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Pennsylvania Lawmakers Split Again on Gas Severance Tax

A budget deal reached more than three weeks ago by Pennsylvania lawmakers fell apart late Thursday after Democratic legislators tried once again to impose a tax on, among other things, natural gas extraction.

Pennsylvania is the only state still without a fiscal plan for the coming year, and Gov. Ed Rendell last week urged the General Assembly to get a budget to him by Sunday. A budget deal was said to be within reach until late Thursday night, but lawmakers disagreed over what -- or what not -- to tax to make up for the state's budget shortfall, a legislative aide told NGI.

Democratic lawmakers last week began debate once again on whether to tax gas production in the state, much to the displeasure of the GOP. Debate began in earnest Friday afternoon and was expected to go into the weekend. : again brought the gas severance tax, much to the displeasure of the GOP.

"What we heard inside our caucus is that there are concerns," House Majority Leader Todd Eachus (D-Luzerne) told reporters last week. Among other things, rank-and-file members wanted to cast a vote on the long-proposed gas extraction tax, and he wanted to allow them to do that.

With Eachus' approval, House Bill 1489, sponsored by Democratic Rep. Camille "Bud" George, was taken up again. The bill was first proposed in June (see NGI, June 29).

The legislation proposes a 5% tax on the gross value of gas extracted and 4.7 cents for every 1,000 cubic feet of gas produced. The tax is identical to one enacted by West Virginia.

George's bill was jettisoned in early September (see NGI, Sept. 7), but as proposed, the current budget deal presented "ominous scenarios" for taxpayers and Pennsylvania's natural resources, he said. Among other things, millions were to be cut from the Pennsylvania Department of Environmental Protection budget, and the monies in the Oil and Gas Lease Fund, used to protect and manage state forests and parks, could be transferred to the state's General Fund.

The Democratic leader's decision to take up the tax issue once again came after 31 House Democrats, led by Rep. Dave Levdansky, sent a letter to legislative leaders late last month protesting, among other things, plans to raise money for state coffers by leasing additional land in the Marcellus Shale region instead of levying an extraction tax on producers.

Pennsylvania "must join every other major gas producing state in the nation and pass a severance tax," the letter stated. Thirty-eight states now impose a severance tax on gas production; California imposes a similar tax, but under a different scheme.

"The poor explanation that the Marcellus drilling industry is still in its infancy, and therefore should not be contributing a modest share of the profits for environmental safeguards, affected communities and our state's declining general revenue is insulting," wrote the House members.

According to Levdansky and his colleagues, the gas severance tax would "yield an estimated $107 million this year, $236 million next year and $632 million in the out years, " which would "constitute a sustainable revenue source for the Commonwealth. It should also provide vital investments in environmental and conservation programs, wildlife management agencies and communities bearing the brunt of the drilling activity."

"Reports of dangerous chemical spills at Marcellus Shale drilling sites are coming in at an alarming rate," George said, referring to the recent spills at a drilling site operated by Cabot Oil & Gas Corp. (see related story). HB 1489 would dedicate a portion of a severance tax on drillers to environmental protection. "Now is not the time to retreat on environmental safeguards," said George.

Rendell has said a tax eventually should be imposed on state gas producers, "but not at the beginning." The severance tax proposal also is opposed by many of the General Assembly's Republican members.

Pennsylvania may be the only state still without a fiscal plan to fund "critical components," George said. "However, it truly is a 'compromise' budget because it has the potential of compromising much of Pennsylvania's future."

George, who chairs the House Environmental Resources and Energy Committee, said every hunter, angler and outdoor enthusiast should question the budget proposal to lease tens of thousands of acres of state forestland to gas drillers.

"This would change the nature of the Commonwealth forever," he said. "We are being asked to convert Penn's woods to a corporate cash cow and environmental stewardship to a quest for profits and state revenues."

The "drumbeat to approve a budget is growing," George said. "However, I worry it may be a drum roll to disaster."

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