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Pennsylvania Senate Passes NatGas Tax; Industry on Defense

Pennsylvania's GOP-controlled Senate on Thursday put the natural gas industry on the defensive as it passed a revenue package to fund the state budget that includes a volumetric fee on production designed to generate an estimated $100 million annually.

The plan would plug a $2 billion-plus budget deficit and follows negotiations in the state House that aimed to avoid tax increases. Democratic Gov. Tom Wolf let the state's $32 billion budget pass into law earlier this month without his signature.Until Thursday Senate lawmakers had failed to agree on a plan to fund it. The state House must still weigh in on the measure.

The General Assembly has been at loggerheads in recent budget seasons, which led to a nine-month impasse in 2015. Senate President Pro Tempore Joe Scarnati said the reality of this year's "budget situation" necessitated "many difficult decisions."

Under the Senate plan, producers of unconventional resources would pay an effective tax rate of 2 cents/Mcf in fiscal 2017-2018, which began this month. But the annual rate could slide up or down from 1.5-3.5 cents.

The Senate also wants to borrow $1.3 billion to be paid with funds from a 1998 settlement with tobacco companies. The revenue package implements a 5.7% tax on natural gas utility service, increases the tax on electricity bills to 6.5% from 5.9% and raises the tax on home and mobile phone service, among other things.

"We've done everything we can in state government to contain spending in the areas that we have the ability in order to avoid any tax increase," said Senate Majority Leader Jake Corman. "Unfortunately, we are here today because we ran out of our ability to do that. If we are going to maintain our responsibility to educate our children, provide for higher education, provide for human services and pay our debts, we are in a position that we have to find the revenue needed to make that happen."

The industry fired back after word broke of the narrow 26-24 vote to approve the revenue package. API Pennsylvania Executive Director Stephanie Catarino Wissman said the bill was a "political ploy targeting job creators and industry." Marcellus Shale Coalition President David Spigelmyer said the tax would "erode the commonwealth's competitive advantage."

Industry representatives said they remain committed to fighting a tax increase. Under the Senate's plan, producers would still be required to pay the state's impact fee, which is levied annually on all unconventional wells in the state during their first 15 years of operation, as long as they produce more than 90 Mcf. Producers have paid more $1.2 billion in impact fees since the fee was established in 2012.

The tax bill includes some concessions for shale drillers. For example, it would implement faster turnaround times for well, air and earthmoving permits and make it tougher to impose methane emission regulations.

Wolf hailed the Senate's action to get the budget balanced and for the chamber's willingness to "include a tax on Marcellus Shale," a spokesman said. Wolf has proposed a severance tax three times, most recently in February when he proposed a 6.5% tax on the value of natural gas in addition to the impact fee.

The Senate plan could be a tough sell in the House, where Republicans have a strong majority and are led by Speaker Mike Turzai, a vocal ally for the energy industry.

Lawmakers have tried, but failed for years to implement a severance tax in the state. Before the Senate vote on Thursday, the industry had been working to stop a small group of bipartisan House lawmakers, who recently urged Turzai to bring severance tax legislation to the floor for a vote. A spokesman for the House said leadership and members would need time to review the Senate's revenue package.

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