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Wolf Fires Back at Oil/Gas Industry in Defense of Severance Tax Proposal

In a strongly worded rebuttal, Democratic Gov. Tom Wolf on Monday lashed out at the Pennsylvania Chamber of Business and Industry for its role in opposing his severance tax proposal on oil and natural gas production in the state, calling the group's stance "unacceptable" and accusing it of appeasing special interests.

In a letter addressed to the group's president, Gene Barr, Wolf said he was "letting down our commonwealth" by aligning with the oil and gas industry in opposition to Wolf's 5% severance tax proposal (see Shale Daily, Feb. 11). The correspondence came in reply to an earlier letter the chamber had sent to the governor and state legislators imploring them to reconsider and act against the proposal. That letter was also signed by a coalition of business, industry and consumer interest groups, including the state's leading oil and gas trade organizations.

Wolf, who helped transform his family business into one of the nation's largest suppliers of kitchen cabinets and specialty building products, and who once served as a member of the chamber's board, questioned Barr's commitment to the state's interests. He repeatedly asked why Barr wasn't helping the governor’s administration on a number of shared policy priorities.

"Instead of working together to achieve our shared goals, you have chosen to side with corporate special interests who simply seek to oppose progress and real economic development," Wolf said. "The facts you outlined in your letter are simply talking points from the oil and gas drillers. It is bogus rhetoric, and it does nothing to change Pennsylvania, fix our schools, or create jobs."

The letter was one of Wolf's first public defenses that specifically addressed the oil and gas industry's push against a cornerstone of his budget. In February, he proposed taxing oil and natural gas production at a rate of 5% based on its market value in addition to a 4.7 cent/Mcf volumetric fee. The proposal would also establish a minimum floor of $2.97/Mcf to better insulate state revenue from price swings.

The industry has fought back ever since (see Shale Daily, May 12; Dec. 17, 2014). In its letter to Wolf and lawmakers, the coalition said a new tax would threaten the state's economic recovery, jeopardize low consumer energy prices and hurt state tax collections and landowner royalty payments. Instead, the coalition asked leaders to strongly consider long-running cost-drivers, such as a nearly $50 billion unfunded liability for the state's pension system.

Barr said Pennsylvania simply “cannot afford to lose our competitive advantage in the shale play,” given what it’s done for the state’s economy in recent years.

The coalition also disparaged Wolf's proposal by saying it was unclear how new revenue from the severance tax would be spent and said it was important that the state's impact fee, which charges a flat rate for each well drilled in the state for distribution to local communities and state agencies, be preserved (see Shale Daily, April 4, 2014).

Wolf has said the severance tax could generate up to $1 billion in its first full year, which if it is adopted would start July 1, 2016. The "lion's share," he has said, would go toward public education.

In his letter to Barr, Wolf said, "we cannot keep doing the same thing and expecting different results in Pennsylvania," adding that "now is the time to do big things in Pennsylvania." He said 80% of the severance tax would be paid by out-of-state operators that "despite false claims to the contrary...remain strongly profitable," adding that the value of natural gas produced in the state went from $4 billion in 2011 to $11 billion in 2014.

Budget negotiations are ongoing at the state capitol. By law, state lawmakers must pass a budget by July 1.

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