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Pennsylvania Budget Negotiations Continue Without NatGas Severance Tax Debate

As Pennsylvania's House and Senate leaders continued to negotiate over ways to fund a $31.5 billion state budget on Tuesday, the severance tax on natural gas production proposed earlier this year by Democratic Gov. Tom Wolf was not among the options being discussed.

Negotiations dragged into the first week of the 2016-2017 fiscal year in a slight reminder of the beginnings of the last budget impasse, but debate over a severance tax has been noticeably absent. A similar proposal was staunchly rejected in the Republican-controlled house last year (see Shale DailyOct. 7, 2015).

The General Assembly sent a $31.5 billion 2016-2017 budget to Wolf last week. The governor and legislature appeared to agree on the spending plan, which calls for a more than $1 billion increase from the 2015-2016 budget, but lawmakers are once again at odds about how to fund the bill. While Wolf showed support for the budget, he indicated that he would not sign it without sustainable revenues to pay for it.

This year's budget hit Wolf's desk after a nine month 2015-2016 budget impasse that ended in March (see Shale DailyMarch 23). Early on during that round of gridlock, Wolf's proposal for a 5% severance tax plus a 4.7 cent/Mcf volumetric fee on natural gas production slowed the budget's advance. Wolf later scaled that plan back to 3.5%, including the volumetric fee, in an effort to raise more support for the proposal, but the lower rate failed by a wide margin in the House of Representatives.

For this year's budget, Wolf had proposed a 6.5% severance tax, expanding the state's sales tax base and increasing the personal income tax rate to plug a budget deficit (see Shale DailyFeb. 9). None of those proposals are on the table. Instead, lawmakers said last week that they were discussing higher taxes on cigarettes and other tobacco, liquor modernization and expanding gambling to help pay for the budget. They're also considering a gross receipts tax on natural gas customers, but House Republicans are said to be opposed to the plan.

Republican House Majority Leader Dave Reed told local news media on Tuesday that it wasn't clear if lawmakers could reach an agreement this week on how to fund state spending. Wolf has until July 11 to take action before the budget becomes law without his signature.

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