Is a natural gas severance tax ahead?
Since Democrat Gov. Ed Rendell's second term, Democrat legislators have been railing about the need for a severance tax on natural gas drilling. The revenue from that imagined tax has been spent hundreds of times over in debate — solving virtually every major problem facing the commonwealth.
Rendell called it a “wildly popular tax” and indeed polls have shown people don't mind nicking drillers who are making billions.
But in reality the tax proposal was going nowhere. A Republican-controlled Legislature — even when some GOP lawmakers agreed on a modest, reasonable tax — was not about to give Rendell more revenue to squander. At least that's the way they saw it.
When Republican Tom Corbett became governor in 2011, a severance tax was off limits. His position was that a severance tax would not help attract new drilling and jobs and would drive some companies out. Only when it became clear that even many Republicans thought a tax was necessary to at least cover costs of municipalities affected by drilling did Corbett seem receptive. A so-called “impact fee” emerged with most of the money covering drilling fallout and about $4 of every $10 raised paying for statewide environmental projects. It was called a fee rather than a tax in part because Corbett signed a no-tax pledge while running for governor.
The impact fee was part of Act 13, which also attempted to provide “uniformity” for Marcellus shale drillers by allowing state regulations to supersede local zoning ordinances. Those provisions were overturned by the state Supreme Court in December. Last month, the court refused arguments by the Corbett administration to reconsider. The high court directed Commonwealth Court to decide whether the impact fee can still be levied.
It's not clear what will ultimately happen to the fee/tax. It could be overturned.
Meanwhile, the seven Democrats running for governor support a higher severance tax. Frequent references are made to other drilling states with high taxes, like Texas (forgetting to mention Texas has no corporate net income tax; Pennsylvania's tax is one of the highest in the world). I've heard repeatedly, however, that drillers expect to be taxed and most would not oppose a reasonable tax.
If the fee is overturned, watch for a flurry of legislative activity to pass an extraction tax. GOP legislative leaders might not be able to hold back amendments to pass a tax with a capital “T.” That could place Corbett in the difficult position of vetoing such a tax in an election year as opponents talk about him passing up hundreds of millions more in revenue.
Another scenario, if polls are to be believed, is Corbett will not win re-election.
Even if the Legislature remains in Republican control, a new Democrat governor who campaigned on taxing drilling companies would not likely be turned down. The Democrat candidates have specified uses, such as education. Some say a portion of any tax should still cover local impact costs.
Brad Bumsted is Trib Total Media's state Capitol reporter (717-787-1405 and email@example.com).