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Pennsylvania Lawmakers Get to Work on Myriad NatGas/Oil Severance Tax Proposals

The Pennsylvania Senate is scheduled to hold a joint Environmental Resources and Energy and Finance Committee hearing on Monday that will feature a spate of testimony from those on both sides of the debate about enacting an oil and natural gas severance tax on producers in the state.

The committees will gather to hear testimony on several severance tax proposals, including one from Democratic Gov. Tom Wolf, who made the issue a hallmark of his campaign last year (see Shale Daily, Jan. 16; May 21, 2014). Wolf has proposed a 5% flat rate multiplied by the market value of gas in addition to a 4.7 cent/Mcf volumetric fee to protect state revenue from price swings (see Shale Daily, Feb. 11). His proposal has engendered a series of estimates on how the rate could go higher under his plan, with pundits suggesting effective rates of anywhere from 7-35% depending on market conditions.

But there are also five other severance tax bills pending in the Senate for the committees to consider, ranging from 4-8% rates (see Shale Daily, Feb. 6). Three of those bills were introduced by Democrats, while  two were introduced by Republicans from the southeast part of the state removed from the hotbeds of Marcellus Shale drilling in the northeast and southwest. Most of the bills, similar to Wolf's proposal, would dedicate more money to education and the environment.

The general assembly is entering the home stretch of budget negotiations, with state law requiring that a budget be passed by July 1. Yet there's been little substantive legislative action on the severance tax proposals as lawmakers have been in ongoing discussions, parsing various aspects of the state budget in working groups (seeShale Daily, May 12).

Among those scheduled to testify at Monday's hearing are state Department of Revenue Secretary Eileen McNulty, Director of the Independent Fiscal Office Matthew Knittel and the Pennsylvania Chamber of Business and Industry CEO Gene Barr. The Pennsylvania Independent Oil and Gas Association, the Marcellus Shale Coalition and the Pennsylvania Grade Crude Coalition are also scheduled to testify.

For years now, both Republican- and Democratic- controlled legislatures in the state have failed to agree on the severance tax, choosing instead to pass an impact fee in 2012, which charges a flat rate for each well in the state regardless of production (see Shale Daily, Jan. 28, 2014; Feb. 15, 2012). Since Wolf made his proposal, the industry has been fighting back with ad campaigns, studies, conference calls with reporters, editorials in newspapers across the state and email blitzes, among other tactics (see Shale Daily, Dec. 17, 2014).

Republicans in both chambers have already voted on their own revenue-generating initiatives, such as overhauling the state pension system and privatizing the state's liquor stores, rather than focusing on passing a severance tax. Republican Speaker of the House of Representatives Mike Turzai also recently launched a series of forums featuring various Republican lawmakers and regional energy leaders to highlight policies aimed at growing the oil and gas industry in the state rather than taxing it.

"In our budget discussions, the biggest question we need to answer is whether we are interested in growing government and taxes or growing jobs and the economy," he said.

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