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MSC Opposes Gubernatorial Hopeful's Calls for NatGas Severance Tax

Gubernatorial candidates in Pennsylvania who have called for severance taxes on the state's shale natural gas industry are embracing "misguided, job-crushing policies," the Marcellus Shale Coalition (MSC) said Thursday.

Shale development has generated more than $1.8 billion in state taxes and more than $400 million in impact fees to date, and it supports nearly a quarter-million jobs in the state, according to MSC.

"Unfortunately, some candidates for office have embraced misguided, job-crushing policies that would throw a wet blanket on this positive, widespread progress. Specifically, these candidates refuse to recognize or acknowledge that other major energy-producing states with a severance tax do not have a corporate net income tax or have far more competitive corporate tax structures than Pennsylvania's, which has among the nation's highest rates," MSC said.

"Further, states with severance taxes have capital recovery periods, and thus revenues are not generated for a number of years. Pennsylvania's impact fee, however, is paid immediately." New energy taxes "would, without question, result in less capital investment into the Commonwealth, fewer jobs and even less revenue generated for the citizens of Pennsylvania," said MSC.

The remarks came one day after U.S. Rep. Allyson Schwartz (D-Jenkintown), who has declared her candidacy for the gubernatorial race in 2014, laid out a plan to finance transportation and other construction through a "state infrastructure bank," which she said would be funded through the establishment of a 5% severance tax on natural gas production.

"This shale gas is here," Schwartz said. "It's our natural resource. And we're giving it away to these energy companies."

Schwartz unveiled her proposal for a 5% severance tax on natural gas last month, saying that it could generate $13.2 billion in revenue for the state over the next 10 years (see Shale Daily, Sept. 6). The Schwartz campaign has accused Republican Gov. Tom Corbett of "squandering" an opportunity to bring more revenue into state coffers with his opposition to a severance tax (see Shale Daily, March 25, 2011), and called the drilling impact fee enacted under Act 13, the state's omnibus Marcellus Shale law, "wholly inadequate."

At least eight Democrats, including Schwartz and two former secretaries of the Pennsylvania Department of Environmental Protection, John Hanger and Kathleen McGinty, have declared their candidacy for the gubernatorial race. Corbett is one of about a half dozen potential Republican candidates.

Corbett has defended the decision to enact an impact fee, rather than a severance tax, on oil and gas drilling (see Shale Daily, June 19). During the gubernatorial campaign in 2010, Corbett said he would not support a severance tax, and new Corbett campaign ads extol the impact fee's positive economic impact.

According to data from the Pennsylvania Public Utility Commission (PUC), the impact fee generated nearly $293 million in revenue from unconventional wells drilled in 2012, and about $206 million from wells drilled through 2011 (see Shale Daily, May 15; Sept. 12, 2012). Localities affected by oil and gas drilling will collectively receive $102.7 million of the 2012 revenue (see Shale Daily, June 14).

The Pennsylvania Budget and Policy Center, a nonpartisan research group, has said the state would be better served by a severance tax on oil and gas, and that Pennsylvania is getting "shortchanged" by the impact fee (see Shale Daily, Sept. 9; Sept. 17, 2012).

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