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PA Republican Counters Wolf's Severance Tax With NatGas Consumption Incentives

Republican Speaker of the Pennsylvania House of Representatives Mike Turzai, in response to what his office called a "punitive" natural gas severance tax proposal by Democratic Gov. Tom Wolf, plans to introduce a bill that would offer tax breaks for gas consumption throughout the state.

The bill is "imminent," Turzai spokesman Jay Ostrich said. Aides are working to finalize its details for introduction in the coming weeks. The proposal would also serve as a legislative rejoinder to Wolf's 5% natural gas severance tax proposal, which he has repeatedly pushed for nearly three months into a budget impasse that has left the state without funding.

"We really are looking at this [as] a vision for a 21st-century energy independent Pennsylvania against a vacuum that is this punitive tax proposal from Gov. Wolf, which would suck up tax dollars and jobs in the commonwealth," Ostrich said. "We don't find that to be acceptable in any way. We're creating a vision for an energy independent Pennsylvania, and we're putting flesh on that vision as well."

Called the Keystone Energy Enhancement Act, the bill would extend local and state tax breaks to manufacturers that use natural gas or petrochemical companies that source it to create key building blocks for plastics, such as ethylene and polyethylene, among others. The goal of the bill would be to spur economic growth and capital investment, not deter it as Republicans have claimed a natural gas severance tax would do.

The state GOP has grown increasingly cold to the idea of implementing a severance tax as commodity prices have stagnated. A state budget was supposed to be passed by July 1 under state law. But on June 30, Wolf vetoed a $30.1 billion budget crafted by Republicans (see Shale Daily, July 1). It did not include a severance tax or any new taxes or tax increases, which Wolf had called for to address a more than $2 billion budget deficit and the state's ailing public education system.

Last week, as budget negotiations once again broke down, both Wolf and Republican leadership called impromptu press conferences to defend their stances on the gridlock (see Shale Daily, Sept. 17). Wolf called the state of negotiations "beyond pathetic." It's unclear if Wolf would support Turzai's proposal to incentivize natural gas consumption in the state; his administration did not return calls seeking comment. He has said publicly that he wants the state's natural gas industry to both succeed and pay its fair share.

Turzai's plan would be loosely based on the state's Keystone Opportunity Zones, a program established in 1999 that granted businesses in underdeveloped and underutilized areas local and state tax breaks. Since its inception, the program has helped to create nearly 20,000 jobs in the state and retain another 11,622, according to the Pennsylvania Department of Community and Economic Development.

Turzai's bill would also be a direct appeal to petrochemical operators and others to locate ethane crackers and gas-to-liquids facilities in the state. Five crackers have been proposed for the Appalachian Basin, including Shell Chemical Appalachia LLC's proposed multi-billion dollar cracker in Beaver County, PA . Although the company has not made a final investment decision, that facility alone would employ 400 people, Shell has said in regulatory filings with the state (see Daily GPI, Aug. 5, 2014).

"We have an opportunity to make Philadelphia the Houston of the East Coast," Ostrich said of attracting more energy infrastructure through tax incentives. "It has the best freight rail in the Northeast; it's in the backyard of one of the nation's largest population centers; there's underutilized brownfields and we can hook with the ports of Philadelphia."

In May, the American Chemistry Council said in a report that the U.S. plastics industry is expected to grow rapidly over the next decade as a result of the shale boom and low natural gas prices (see Shale Daily, May 18). The report found that nearly 462,000 direct and indirect jobs would be created in the industry, its supply chain and the broader economy as plastics production grows. Ostrich said that if Pennsylvania could attract even a fraction of those jobs it would benefit the state immensely. He added that the tax breaks under Turzai's proposal could be offset with the additional jobs, economic activity and growth in the tax base that the Speaker anticipates from incentives.

"Obviously, we're in a budget impasse right now," Ostrich said. "That doesn't mean business stops, and we can't stop looking for job creation. We're going to press ahead with this and press towards getting it passed. If the governor is sincere about supporting the industry, he'll climb on board."

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