A $28 billion 2010-11 state budget was passed late Wednesday by Pennsylvania legislators but a severance tax on natural gas drilling, which budget negotiators agreed to in principle, was not included in the bill. Instead, Pennsylvania House and Senate members agreed to enact a severance tax by Oct. 1 to take effect by Jan. 1.

The Senate approved the budget proposal 37-13 and the House later approved the bill by a 117-84 vote. Gov. Ed Rendell will sign the appropriations bill and associated budget legislation when it reaches his desk, probably on Tuesday, Rendell spokesman Gary Tuma told NGI.

“This budget is a solid compromise between parties on both sides of the aisle, from the House and Senate, as well as the governor,” said House Speaker Keith R. McCall (D-Carbon). “This plan mixes cuts with common sense investments to help the commonwealth’s economy recover, but the real highlight is that we have met our June 30 deadline and responsibly achieved the goal of a balanced, on-time spending plan.”

No specific severance tax rate was adopted by legislators, according to Tuma, who said negotiations later this year should produce a rate and a structure “that will produce a certain amount of annual revenue.”

But the severance tax is still opposed by some state legislators.

“The state simply cannot afford to hike taxes on families and businesses at a time when Pennsylvania’s unemployment rate is at 9.1% and many counties are above 10%,” Senate Republicans said following the Senate’s approval of the budget package.

Last year the Pennsylvania House debated legislation that would have imposed a “privilege tax” on all of the state’s natural gas producers at a rate of 5% of the gross value at the wellhead, plus 4.7 cents/Mcf, but the final budget did not include the tax (see Daily GPI, Oct. 12, 2009; June 24, 2009).

In addition to the severance tax, at least one House member from each political party is seeking a one-year moratorium on new gas drilling and tighter restrictions on horizontal drilling and hydraulic fracturing (see Daily GPI, June 23).

The Pennsylvania House Environmental Resources and Energy Committee in May approved a bill that would bolster the Pennsylvania Department of Environmental Protection’s authority to deny well permits and to suspend drilling, increase potential civil penalties to $100,000 and potential fines for continuous violations to $10,500 per day, extend to 2,500 feet the presumed liability of a well-polluting water supply and require full disclosure of chemicals used in the fracing process (see Daily GPI, June 1). A second bill approved by the committee would raise the minimum royalty payment to 15% of gross proceeds and prohibit royalty deductions for severance taxes, applicable state fees or post-production costs.

But those bills and others with the potential to effect the state’s gas industry are being pushed to a back burner the General Assembly’s efforts to close a $1 billion budget gap.

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