Pennsylvania lawmakers who are negotiating a proposed natural gas severance tax now display “a sense of urgency” to forge a deal prior to the Nov. 2 election, Gov. Ed Rendell said after emerging from a second day of meetings with the state’s Senate Republican leaders.

“I think there is a willingness to try and do it,” Rendell said Wednesday afternoon. “Does that mean we’ll reach an agreement on the rate, for example? I’m not sure, because I want to make sure that the rate is fair to the taxpayers as well as the companies…

“I think the sense of urgency is driven by the fact that we did make a promise to the people…the clear intent of it was to get this thing done and I think that the public believes that there was a promise to get it done, and I think there’s interest in trying to fulfill that intent.”

A proposed compromise discussed in the meetings calls for a 3% tax rate in fiscal year (FY) 2010-11, 4% in FY 2011-12 and 5% thereafter. The phase-in formula includes up to a 10% deduction of the costs of production and distribution, Rendell said. The proposal would bring the state $42.2 million revenue in its first year, $133.7 million in its second year and $296 million by FY 2014-15.

Rendell hosted a meeting of Pennsylvania House Republicans and Democrats, along with representatives of Range Resources, Chesapeake, Chief Oil & Gas and Southwest Energy on Monday and met with Senate Republicans, including Joe Scarnati (R-Jefferson) and Dominic Pileggi (R-Delaware), on Tuesday (see Daily GPI, Oct. 13) and again Wednesday. Sen. Jay Costa (D-Allegheny), minority chair of the Senate Appropriations Committee, has convened working groups on revenue distribution and collateral issues, according to Rendell, who said the groups will report back to him.

“What I pledged to the [Senate Republican] leaders is that I would go to work and try to convince Democrats who might not be real happy about where the compromise lies that it’s important to get this done. The local communities simply cannot bear up under this for very much longer without revenue.”

Negotiators have reached “basic agreement” on the state’s 45,000 shallow wells, Rendell said. “Shallow wells were always going to be exempted. The issue was did they have to self-meter, which is very expensive…we made a fairly clear exemption based on formation and depth and things like that.”

The House passed legislation (SB 1155) last month that included a 39 cents/Mcf tax rate (see Daily GPI, Sept. 30) and Rendell previously proposed a 5% extraction tax, plus 4.7 cents/Mcf. The Senate, which reconvened Tuesday after being in recess since Sept. 29, has taken no action on the severance tax. Thursday is the final scheduled session day remaining on the Senate calendar before the election and Senate leaders have vowed not to return to the issue after the election. Rendell leaves office in January.

Process questions raised by Senate Republican leaders, who have said revenue bills must originate in the House, “are just a red herring,” according to Rendell.

“There’s no mandatory rule that says the revenue bill has to start in the House — it’s directory, not mandatory — so if we reach agreement on the other stuff, I believe we’ll find a procedure,” Rendell said. “If we don’t find a procedure, shame on us; the citizens should line us up and put us in front of a firing squad, myself included.”

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