Marcellus / Regulatory / Utica / Northeast / Shale Daily / NGI All News Access

NatGas Severance Tax Stalls As Pennsylvania Budget Impasse Drags On

While another week was winding down at the Pennsylvania Capitol on Friday, lawmakers had already left town, out of ideas and no closer to funding the state’s $32 billion budget as the impasse entered its fourth month.

For now, the annual efforts to implement a severance tax on unconventional natural gas production in addition to the state’s impact fee seem dead. That was thought to be the case when the week started, but Democratic Gov. Tom Wolf and others kept pressing for it, and the Republican-controlled House again staved off those efforts.

The state has repeatedly faced budget deficits in years past and the extraction tax, proponents claim, would be one of the best ways to help fill the current $2 billion-plus gap.

Lawmakers left on Wednesday and won’t return until later this month. They left after talks to pass a commercial warehousing tax or double the hotel tax rate broke down. All the while, rumors of a severance tax -- despite staunch opposition from House GOP leaders -- continued to swirl, while talk of a gambling expansion and other ideas persisted throughout the week.

The state passed a budget in July, but lawmakers have yet to agree on how to fund it. The Republican-controlled Senate passed a revenue package over the summer to tax shale gas producers 2 cents/Mcf this fiscal year and possibly more after that. The plan included other tax increases as well. The House came back with a no-tax proposal of its own. Both chambers decided to come together to work out the differences, but have repeatedly fallen short.

Pennsylvania shale drillers produced 5.1 Tcf of natural gas last year, making the state the nation’s second largest producer behind Texas. Proponents have argued that the millions of dollars a severance tax would raise could go a long way toward generating the recurring revenue the state needs to patch its structural deficit. But this year’s budget process has devolved into partisan bickering, with Democrats blaming it all on Republicans and the GOP standing tough by dismissing compromises ahead of an election year.

Clearly fed up, Wolf said he’s not going to play “games anymore” and announced a plan to simply borrow $1.25 billion this fiscal year to cover part of the deficit. He would pay the loan back with proceeds from state-owned liquor stores.

The natural gas industry continues to maintain that it pays its fair share with the impact fee, arguing that it earns among some of the lowest natural gas prices in the country, which push up its effective rates. The industry’s trade groups, along with other pro-business organizations, have said they plan to continue fighting efforts to implement a severance tax.

Pennsylvania is now among the bottom five states that Standard & Poor’s rates after another credit downgrade on the budget impasse last month. This year’s gridlock comes after a nine-month impasse over the 2015-2016 budget ended early last year.

Recent Articles by Jamison Cocklin