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Corbett Administration Disparages Candidates' Calls for PA Severance Tax

Pennsylvania Republican Lieutenant Governor Jim Cawley in a speech before hundreds working in the oil and gas industry said it "defies logic" to say they're not paying enough taxes, adding that calls for a severance tax come from out-of-touch lawmakers and democratic candidates for governor living in the state's liberal southeast.

Cawley's remarks, delivered last week before members of the Pennsylvania Independent Oil and Gas Association at their annual conference in Pittsburgh, were especially salient, as they came one week before the state's Democratic primary for governor on Tuesday in which four candidates -- all of whom have called for an oil and gas severance tax -- will vie for a chance to challenge Republican Governor Tom Corbett in November.

Corbett, considered among one of the most vulnerable incumbents in the country, is grappling with an electorate that appears torn about a wide budget deficit, education spending and the state's ever-growing oil and gas industry. He was scheduled to kick-off the conference with opening remarks, but was instead replaced by Cawley so he could meet with officials in the southeast to discuss the details of a visit from the pope planned for next year.

For his part, Cawley stopped short of any real politicking with his speech and made an appeal to an industry he said has created tens of thousands of jobs, contributed positively to an unemployment rate at its lowest since the Great Recession and pays its fair share of taxes already.

"For our state, the Marcellus Shale, unlike perhaps any other one particular piece of an industry has meant more to bring jobs and prosperity to this state than anything else in quite some time," Cawley said. "It also has another component as well, it helps us, as all of what you do, to strengthen our national security by bringing energy independence. In the 1970s, we were being told to turn down the thermostat and shut off those lights and quite literally freezing in the dark somehow became patriotic.

"Well, today we're doing something much more patriotic, we're curbing our appetite for foreign oil."

Cawley invited conference attendees to ask any question they wanted to, and although they did just that, sending a number of note cards to the lectern, the lieutenant governor avoided providing answers in any great detail. In April, for instance, Corbett said he might soon issue an executive order to lift a nearly four-year moratorium on new oil and gas leases in state parks and forests imposed by his Democratic predecessor Ed Rendell (see Shale DailyApril 24). Asked when the industry could expect such an order, Cawley said he's learned that lieutenant governors "shouldn't make news" and advised the audience to "stay tuned."

"I think you will hear something probably in the not-too-distant future in addition to what we've already announced that I think will answer the question better than I can," he said. "It's up to a guy named Corbett to announce it."

Attendees kept sending cards, and in some instances, put Cawley on the spot about issues ranging from environmental activism and forced pooling (see Shale DailyApril 2), to new taxes and a detrimental ruling on Act 13, the state's omnibus oil and gas legislation, that came from the Pennsylvania Supreme Court late last year (see Shale DailyDec. 20, 2013).

When Democratic voters head to the polls on Tuesday, they'll choose from York County, PA, businessman Tom Wolf, Philadelphia congresswoman Allyson Schwartz, former Pennsylvania Department of Environmental Protection Secretary Katie McGinty and state treasurer Rob McCord, all of whom have flooded the airwaves with campaign ads assailing the Corbett administration for failing to tax the oil and gas industry at a higher rate.

A Quinnipiac University poll released in February showed Corbett at one of his lowest approval ratings yet, at 36%, with the Democratic frontrunner Wolf holding a 19 point lead. A Franklin and Marshall College poll released last week showed similar results.

Corbett's challengers have each recommended a severance tax comparable to other states such as Texas or West Virginia (see Shale DailyJan. 28), with some, such as Schwartz, recommending that it come on top of the state's impact fee, which effectively collects 2% of the value of gas sold at all unconventional wells drilled each year (see Shale DailyApril 4Feb. 15, 2012).

"Texas doesn't have a personal income tax, Texas doesn't have the largest of any corporate net income tax, we have the largest at 9.99%. For smaller business people we also have the capital stock and franchise tax," Cawley said. "What some people in Harrisburg don't like is that the vast majority of that money stays where the impacts are felt, stays in the local communities. Don't be deceived, they simply want the money out in [the state capital] so they can spend it. It is a big old huge urban legend; it is a lie where I come from to say that this industry isn't paying taxes, that it isn't paying substantial taxes."

Cawley said much of the environmental activism that has created a backlash for the state's oil and gas industry comes from the liberal southeast near Philadelphia. He said lawmakers, activists and others know little about how the industry actually works other than what they read in the newspapers.

Cawley said the administration is working with Sunoco Logistics Partners LP to help it in its quest for the Mariner East pipeline to avoid right-of-way challenges in that part of the state with a request before the Pennsylvania Public Utilities Commission that would grant it status as a public utility corporation (see Shale DailyApril 28). Other than that, he told conference attendees that the administration has been reluctant to interfere with other oil and gas infrastructure issues, because when government gets involved there's "winners and losers" that discourage the competition of a free market.

On the Act 13 ruling, which undermined centralized regulation when justices ruled that municipalities would have the right to change or enforce local zoning laws, Cawley said the administration continues to review its impact.

"What the solution is moving forward, is something that is still being formulated by us," he said. "What I'm saying is that we should likely be looking at some legislative fixes to what the findings were in the Supreme Court case in the very near future."

As part of last year's ruling, the justices sent parts of the case back to a lower court (see Shale DailyMarch 18). Arguments were heard on some of those issues last week. Cawley offered no specifics about any potential legislation in his answer to questions about the law.

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