Pennsylvania Budget

Plan Would Mark Significant Compromise on Severance Tax

In the waning days of the 2009-10 legislative session in Harrisburg, lawmakers are negotiating the contours of a severance tax on natural gas production in the Marcellus Shale.

On Tuesday, Governor Ed Rendell and House Speaker Keith McCall laid out a plan they had proposed to Senate Republican negotiators. It is a significant compromise that would reduce revenue for health care, education, local governments, and environmental cleanup by 40% from the plan the Governor earlier proposed.

Still, Senate GOP negotiators rejected the compromise and have refused to budge from a plan that generates one-quarter of the dollars that the Governor’s plan would raise.

The compromise plan would phase in the severance tax rate at 3% in the first year, 4% in the second year and the full 5% by year three. It would preserve an exemption for low-producing wells - those producing less than 60 thousand cubic feet (MCF) per day.

Tall Tales About Deep Wells: Setting the Record Straight about a Pennsylvania Severance Tax

As Pennsylvania lawmakers debate the structure of a severance tax on natural gas extracted from the Marcellus Shale formation, the Pennsylvania Budget and Policy Center has been busy educating lawmakers and the public on how to shape a tax that is fair to all Pennsylvanians.

A key part of that effort is a series of brief reports we're calling "Tall Tales About Deep Wells." You can check out the first two parts in the series here and check back often as we continue to set the record straight about the impact of a severance tax.

Shaping a Marcellus Shale Tax that is Fair to Pennsylvanians

State lawmakers will return to Harrisburg in a few weeks and one of the major policy issues on their fall agenda is the passage of a severance tax on natural gas extracted from the Marcellus Shale formation.

In a new report, the Pennsylvania Budget and Policy Center (PBPC) makes several recommendations to ensure that lawmakers enact a severance tax that fairly compensates residents for the removal of this nonrenewable resource. The recommendations include:

  • Setting a reasonable tax rate that is comparable to West Virginia's rate in order to remove any incentive or disincentive for drilling in one state or the other;
  • Limiting unnecessary loopholes and deductions, including a tax break for the recovery of capital investments and an exemption for low-producing wells; and

Corporate Collections Fall in March, Bringing Revenue Shortfall to $720 million

Senator Calls for More Cuts: Read about the best course for addressing Pennsylvania's continued revenue shortfall.

Revenue Tracker

April 2, 2010

In an important month for corporate tax payments, General Fund collections in March 2010 fell short of estimate by $243 million, or 5.9%. More than half of this shortfall is attributable to lower than expected electrical utility payments. This pushes the revenue shortfall for the fiscal year to $720 million, or 3.5%.

Natural Gas Drilling: Rendell caved on the Severance Tax; Rep. George and Rep. McCall are still in it to win it

I woke up Monday morning to hear on WHYY that Governor Rendell had abandoned the idea of imposing a tax on the extraction of natural gas from our state's massive but deeply buried reserves of natural gas. If he'd given a better explanation for his decision, I might be able to keep quiet about it, but the reason he said we shouldn't do it because it would kill a fledgling industry. Hogwash. Everywhere else the industry operates has a severance tax already and we've got more gas here than all of them combined (well, okay, we have the most, hands down -- no one knows exactly).

Besides, it's not a new industry at all. It's the same rigs, same teams, same operations already operating in Texas and Wyoming and Colorado. Moving to a new state doesn't make it a new industry. In fact, moving those rigs around to tap new gas plays is just how the business works. They already know how to do it. That's the essence of what they do.

So, the Inquirer did an editorial today spelling this out with numbers. Why, they ask, should we believe that a modest tax would quash this operation when the revenue forecast of the main players are so rosy? It seems like there is plenty of money there.

Some context the Inquirer didn't mention. Did you know that we don't tax the extraction of any natural resource from our state? Not coal. Not gas. Not wood. Not freaking gravel. Why? Because the coal industry is so powerful here that they have time to argue about any severance tax because they believe that as soon as one resource gets taxed that would take us that much closer to taxing coal. And they don't want that to be taxed ever. So they fight them all.


But we had a Governor who had said he would back taxing gas and Democrats who said they would, too. We had that, but now we don't anymore. It's too bad. Fortunately, the House Dems seem to be standing pat on Severance Tax, and that's the right call. Rep. George told PA Environmental Digest that he's standing firm on the Severance Tax and that Speaker McCall is with him.
Clean Water Action Pennsylvania

believes that the severance tax is so important that we canvassed part of McCall's district on it recently and delivered a stack of letters to him from locals who agreed: tax the shale and make it pay for environmental protection.

In fact, we specifically argue that a piece of the tax should be used for hiring and training enough DEP inspectors that one can be on site for each well bore at the stage of siting, drilling, cementing, stimulating and the closing of waste pits.

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