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PA Governor Touts Budget Progress, No Talk of Gas Severance Tax

It appears a resolution to Pennsylvania’s months-long budget impasse is in sight, and so far it doesn’t include a new severance tax on the state’s natural gas industry.

Multiple Pennsylvania news outlets reported late Monday and early Tuesday that Democratic Gov. Tom Wolf and Republicans in the Pennsylvania General Assembly had agreed on the framework for a deal that could end a stalemate that has pushed the state four months past its deadline to adopt a budget.

Though no deal had been reached as of Tuesday afternoon, all indications were that Wolf’s original proposal to impose a natural gas severance tax -- which has been staunchly opposed by trade groups and Republican lawmakers -- is not under consideration.

“As things stand today, the Marcellus tax is off the table completely and not a part of budget negotiations,” said Jay Ostrich, a spokesman for Republican House Speaker Mike Turzai.

Mike Herzing, a spokesman for the Democratic caucus in Pennsylvania’s General Assembly, said the two parties have been working from a “very, very broad framework” of what a budget deal might look like. As of Monday, Herzing said, a natural gas severance tax “was not part of the framework being discussed in all four caucuses,” though he noted that “things could drop off and still be added.”

Both Herzing and Ostrich characterized negotiations as far from complete.

Ostrich, who called the severance tax proposal a “de facto moratorium on the industry,” said proponents of the tax now appear willing to concede that it is “probably not going to happen and are looking for revenues elsewhere.”

“We have seen very positive signs from the administration that they’re willing to really get down to brass tacks and iron out the details, but as we know, the devil is in the details, and we’re still in that devilish area,” Ostrich said.

“By no means are we spiking the football or taking a victory lap. There’s a lot of work to be done left. We will be working diligently in the next two weeks to try to work something out, but certainly, at least from the speaker’s standpoint, the severance tax is a nonstarter, continues to be a nonstarter.”

Multiple news outlets reported on terms of the agreement so far, which centers around increases in education funding and an increase in the state sales tax weighed against a decrease in property taxes.

Wolf’s office did not immediately respond to a pair of inquiries Tuesday, but in a statement posted to his campaign website Monday, Wolf touted having “secured a commitment from GOP leaders for a historic investment in public education.

“After months of obstruction, we’ve made real progress on a budget deal and for the first time I’m optimistic we can see the light at the end of the tunnel,” Wolf wrote.

The statement made no mention of the severance tax Wolf had originally proposed to help pay for increases in education funding.

Earlier this year, Wolf outlined a plan to tax natural gas production at 5% of the market price with a 4.7 cent/Mcf volumetric fee (see Shale Daily, Feb. 11). Pennsylvania currently imposes a flat impact fee charged on all wells drilled in the state, which has generated roughly $200 million/year since its inception in 2012 (see Shale Daily, Feb. 15, 2012).

Wolf has argued that his severance tax proposal would bring Pennsylvania in line with how other states tax their extractive industries.

“We sit on one of the largest natural gas deposits in the world. We have the natural resources to actually do something about the problem here,” Wolf said in February. “A severance tax on that resource would be something that’s really appropriate. How radical would that be? Well, Texas does it; Oklahoma does it; North Dakota does it; Alaska, Louisiana, they do it, and West Virginia does it.”

Debate over Wolf’s severance tax proposal has been a key sticking point during budget talks. This summer, Wolf vetoed a Republican budget that did not include a severance tax (see Shale Daily, July 1).

Wolf has estimated that his severance tax proposal would generate up to $1 billion in its first year, but critics have said it would generate much less.

“We believe that they have finally seen that the numbers that they had promised simply weren’t there,” Ostrich said. “They had proposed that they were going to be able to raise $1 billion taxing the industry, and they realized that the current pressures faced by the industry, the downward pressures faced by the industry, along with the current pricing certainly brings them nowhere even close or in the ballpark to what they thought they could bring in.”

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