Senate position firm on Severance tax
http://citizensvoice.com/news/senate-position-firm-on-severance-tax-1.1051756
Senate position firm on Severance tax
By Robert Swift (Harrisburg Bureau Chief)
Published: October 21, 2010
HARRISBURG – Senate Republican leaders reaffirmed their position Wednesday that a state severance tax on natural gas production should start at 1½ percent and exempt up to 100 percent of well production costs.
A short phone conference call between Gov. Ed Rendell and legislative leaders on Tuesday has led to some exchanges on how to move the unresolved issue forward. Whether these exchanges will provide the building blocks for a final compromise on a severance tax in the waning days of the legislative session and Rendell’s tenure is uncertain.
The Senate GOP response doesn’t appear to contain anything different from their previous position, said Rendell spokesman Gary Tuma.
“Senate Republicans remain committed to allowing a full deduction of the costs associated with getting the natural gas to market from the tax owed,” wrote the GOP leadership in a letter to Rendell. “Some individual natural gas companies are spending considerable resources laying pipeline in order to get the gas to market; other companies, due to their proximity to other existing pipelines, are not. To prohibit those costs (or to cap them at 10 percent as you proposed) from being deducted from the tax owed would create a significant inequity of the tax burden company by company.”
Rendell had asked the four caucuses to offer counterproposals to a compromise he offered last week to phase in a severance tax starting at 3 percent and reaching 5 percent by the third year while exempting up to 10 percent of some production and distribution costs.
Senate Republicans want to phase in the tax at 1½ percent during the first five years of a well’s production before a 5-percent rate kicks in. They said there would be no retroactive application of the 1½ percent rate for the full five years to wells already in operation. They also want a comprehensive package addressing drilling-related issues such as zoning rights and spacing of wells in active coal mining areas.
The House approved legislation recently to set the rate at 39 cents per thousand cubic feet, or mcf, of natural gas at the wellhead.
Severance tax revenues are being eyed to plug a $70 million hole in the current state budget and generate new revenue to help communities in drilling boom areas and replenish a state environmental protection fund. Both the governor’s “3-4-5” compromise and the Senate GOP proposal would provide a significant tax break for the natural gas industry, said the Pennsylvania Budget and Policy Center, a Harrisburg think tank that supports a tax.
Elected officials face challenges trying to agree on policy so close to an election, said Terry Madonna, Ph.D., pollster at Franklin and Marshall College. The Marcellus Shale doesn’t rank as a top issue in statewide voter opinion polls with the exception being the drilling boom areas in Northeastern and Southwestern Pennsylvania.
rswift@timesshamrock.com