On this week’s Radio PA Roundtable, Governor Tom Wolf announces his plans for a 5% tax on gas drilling; Philadelphia lands a big party in 2016; and Penn State researchers have uncovered some concerning mental health trends among college students nationwide.
Radio PA Roundtable is a 30-minute program featuring in-depth reporting, commentary and analysis on the top news stories of the week.
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Severance tax advocates say legislative inaction is adding up to millions of dollars in lost revenue. In fact, the Pennsylvania Budget & Policy Center’s “Drilling Tax Ticker” crossed the $300-million dollar mark late last month. That’s money that Research Director Mike Wood says could be put to good use. “We’ve been making lots of cuts to teachers in our schools, domestic violence shelters have had to close their doors to new people. This is definitely something that could have helped in a time when revenue is pretty hard to come by.”
The ticker is based on an effective tax rate of roughly 6%, whereas the impact fee proposal being hammered out by GOP negotiators in Harrisburg would more likely be in the one or two percent range. “Most states that have either oil or gas have a severance tax. The major producing states all have such a tax,” Wood tells Radio PA. “Pennsylvania is the only one that doesn’t.”
A Revenue Department analysis, last year, found that natural gas companies had paid more than a billion dollars in taxes since 2006. However, Mike Wood questions that figure because it includes taxes not directly related to drilling activity.
Governor Tom Corbett isn’t fazed when critics point out that Pennsylvania is the largest gas-producing state without a severance tax. He uses the Texas analogy. “They pay a severance tax in Texas, yes they do, but their corporate income tax is considerably lower. So we have to compare apples to apples, not apples to pears.”
While Pennsylvania may not have a severance tax, the governor says they are paying corporate and related taxes. “They’ve paid billions of dollars in taxes, so far, in Pennsylvania directly,” Corbett said on a recent edition of Ask the Governor. “But keep in mind all of their employees, all the companies they purchase goods and services from, they’re all paying taxes also.”
Both Corbett and Senate President Pro Tem Joe Scarnati (R-Jefferson) have expressed a desire to finalize impact fee discussions before next week’s budget address.
Governor Corbett has proposed an impact fee on natural gas wells to be assessed at the county level, but some lawmakers continue to push for a broader fee on gas extraction, with more money going statewide. Two House Republicans, Representatives Tom Murt and Gene DiGirolamo, are calling for a tax of 4.9 percent on the gross value of units of deep gas reserves extracted at the well head.
Representative DiGirolamo (R-Bucks) says their plan would divide the revenue three ways, with 28% of staying at the local level, 28% going to environmental programs and 44% being used for state programs. The plan would dedicate some of the revenue from a severance tax to Drug and Alcohol Treatment and services for adults with special needs.
The Governor’s plan calls for 75% of the money to be spent for impacts at the county and municipal level and 25% to be divided among specific state agencies. Representative Tom Murt (R-Montgomery/Philadelphia), says they agree with the Governor’s position that any tax or fee assist local communities with the cost and impact of drilling. They also propose the revenue make long term investments in natural resources, environmental programs, our economy and our human capital.
Representative DiGirolamo says it’s imperative to support environmental programs around the state and all of Pennsylvania’s residents should benefit from the shale. He believes the bill is a reasonable approach to the issue.
The lawmakers were joined by environmental, labor, Christian advocacy, fair housing, good government and other groups in urging support for a drilling tax. Among them was Jan Jarret, president of PennFuture. She says the bill makes long term investments in environmental restoration and conservation to make sure we have the resources on hand to address problems the industry will bring to the state’s forests, streams and air. She says it also makes sure the resources are there to police the drilling industry.
It’s been three years of discussion and debate, but there’s been no comprehensive action on Marcellus Shale issues in Harrisburg. Now with a series of consensus recommendations from the governor’s Marcellus Shale Advisory Commission in hand, the Pennsylvania Environmental Council (PEC) is calling for a special session this fall. “We feel that there is now no reason not to enact these changes to the Oil and Gas Act,” says John Walliser, the PEC’s vice president for legal and governmental affairs.
The Pennsylvania Environmental Council was represented on the 30-member commission, and participated in the unanimous vote in favor of the 96-recommendations. “If you have the agreement among the different members participating on the report, we think there is every reason to get those enacted as soon as possible,” Walliser says.
State Rep. Bud George
Agreeing with the PEC’s call for a special session is State Rep. Camille “Bud” George (D-Clearfield), the minority chairman of the Environmental Resources and Energy Committee. George says the commission’s recommendations are a good first step, but too vague. “The commission gives us too many feel-good, unspecific generalities,” George said in an interview with Radio PA.
Rep. George has introduced legislation (HB 1800), which combines environmental protections with a Marcellus Shale severance tax. It contains a number of recommendations made by the Marcellus Shale Advisory Commission. “But I make the land and water safeguards stronger,” George says.
George is proposing a volume-based severance tax, which directs revenues toward local governments, environmental programs and infrastructure repair. The bill, dubbed ProtectPA, would tax natural gas companies 30-cents per every 1,000 cubic feet of natural gas severed. It has the support of top House Democrats, but will likely not be considered, because it is a tax.
“I’m not against the gas people, and I mean that from the bottom of my heart,” George says. But, the veteran lawmaker adds that his main concern is protecting Pennsylvania’s water.
