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Scaled-down shale tax in Pa. could spur deal on pensions, liquor privatization

| Tuesday, June 23, 2015, 12:57 p.m.
House Speaker Mike Turzai, R-Marshall, addresses a rally against Gov. Tom Wolf's proposed tax on natural gas extraction from the Marcellus shale on Tuesday, June 23, 2015.
Brad Bumsted | Trib Total Media
House Speaker Mike Turzai, R-Marshall, addresses a rally against Gov. Tom Wolf's proposed tax on natural gas extraction from the Marcellus shale on Tuesday, June 23, 2015.
Dawn Hawkins ( right, holding a sign) joins protesters in shouting refrains to disrupt an anti-shale tax rally at the state Capitol on Tuesday, June 23, 2015. The Philadelphia woman supports Gov. Tom Wolf's proposed tax to fund education.
Brad Bumsted | Trib Total Media
Dawn Hawkins ( right, holding a sign) joins protesters in shouting refrains to disrupt an anti-shale tax rally at the state Capitol on Tuesday, June 23, 2015. The Philadelphia woman supports Gov. Tom Wolf's proposed tax to fund education.
Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, speaks at a rally Tuesday, June 23, 2015, against taxing shale gas in Pennsylvania.
Brad Bumsted | Trib Total Media
Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, speaks at a rally Tuesday, June 23, 2015, against taxing shale gas in Pennsylvania.

HARRISBURG — With potential for government gridlock growing, lobbyists and lawmakers see a scaled-down version of Gov. Tom Wolf's proposed 5 percent natural gas severance tax as the way to reach a deal on pension and liquor reforms sought by Republicans.

“It has to be,” said Rep. Michael O'Brien, D-Philadelphia. It's a “pain-free” way to raise money for a strapped budget and for public schools, he said.

“It may be part of the political compromise needed to meet in the middle,” said Matthew Brouillette, president of the libertarian-leaning Commonwealth Foundation.

But any compromise between the Democratic governor and GOP legislative leaders appears a long way off.

Republicans insist on legislation to curb the cost of public pensions and to privatize the state-controlled liquor system, ideas the governor opposes. Wolf campaigned for a Marcellus shale-gas severance tax to restore $1 billion he claims was cut in education funding during the previous administration.

The issues are central to a state budget due by June 30, with an impending $1.2 billion deficit.

Wolf proposed a $30 billion-plus budget in March, though lawmakers haven't agreed to an amount for the next fiscal year.

“The war of words seems to be getting a little worse,” said J. Wesley Leckrone, political science professor at Widener University in Chester. “You can think about, logically, how (a compromise) will occur, but who knows?”

Businesses from across the state rallied at the Capitol on Tuesday to oppose a severance tax. Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, said higher energy taxes “will stunt our economic growth and jeopardize the success of our state's fastest-growing industry.”

The natural gas industry has employed more than 240,000 people in direct and spin-off jobs since 2008, according to the chamber.

Protestors interrupted the rally, chanting “Tax the shale!” and “Fund our schools!”

Dawn Hawkins, a Philadelphia parent, said she believes lawmakers ultimately will approve an extraction tax.

“Oh yeah,” she said later. It will happen because of “power of the people.”

House Speaker Mike Turzai, R-Marshall, a severance tax opponent, said it won't be a trade-off in negotiations.

“We are not trading issues, with respect to a severance tax ... for things the public is getting behind, because they know we need to move into the 21st century,” Turzai said Monday. Pennsylvania and Utah are the only states controlling wholesale and retail sales of wine and liquor.

But Wolf spokesman Jeffrey Sheridan said Republican leaders “have to be willing to talk about a severance tax and education funding, and so far they've been unwilling to do that.”

Former Gov. Ed Rendell, a Democrat, said Republicans should approve a severance tax as part of a compromise.

“To convince the Republicans to do this, Wolf must agree to help them make progress on their two most important initiatives — pension reform and changes in the way Pennsylvania distributes liquor, wine and beer,” Rendell wrote in an opinion piece for PennLive.com. He could not be reached.

“The Senate Republicans have a proposal based on defined contributions and the governor talked about replenishing the system via a bond issue. Both ideas have some merit, and I believe they should reach an agreement on pension reform that includes some ideas put forth by each side,” Rendell wrote. “Pennsylvanians overwhelmingly favor getting the state out of the business of selling liquor, but no one wants to tell state store workers that they are out of a job.”

David Patti, president and CEO of the Pennsylvania Business Council, said businesses must remain “vigilant” because a reduced severance tax proposal might be part of a final deal.

The structure of Wolf's tax proposal includes several features that observers say could be bargaining chips.

Wolf's office included a minimum price of $2.97 per thousand cubic feet at which a 5 percent severance tax would be charged but said it would consider lowering that floor. The Marcellus Shale Coalition said the average sale price of natural gas in Pennsylvania is about $1.29.

Wolf included a fee of 4.7 cents per thousand cubic feet that his office could remove to appease opponents. He could lower the tax rate to 4 percent or 3 percent.

Losing any of those features would move Wolf further away from the $1 billion he seeks for school funding and to pay for environmental programs and maintain the hundreds of millions of dollars going to counties and towns hosting wells.

Critics say he will miss that mark. The shale coalition says raising $1 billion at today's gas prices would require an effective tax rate of 18 percent. Wolf maintains the tax at his proposed rate will bring in $1 billion the first full year.

Brad Bumsted is Trib Total Media's state Capitol reporter. He can be reached at 717-787-1405 or bbumsted@tribweb.com. Staff writer David Conti contributed to this report.

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