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Wolf's NatGas Severance Tax Could Advance as PA Budget Impasse Drags On

Pennsylvania's House and Senate Republican leaders on Wednesday said the general assembly would vote next week on Democratic Gov. Tom Wolf's latest tax proposals, which include establishing a 5% severance tax on unconventional natural gas production.

The announcement came a day after Wolf vetoed a Republican-crafted emergency stop-gap budget three months into a state budget impasse that has left Pennsylvania without funding since June 30. If Wolf's tax proposal is approved, Republican leaders said his budget demands could likely go forward, advancing the severance tax, sales tax increase and a personal income tax increase for further negotiations to resolve the budget crisis.

A budget is supposed to be passed by July 1 under state law. But on June 30, Wolf vetoed a $30.1 billion budget because it did not include a severance tax or any new taxes or tax increases (see Shale DailyJuly 1). With little progress on negotiations, Republicans began working on a stop-gap budget earlier this month, but Wolf refused to sign it Tuesday, saying it was a "sham," just like the first budget.

A major sticking point remains Wolf's insistence on establishing a 5% natural gas severance tax plus a 4.7 cent/Mcf volumetric fee to help provide funding for the state's ailing public education system (see Shale DailyFeb. 11).

"Instead of seriously negotiating a final budget that funds education with a commonsense severance tax, fixes our deficit without gimmicks and provides property tax relief for middle-class families and seniors, Republican leaders passed a stop-gap budget that once again sells out the people of Pennsylvania to oil and gas companies and Harrisburg special interests," Wolf said after he vetoed the stop-gap budget.

The temporary budget would have provided about four months of state funding. Wolf's administration has said a new severance tax could eventually generate up to $1 billion, most of which would go toward public education. He has also proposed combined tax increases of roughly 16% to help shore up the state's $2 billion budget deficit. Wolf said if the Republican stop-gap budget was approved, it would have increased the state's deficit to $3 billion.

"At every turn, Republican leaders have prevented serious negotiations because they are unwilling to take on oil and gas companies and Harrisburg special interests to make the long-term investments in education and the changes needed to help Pennsylvania families," Wolf said. Democratic lawmakers supported Wolf's veto, calling the stop-gap "ill-advised" and agreeing with Wolf that Republicans had sold out to "big oil and gas."

Republican House Majority Leader Dave Reed said the general assembly had elected to vote on Wolf's latest budget tax proposals -- which he said would raise taxes $5 billion over the next two years by increasing the state sales, personal income and severance taxes -- to advance negotiations and get a budget passed. He said during a Wednesday press conference that Wolf had indicated there are enough votes in both the House and the Senate to get the proposals approved and moving forward. But Reed said Wolf does not have the 102 Democratic or Republican votes required to get the measures approved in the House.

Wolf said he would begin approaching rank-and-file Republicans for individual conversations before next week’s vote to gather support for his proposals. He would need 18 Republican votes in the House to get a majority if all 84 Democrats support his plan. In the Senate, he would need six Republican votes if all 19 Democrats support him.

"We have told the governor, and I have personally told members of the House and Senate, from the Democratic perspective, that the votes are simply not there for a personal income tax increase," Reed said. "...There seems to be some disbelief amongst the governor as to whether the votes are there or not.

"We are at a fork in the road," he said. "If there are enough votes next Wednesday for the governor's [tax] package, we will move in that direction; we will pass a spending bill and this budget will be done. If the votes are not there, then the governor needs to recognize that he needs to take the personal income tax and sales income tax off the table to garner the votes and bring the budget impasse to a halt."

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