Pennsylvania Gov. Tom Wolf on Thursday again called for imposing a severance tax on the state’s prolific natural gas production, this time tying the revenue it could generate to a “major new infrastructure initiative.”
Wolf, a Democrat, has proposed a severance tax each year since taking office in 2015. The latest proposal, discussed at two separate events in Harrisburg and Wilkes-Barre, is his boldest political push yet after having easily won a second term last November. In the past, Wolf has mainly floated the tax as a way to plug chronic budget deficits and provide more general funding for things like education.
The new proposal would fund a $4.5 billion initiative to improve high-speed internet, storm preparedness infrastructure, downstream manufacturing opportunities -- including those for natural gas -- revitalization of blighted communities and transportation projects. Wolf said the efforts -- raising the stakes and possibly building more support across the state -- would be driven by “local input” and “local needs.”
Wolf wants the state legislature to pass a volumetric tax that would rise and fall with gas prices. Producers would pay from $0.091-0.157/Mcf depending on the price of gas. The plan would keep the state’s impact fee, which is levied on all unconventional wells during their first 15 years of operation. The impact fee also has generated more than $1 billion for communities and state agencies since it was implemented in 2012.
The administration estimated that the tax would amount to about 4.5% of the value of gas for fiscal year 2019-2020. If it were to be passed, the tax would take effect March 1, 2020.
The industry, which has long resisted Wolf’s efforts, rejected the proposal. Marcellus Shale Coalition President David Spigelmyer said “imposing additional energy taxes would cost consumers” and “hurt local jobs, especially among the building and labor trades, and negatively impact investment needed” to further industry development in the state. Combining the impact fee, other industry taxes and lease bonuses/ royalties on state land are combined, the industry has generated $5 billion in revenue since the shale boom began in the state, he said.
Stephanie Catarino Wissman, executive director of the American Petroleum Institute of Pennsylvania, also pointed to impact fees and decried Wolf's latest call for a severance tax and other regulatory policies.
“Industry is already investing in Pennsylvania infrastructure and yet red tape continues to constrain progress on different projects," she said. "This is the area that needs fixing, not additional taxes to buffer a surplus that goes unapplied.”
The Republican-controlled legislature, which enjoys wide margins in both chambers, also has regularly balked at Wolf’s proposals, leading to partisan fights and budget impasses, particularly early in Wolf’s tenure.
It’s also unclear exactly how a severance tax would fund the $4.5 billion of investments over the next four years, a program the administration is calling “Restore Pennsylvania.” Last year, for example, the administration estimated that a similar proposal would have raised $250 million at a time when gas prices were similar to today’s prices. Estimates in prior years have been in the same range.
Pennsylvania is the nation’s second largest gas producer. The Independent Fiscal Office recently estimated that volumes reached 6 Tcf last year.
“It is far past time that Pennsylvanians stop allowing our commonwealth to be the only state losing out on the opportunity to reinvest in our communities,” Wolf said, adding that Pennsylvania remains the only gas-producing state without a severance tax.