Pennsylvania's leading oil and gas trade groups on Wednesday renewed their commitment to fighting Democratic Gov. Tom Wolf's latest proposal to enact a severance tax on production, saying operators can't absorb more costs during the downturn and repeating that there can't be a compromise.
The Marcellus Shale Coalition (MSC), the Pennsylvania Independent Oil and Gas Association (PIOGA) and the Associated Petroleum Industries of Pennsylvania (API-PA) shared their views with reporters during a conference call on Wednesday, a little more than a year after they held a similar call in opposition to Wolf's campaign promise to enact a 5% severance tax on natural gas production (see Shale Daily, Dec. 17, 2014).
"While the governor didn't address it directly during his budget address [Tuesday], he is, yet again, calling for a punitive, extra tax on the natural gas industry in Pennsylvania," said API-PA Executive Director Stephanie Catarino Wissman. "The severance tax was a bad idea when the governor proposed it last year and it's a bad idea now."
To help pay for his proposed $32.7 billion 2016-2017 budget, Wolf wants to enact a 6.5% gas severance tax. He proposed a 5% rate last year as part of the 2015-2016 state budget and later lowered it before that proposal failed in the state House of Representatives (see Shale Daily, Oct. 7, 2015; Feb. 11, 2015). Wolf and state lawmakers also face the task of balancing two budgets at once as they failed to agree on the 2015-2016 budget last year.
Wolf's refusal to leave higher energy taxes off the table, the trade groups said, would damage the state economy, its economic recovery and competitive edge with other producing states. Prices for gas in Pennsylvania are already well below the U.S. benchmark, the rig count has dropped to its lowest point since the industry started developing the Marcellus Shale, and workforce reductions and spending cuts have curbed development in the state, they said.
"There's a bit of irony when you think about the call we conducted a year ago," said MSC President David Spigelmyer. "We reported on the deteriorating market conditions and capital reductions that were occurring across Pennsylvania. Over the course of the last year, and certainly into 2016, market conditions have continued to erode."
While Wolf's budget depends largely on whether lawmakers can pass the 2015-2016 package, it calls for $2.2 billion in additional spending (see Shale Daily, Feb. 9). Wolf also wants to increase the state's personal income tax rate and consumption taxes, and expand the sales tax base to help pay for more spending.
Producers would still be required to pay the impact fee -- a flat fee charged for each unconventional well in the state for distribution to local communities -- in addition to the severance tax. But under the current proposal, they would be able to take a credit against the tax amount for the fees they pay. The administration estimates that the 6.5% rate would generate $350.9 million in revenue in 2016-2017, with a projected $133.1 million credit for the impact fee, bringing estimated revenue in at $217.8 million.
The trade groups, however, said the credit doesn't matter to their members, and they won't accept any additional taxes or fees, especially in the midst of one of the worst commodity downturns in recent history.
"To just put it very simply and clearly, any additional energy tax on this industry is a real problem," Wissman said. "It ignores the facts and the economic realities of this industry. No matter what numbers you're talking about, no matter what percentages you're talking about, the fact of the matter is if you keep piling on additional energy taxes, it's going to spell disaster for this industry."
Wolf said Tuesday the state is facing a crisis and more revenue is needed to cover its $2 billion budget shortfall. But while the impact fee has generated nearly $856 million since its inception in 2012, projected collections for 2015 are expected to decline by up to $33.9 million from the prior year (see Shale Daily, Feb. 1).
Over the last year, the industry has waged a campaign against Wolf's severance tax proposals with advertising, lobbying, press conferences and opinion pieces in newspapers across the state. A similar battle is poised to unfold this year. A bevy of state Republicans on Tuesday said the broad tax increases Wolf is calling for have already failed, while numerous Democrats put out statements saying there is no other choice.
"Everyone knows the numbers that have been put out for this are unachievable. I believe we're having a debate over doing a severance tax for the sake of doing a severance tax," Spigelmyer said. "Why in the world are we even talking about it? It seems so silly. We have an approach that works and has worked since 2012. Altering the debate to do a tax for the sake of doing a tax does nothing but send more chilling indecision upon this industry in the Commonwealth."