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Pennsylvania House Close on Vote to Avoid NatGas Severance Tax

The Pennsylvania House of Representatives could soon vote on an alternative plan to fund the state budget that’s supported by Republican leadership and doesn’t include a severance tax on unconventional natural gas production or tax hikes for natural gas and electric utility customers, as the Senate-approved plan does.  

The state budget impasse has stretched into its third month and after a seven-week process to find alternative funding, House Republicans want to transfer money from more than 40 special funds to help generate $2.4 billion, or enough to cover the state’s budget deficit.

That runs counter to a revenue package passed in July by the Republican-controlled Senate that would require shale gas producers to pay a severance tax of two cents/Mcf in fiscal year 2017-2018 that could go up or down after that. The Senate plan would also increase taxes on natural gas utility service, telephone and electricity bills.  

The state passed a $32 billion budget in July, but lawmakers have yet to agree on how to fund it. The House has called the Senate’s plan, which includes $1.3 billion of borrowing, “reckless.” Democratic Gov. Tom Wolf, who has proposed a severance tax three times since he took office in 2015, has endorsed the Senate package and recently warned that if the House fails to act soon, he’ll have to make spending cuts.

While the House plan would generate some revenue from other sources, such as advertising on state-owned buildings, it would largely rely on transferring funds that cover expenses for environmental projects and emergency call centers, among other things. Many of the funds, Republicans said, have been undrawn for years.

The House returns to voting session on Monday. A closed-door caucus meeting is expected to be held to discuss the Republican plan and a vote could come shortly after that. The Senate has expressed skepticism about the plan, but intends to consider it if it passes the House.

The General Assembly has been at odds in recent budget seasons, which led to a nine-month impasse in 2015. A failed severance tax proposal played a role in that showdown.

Lawmakers have tried, but failed for years to implement a severance tax in the state. Instead they agreed in 2012 on an impact fee with funds going partly to locales impacted by drilling and partly to state environmental efforts. Under the Senate’s current plan, producers would still be required to pay the state’s impact fee, which is levied annually on nearly all unconventional wells during their first 15 years of production.

Pro-business groups, including those representing oil and natural gas producers, warned last month that more energy taxes could erode the state’s economic advantages. They pledged to do whatever is necessary to stop a severance tax from advancing.

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