources and Energy Committee and has been critical of severance taxes. His committee this week discussed several severance tax proposals, including some floated by Republicans.

“If his intention is to introduce a tax that has a long-term horizon looking at when and if the industry is healthy again, that's a move in the right direction,” Maher said.

“But if the intention is to further burden the industry, that would not find much support.”

Wolf's office said it expects the tax to collect $217.8 million on top of an estimated $133.1 million in impact fees next fiscal year and would use the money to support public schools.

Republican leaders have fought efforts to impose the tax, though a few lawmakers from the party have started floating proposals.

No matter the figure Wolf or lawmakers said they would raise, industry leaders said they would fight it. The heads of the Marcellus Shale Coalition, Associated Petroleum Industries-Pennsylvania and the Pennsylvania Independent Oil and Gas Association on Wednesday reiterated their view that higher taxes threaten to further diminish an industry that has cut back spending, laid off workers and reduced drilling last year by 40 percent.

“The severance tax on natural gas production in Pennsylvania was a bad idea when the governor proposed it last year, and it's a bad idea now,” said API-PA director Stephanie Catarino Wissman.

Wolf has argued since his election in 2014 that the industry is not paying its share, dismissing the $225 million collected from the impact fee annually in favor of hundreds of millions more he hoped a severance tax would raise for education. Much of the impact fee goes to counties and communities that host shale wells.

The industry group leaders blamed recent business cuts and job losses on a combination of a supply glut, a lack of pipelines, increased regulations and the threat of more taxes.

“We have thousands and thousands of Pennsylvania supply chain companies that have had to really tighten their belt as a result of the lack of investments,” said Dave Spigelmyer, president of the North Fayette-based Marcellus Shale Coalition.

Maher said the unresolved nature of multiple severance tax proposals creates uncertainty among business leaders that could end with a tax that doesn't punish a struggling industry.

“This question needs to be resolved,” he said.

The industry group leaders rejected that.

“I believe we're having a debate over doing a severance tax for the sake of doing a severance tax,” Spigelmyer said.

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

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