Pennsylvania could secure its energy future, clean up its environment and create thousands of jobs by providing incentives for the use of natural gas as a transportation fuel, all without having to impose a severance tax on gas production in the Marcellus Shale, according to a group of state House Republicans led by Stan Saylor (R-York).

The "Marcellus Works" legislative package unveiled Tuesday by the House Republican Caucus calls for the transition of the state's 16,000-vehicle fleet to natural gas vehicles (NGV) and grants for local governments that convert their fleets to NGVs. It would provide tax credits for private entities that convert their fleets and entities that build and use natural gas fueling stations. The legislation would also build natural gas filling stations at half of the existing service stations on the Pennsylvania Turnpike.

The plan would require an initial investment of $55-60 million, all of which would come from taxes already imposed on the industry, according to Saylor, who is chairman of Pennsylvania's House Republican Policy Committee.

"The Marcellus Shale industry produced $389 million in state and local tax revenue in 2009 alone and is expected to pay close to $800 million this year," Saylor said. "Our plan would use a portion of that revenue to create thousands of jobs."

While a $28 billion 2010-2011 state budget passed earlier this year by Pennsylvania legislators did not include a severance tax on natural gas production, budget negotiators agreed to such a tax in principle, and House and Senate members agreed to enact a severance tax by Oct. 1 (see Daily GPI, July 2). But with time running out before the November elections, even Gov. Ed Rendell appears to have lost confidence that a deal on the severance tax will emerge (see Daily GPI, Sept. 10). The governor has been insistent on the plan he first proposed last year, which calls for a 5% tax on sales, plus 4.7 cents/Mcf of gas extracted.

"The governor keeps talking about taxes, taxes, taxes and debt and spending," Saylor said. "We need to use our resources to create jobs for Pennsylvanians, and we're not just talking about in the drilling industry. Trucking industries, the hotel and restaurant businesses, manufacturing jobs will be created by this plan that we have."

Stephen Miskin, a spokesman for House Republican Leader Sam Smith (R-Jefferson), told NGI the House Republican Caucus has taken no official position on the severance tax since no proposal is on the table. House Republicans generally do not support new taxes or tax increases to balance the state budget, but members will consider a severance tax proposal if House Democrats introduce one, he said.

"A lot of it's going to depend on how much money is going to the general fund and how much of the tax money is going back to the local communities and to other various groups," Miskin said. "There is a fear that the whole thing is going to turn into a kind of a wish list."

With the Oct. 1 deadline looming, Democrats are having trouble putting together a severance tax proposal because many legislators believe Rendell's plan would devote too much tax revenue to the general fund, Miskin said. The more money a proposal commits to the state's general fund, the more votes it will lose from both sides of the aisle, but Rendell has indicated that he will not accept a reduced figure, according to Miskin.

The Pennsylvania Environmental Council (PEC) on Tuesday called on Rendell and legislators to enact a natural gas severance tax to support environmental and conservation programs.

"A Marcellus Shale production tax is a fair way to raise the funds needed to support these worthwhile environmental programs, which are needed to meet federal Clean Water Act and other mandates not funded through oil and gas permit fees; and to restore the budgets of our critical environmental protection and natural resource agencies," said PEC CEO Don Welsh.

A severance tax on gas production would add to drilling companies' operating costs, but the revenue it would produce would yield positive results for Pennsylvania's economy and residents, according to researchers at Penn State's Institute for Research in Training & Development (see Daily GPI, Sept. 15).

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