Legislation to impose a severance tax on growing natural gas production in Pennsylvania’s Marcellus Shale jumped a committee hurdle last week and now moves to the full House for consideration.

HB 1489, introduced by Rep. Camille “Bud” George (D-74) of Clearfield County, would impose a “privilege tax” on all of the state’s natural gas producers at a rate of 5% of the gross value at the wellhead, plus 4.7 cents/Mcf. As written, the tax would not apply to smaller stripper wells that produce 60,000 Mcf/d or less.

The bill was approved last Tuesday by the House Environment and Resources Committee on a 15-11 vote, said George, who also chairs the committee. Only one Republican on the committee, Rep. Chris Ross, voted for the tax, and only one Democrat, James Wansacz, was opposed.

The legislation, if enacted, would enable Pennsylvania to receive a “fair return for its valuable natural gas supplies,” said George.

“House Bill 1489 would ensure that Pennsylvania joins almost every gas-rich state in seeking a fair return for its taxpayers for the removal of a natural resource owned by the Commonwealth and requiring use of taxpayer-paid infrastructure to extract,” said George. “The Natural Resource Severance Tax Act creates a fair contract with the gas industry for its profitable ventures in Pennsylvania’s Marcellus Shale gas deposit.”

An amendment offered by George, detailing how severance tax revenues would be shared, was approved on a 20-6 vote by the panel. The tax is projected to generate roughly $600 million annually for state coffers by 2013-14.

About 60% of the revenue would be distributed to the state’s General Fund. The rest of the money would be shared among various state entities including the Environmental Stewardship Fund (15%); Liquid Fuels Tax Fund (5%); municipalities where natural gas is extracted (4.5%); counties where natural gas is extracted (4.5%); Hazardous Sites Cleanup Fund (4%); Low Income Home Energy Assistance Program (3%); and the state Game and Fish and Boat commissions (2% each).

If the bill is approved by the General Assembly, it would take effect Oct. 1.

“Pennsylvania has a responsibility to its taxpayers, and not seeking a fair return for the natural resources and infrastructure owned by the people of Pennsylvania would be the zenith of irresponsibility,” George said. The legislation, he noted, resembles an extraction tax implemented by West Virginia in 1987, which levies a 5% tax on the gross value of gas extracted and 4.7 cents/Mcf.

“The governor of West Virginia said its severance tax has had no repercussions on drilling or employment, as have studies on some of the severance taxes utilized by 27 other states,” George said. “The claims that a severance tax would stifle a growing industry in Pennsylvania’s Marcellus Shale Deposit are not supported by history, facts or common sense.”

The “gas industry complaints about the prospects of paying a severance tax on top of a corporate net income tax and the capital stock and franchise tax are disingenuous,” he said. “Gas drillers pay corporate and severance taxes in almost every gas-producing state. The stock and franchise tax is being phased out, and natural gas producers are exempt from property taxes.”

George said “almost 73%” of all registered corporations in Pennsylvania pay no state income taxes, and most of the gas drillers operating in Pennsylvania are registered as limited liability companies, which are subject to a 3.07% personal income tax but no corporate income tax.

“The working Joes and Joans of Pennsylvania would love to have the tax setup enjoyed by producers,” he said. “However, it is an arrangement lacking in fairness and responsibility.”

In a joint meeting with House and Senate Democrats on Monday Gov. Ed Rendell said Pennsylvania faces a bleak fiscal outlook as it deals with a loss of $3.2 billion in revenue compared with 2008.

“The numbers are going to drive this process, and the numbers dictate irrevocably that we raise revenue,” Rendell said he told the Democratic lawmakers in the closed-door meeting. “It’s the right thing to do. It’s the things we stand for as Democrats — protecting people, protecting public safety, protecting the health of our citizens, protecting our educational goals.”

Citizens for Pennsylvania’s Future (PennFuture) urged the General Assembly to pass HB 1489.

PennFuture CEO Jan Jarrett said the legislation “helps balance the tremendous risks associated with the growing Marcellus Shale natural gas drilling across the state with the economic opportunities the drilling provides. It shows that we can expand our supply of domestic fuel and, through the proposed severance tax, bring revenue into the state at a time when our budget forecasts are so dire.”

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