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Pennsylvania Governor Eyes Fall for Tax Debate

Pennsylvania most likely won't see a tax or fee on shale development this summer.

Pennsylvania Gov. Tom Corbett said Monday he would likely veto any natural gas severance tax or impact fee included in the upcoming state budget because he wants to consider the matter in more depth this fall.

"I don't believe this should be connected to the budget," Corbett told reporters following an hour-long speech before the Pennsylvania State Association of Township Commissioners in Lancaster, PA.

While still firmly against any tax that would bring revenue into the General Fund, Corbett remains open to the idea of an impact fee to help local municipalities, but said he wants to postpone discussions until after his 30-member Marcellus Shale Advisory Commission issues its recommendations (see Shale Daily, March 29).

Asked whether he would consider a "swap," or a severance tax used to offset some other revenue source, such as property taxes or personal income taxes, Corbett also said those discussions are "premature."

The commission began meeting in late March and is scheduled to report on its findings by July 22.

As the Pennsylvania General Assembly tries to pass a budget by June 30, it is faced not only with an estimated $4.2 billion shortfall but increasing public support for some tax on natural gas development.

To that end, lawmakers continue to propose new ways of getting revenue from the industry without running up against Corbett's long-standing opposition to a tax increase of any kind (see Shale Daily, June 13).

A state Senate committee recently passed Senate Bill 1100, which would impose a $40,000 per well fee during the first year of production that would go down annually over four years and disappear after 10 years (see Shale Daily, June 15). The original bill introduced by Senate President Pro Tempore Joe Scarnati would have imposed a $10,000 fee per well that would have been adjusted by production and price, but the committee believed that a fee meant to offset local impacts should not be connected to metrics traditionally used to calculate taxes.

State Rep. Marguerite Quinn, a Republican from southeastern Pennsylvania, recently introduced the Shale Impact Mitigation Policy for Local Government, Environment and Roads Act (SIMPLER) as an alternative to SB 1100.

"I've listened clearly to what the governor has said: no tax. This is not a tax," Quinn said.

Like SB 1100, SIMPLER would impose a "graduated" impact fee, but in much larger amounts: a $50,000 per well fee in the first two years of production that decreases by $5,000 every two years over 15 years. The bill would impose a $15,000 fee for years 15 through 20 of production, and a $10,000 annual fee after year 20.

Although acknowledging that this "tail end" might be high, Quinn said Pennsylvania needs to learn more about technologies that can extend the life of a well before it ends a fee after 10 years of production.

"Let's not just give this away and let's not be punitive," Quinn said.

SIMPLER would set aside 50% of the revenue collected from the fee to local governments, 25% to environmental initiatives, 20% to repairing state roads and bridges and 5% to conservation districts.

That scheme is estimated to bring in more than the Scarnati proposal.

State Rep. Jesse White, a Democrat from southwestern Pennsylvania, recently said he plans to introduce an impact fee closer to the original SB 1100 model, although also raising the base rate. His bill would impose a $20,000 annual fee per well, adjusted according to production volumes and natural gas prices, as well as an annual $2,000 "operation fee" for unconventional natural gas wells, collected over the entire life of the well.

The bill would distribute 60% of the revenue to municipalities and school districts near unconventional natural gas development and 40% to statewide environmental initiatives and infrastructure repairs.

Both Quinn and White threw out a provision requiring local governments to adopt a "model ordinance" for natural gas development in order to get funds, an controversial attempt to end the battles between drilling companies and municipalities by standardizing zoning codes. During the recent committee hearing, lawmakers from both parties said they wouldn't vote of a fee if it included a model ordinance (see Shale Daily, April 13).

"While my proposal still prohibits municipalities that totally ban drilling from receiving any of the proceeds, we should not punish municipalities that have worked long and hard to craft and pass reasonable ordinances that reflect the will of their community while still permitting drilling to take place," White wrote to fellow lawmakers.

White recently created a Marcellus Municipal Cooperative to unite local communities (see Shale Daily, March 18). The group is currently holding early meetings to decide how best to utilize their combined resources.

Although likely illegal, some cities, such as Pittsburgh, have banned drilling (see Shale Daily, Nov. 17, 2010).

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