Governor Tom Corbett has said he would not sign a severance tax, but has left the door open for an impact fee. The commission’s 137-page report recommends such an impact fee, which would mitigate the impacts caused to local municipalities by natural gas drilling.
The governor’s Marcellus Shale Advisory Commission has voted to recommend it, and the industry even endorses it. “The industry and the Marcellus Shale Coalition has been very clear of its support of an impact fee that’s competitive, that’s styled to address the un-met needs of local governments,” said Marcellus Shale Coalition president Kathryn Klaber.
Klaber stressed that the Marcellus Shale Coalition supports a “competitive” impact fee, citing a new study of the economic impacts of the booming Marcellus Shale industry. “What we’re seeing in this study are some very large numbers in terms of economic activity and tax benefits… and we wouldn’t want to change that mix so much that we’d be thwarting the kind of investment that this study highlights.”
Senate President Pro Tem Joe Scarnati has Already Introduced Impact Fee Legislation
Asked about the prospects of an impact fee on Thursday, Senate President Pro Tem Joe Scarnati (R-Jefferson) said further discussions are needed. “I’m open to ideas, but certainly I want to see as much driven back to where the drilling activities are. Impact fee is certainly an appropriate name for what we’re trying to address here,” Scarnati told reporters. He does acknowledge, however, that it would be difficult to pass an impact fee bill, which doesn’t provide some money for statewide environmental projects.
While the stars appear to be aligning in favor of an impact fee this fall, not everyone is one board. “The local impact fee is too narrowly conceived. There are impacts of natural gas drilling that fall well beyond communities that actually have natural gas wells,” said Sharon Ward, director of the Pennsylvania Budget & Policy Center. Ward supports a broader severance tax, and so do House Democratic leaders. They’re backing a new bill that would tax gas producers 30-cents per 1,000 cubic feet of natural gas severed.
However, Governor Tom Corbett has made it clear that he will not sign a severance tax. He’s previously left the door open for an impact fee – as long as no money is used for the General Fund – but has not commented publicly on the advisory commission’s recommendations. The Marcellus Shale Advisory Commission’s final report is expected to be released on Friday.
Several hundred protesters, representing 13-environmental and related groups, converged on the state capitol Tuesday. “We keep coming back to Harrisburg because [Marcellus Shale] drilling’s been going on in Pennsylvania for almost four years now, and what has our state legislature done? They have done nothing,” said Myron Arnowitt, Pennsylvania state director of Clean Water Action. Arnowitt called for a moratorium on natural gas drilling, until an impact study can be complete. Protesters also called for a Marcellus Shale severance tax. “Poll after poll tells us that the majority of Pennsylvanians want industry to pay their fair share in taxes, and they want clean air and clean water,” said Erika Staaf, PennEnvironment’s clean water advocate.
Senate Democrats talk state budget priorities
The protesters’ chants started filling the state capitol rotunda mere minutes after several member of the Senate Democratic caucus concluded a separate news conference on their state budget priorities. But, there was some overlap in the two events. Senate Democratic leader Jay Costa (D-Allegheny) said natural gas drillers should be a part of the budget solution, not a part of the budget problem. “We believe that the conversation about the Marcellus extraction tax must take place now, must take place as a part of this budget, and must be as comprehensive as possible,” Costa said.
Democrats and Republicans in Harrisburg have come forward, this session, with a variety of Marcellus Shale severance tax and/or impact fee proposals. Governor Tom Corbett made a no tax pledge during the 2010 campaign, but has left the door open for a local impact fee, as long as no revenue goes to pad state coffers. Corbett’s Marcellus Shale Advisory Commission has meetings scheduled through July 15th. Their recommendations are due at the end of July, however the state budget deadline is June 30th.
A new study from Penn State’s Institute for Research in Training & Development treated the Marcellus Shale severance tax and impact fee proposals as added production costs to the gas producers. Professor David Passmore says the four proposals they considered differed based on how they handle exemptions, and how high the tax rate is over time.
“I think what’s important here, even though there’s variation in the impact, the impact of any of these would be relatively small compared to the size of the Pennsylvania economy,” Passmore says. For example, he points to the potential impact on employment. He says the highest tax year proposal would have an impact of about 3,200-jobs. “Now this is at a time when we’re talking about 7.5-million project jobs.”
When projecting the impact on gross state product, the four proposals range from a ten million dollar hit (using State Rep. Kate Harper’s HB 1406) to a $272-million dollar hit on GSP (using State Rep. Greg Vitali’s HB 33). Those numbers are mere fractions of a percent of Pennsylvania’s projected $598-billion dollar gross state product in 2015.
While the overall economic impact of the plans is small, professor Rose Baker points out the impact could be significant to a small company or to an individual who doesn’t land a job because of them. Passmore and Baker hope their numbers are considered in relation to the decisions policymakers must make in terms of imposing a tax or a fee on the Marcellus Shale industry. “We need to begin working together with the industry to reap some of these benefits that are flowing in, and kind of get past the tax question,” Passmore says.
In addition to the Vitali and Harper plans, which were referenced earlier, Passmore and Baker studied Senate President Pro Tem Joe Scarnati’s SB 1100 and Senator John Yudichak’s SB 905). State Rep. Greg Vitali (D-Delaware) will attempt to force a State House vote on his legislation on Tuesday, according to a statement. Vitali says Pennsylvania is the only natural gas-producing state that does not have a drilling tax or fee.