Republicans and fiscally conservative Blue Dog Democrats could very well kill the plans of Pennsylvania Gov. Ed Rendell to levy a severance tax on gas produced from the state’s portion of the prolific Marcellus Shale play.
The clock was ticking louder Tuesday on lawmaker efforts to finalize a severance tax as the previously agreed Oct. 1 deadline drew near and the legislative session wound down. A House bill that passed out of committee on Monday was given slim odds in the full chamber by Rep. Nick Kotik, the leader of about a dozen fiscally conservative Democrats.
In the assembly debate Tuesday Republicans labeled the house legislation as a mockery and a fraud in that its sponsors made no attempt to reach agreement with the Senate on a compromise bill. The severance tax proposed in the Democratic bill has been described as one of the highest in the country, while a bill being considered by the Republican senate would be among the lowest. “This bill would be dead on arrival in the senate,” one Republican assembly member said.
“We’re not going to settle this without collaboration with the senate,” Republican assembly member Chris Ross said. With only three session days left on the senate calendar they have run out of time for that collaboration. Ross said he was interested in a “fair and reasonable” severance tax and had supported a 5% tax in earlier negotiations, but the rates proposed in the house bill were clearly too high. The legislation provides a floor price for the tax, under which if the price of natural gas goes down, the tax percentage goes up to maintain state revenues.
Ross also noted that most of the revenue would go into the state general fund rather than to local jurisdictions or to environmental work to mitigate the impact of drilling.
“I don’t even know why they are bringing it up when they’re short (of the votes they need),” Kotik told the Pittsburgh Tribune-Review.
Senate Republican leader Dominic Pileggi has said the bill in its current form has no chance in the Republican-controlled Senate.
Opponents claim the bill would saddle the Keystone State with the highest such production taxes in the country. Rendell said he wanted to tax drillers 5% of the value of their gas at the wellhead as well as an additional 4.7 cents/Mcf. This would be comparable to the tax structure in neighboring West Virginia, backers say.
By industry accounting, the House bill as it stood Tuesday would result in a tax of 39 cents/Mcf, or about 10% based on current gas prices. Earlier this year a think tank said a tax of 30-35 cents/Mcf would be “more than competitive with other gas-producing states” (see Daily GPI, Sept. 3).
A couple weeks ago things were starting to look grim for passage of a severance tax. Rendell, who winds up his second term this year, has claimed that 70-80% of Pennsylvanians support the tax. But that’s a long way from saying the state’s fractious legislators can come together on a bill, state capital observers said. “They couldn’t even agree on a budget this year,” one commented. “And they couldn’t pass a tax in June, so just before the November elections, in the 10-12 days of legislative sessions remaining, it’s not likely they’ll get together on a tax” (see Daily GPI, Sept. 10).
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