The less Gov. Corbett wants to talk about a tax on gas drillers, the more it gets discussed

HARRISBURG — Sitting in a state House hearing on Gov. Tom Corbett’s $27.3 billion budget proposal, Charles Zogby reached his boiling point.

Pressed repeatedly on his boss’s opposition to a “severance tax” on natural gas drillers, Corbett’s usually unflappable budget secretary snapped at Democratic members of the House Appropriations Committee.

“We can talk about this until the cows come,” said Zogby, who, with his sharply parted hair and impeccably knotted ties brings an executive’s poise to the coffee-ringed culture of state government. “The governor is not interested in raising taxes. Period.”

But Zogby can only wish it were that easy to shut down debate on a severance tax, a levy on the gas that drillers take out of the ground. With scores of state programs under the knife to close a $4.1 billion budget deficit, the chorus of those unwilling to let the subject drop has grown louder.

“This has become the issue of the moment,” said G. Terry Madonna, a political science professor and pollster at Franklin & Marshall College in Lancaster. “It started out as a regular policy debate, but it grew geometrically into the single most important issue outside of the budget.”

Corbett, who ran on a pledge not to raise state taxes or fees, has made it clear that he will not sign a severance tax into law. But partisans have continued to press their argument, hoping that public opinion, which is already strong, will pressure Corbett into a change of heart.

Those on both sides of the issue agree on this much: The burgeoning natural gas industry represents a massive economic opportunity for modern Pennsylvania in much the same way steel and coal did for previous generations. All concerned say they want to help the industry flourish while protecting the environment. But they differ profoundly on how to pay for that.

For supporters, the argument in favor of a severance tax is a simple one: With drillers making untold billions by extracting natural gas from beneath taxpayers’ feet, there’s no reason Pennsylvania should stand alone among major gas-producing states in not imposing a levy. That’s particularly true, they say, when services for children and the most vulnerable citizens are on the line.

Corbett and tax foes argue that gas drillers already pay other types of state taxes, and that a new levy would force them to move to other gas-producing states where it costs less for them to do business. They also say the industry has been an economic engine in economically stagnant and mostly rural sections of the state.

State Sens. John Yudichak, D-Luzerne and Edwin B. Erickson, R-Delaware, recently rolled out a severance tax proposal. It is at least the second such plan hatched during the new legislative session.

“I think we should have a severance tax on Marcellus gas,” Erickson said. “I do hear him [Corbett] loud and clear on [not raising taxes]; on the other hand,” there are impacts from gas drilling that need to be addressed.

That kind of talk from within his own party has left Corbett, who has crisscrossed Pennsylvania in recent weeks to plug his budget plan, spending time and energy explaining and re-explaining his opposition to the levy.

“The message in the last campaign was clear — no new taxes,” Corbett recently told a statewide meeting of county commissioners. “The people are fed up with taxes.”

But it’s unclear whether Corbett was echoing public sentiment or merely reaffirming his election season vow for his political base.

It is clear state voters don’t want their own taxes raised to preserve cuts in state services. But a majority of voters do support a severance tax.

Sixty-two percent of respondents to a March 17 Franklin & Marshall poll said they strongly or somewhat supported a drilling tax, compared with 30 percent who opposed it. The survey of 521 adults had a margin of error of plus or minus 4.3 percentage points.

“There is virtually no tax that passes [public] muster,” Madonna said. “[A severance tax] is the only [one] that passes muster.”

Another problem for Corbett: Voters aren’t buying his tax-them-and-they’ll-leave argument, said Christopher Borick, a pollster and political science professor at Muhlenberg College in Allentown. And in a year in which Corbett is calling for shared sacrifice from the public, voters are having a hard time understanding why the cash-flush drilling industry isn’t being asked to shoulder some of the burden.

“From a political sale position, that’s an incredibly difficult case to make and the more he makes the case [against], the more he infuriates a lot of people,” Borick said. “If that’s his core argument, it’s not getting a lot of traction.”

Democrats have made the same point.

“It’s absolutely indefensible, as a matter of public policy, that the governor has refused to consider a Marcellus shale tax when other states have this tax and we’re considering other cuts,” said Rep. Greg Vitali, D-Delaware, who raised Zogby’s hackles at that House hearing. “When the people of my district hear that he’s received … donations and refuses to consider a tax, they think he’s in the pockets of the gas companies.”

Corbett has steadfastly rejected any notion that gas drillers gained influence with his office when they pumped hundreds of thousands of dollars into his campaign coffers in 2010. Nonetheless, those donations have created an image problem.

“When they see the donations, it opens you up to criticism,” Borick said. “It doesn’t prevent the public from reaching conclusions that are negative.”

The state House and Senate each passed severance tax proposals last year, but ran out the clock before they could reconcile differences between the two proposals. Gov. Ed Rendell, a Democrat, stood ready to sign a severance levy into law.

Despite Corbett’s opposition to the severance levy, he has expressed a willingness to consider a locally imposed impact fee aimed at helping counties and municipalities cover costs associated with drilling, such as damaged roads. Corbett laid down parameters for his consideration: that such a levy not be called a “tax” and a guarantee that any money raised from it go to local and county governments — not the state’s general fund budget.

“I understand the issue of impacts,” Corbett told the county commissioners. “That’s one of the reasons I have a Marcellus Commission. And we’ll be talking about that. That’s one of the reasons I have my lieutenant governor as chairman. So we can work with you.”

It’s unclear what effect such a fee would have on the question of a severance tax.

April 10, 2011
By John L. Micek, CALL HARRISBURG BUREAU
john.micek@mcall.com
(717) 783-7305
http://www.mcall.com/news/nationworld/pennsylvania/mc-pa-budget-shale-debate-20110410,0,6359202.story

Lawmakers discuss Marcellus Shale benefits

http://standardspeaker.com/news/lawmakers-discuss-marcellus-shale-benefits-1.1041896

Lawmakers discuss Marcellus Shale benefits

By JIM DINO (Staff Writer)
Published: October 3, 2010

The Marcellus Shale natural gas drilling project has the potential to ease Pennsylvania’s $3 billion budget deficit next year, but taxes and fees derived from the gas also have to protect the environment, local lawmakers said Friday.

State Reps. Eddie Day Pashinski, D-121; Neal Goodman D-123; Jerry Knowles, R-124; and Tim Seip, D-125, answered questions from members of the Northeastern Pennsylvania Manufacturers and Employers Association on Friday at Top of the 80s in West Hazleton.

Legislators were questioned on four topics: the 2011 budget deficit, taxes, transportation and energy.

Goodman started off by painting a bleak budget picture.

“Next year, we will have a minimum $3 billion budget deficit,” Goodman said. “The $2 billion from the Obama stimulus goes away, and there’s $850 million in medical malpractice in this year’s budget that may not be coming from the federal government. And we are $1 billion short on road and bridge money. It will be like this as long as the economy stays where it is.”

Pashinski said there are only five states in the black. “They are all energy-producing states,” Pashinski said.

And now, with the Marcellus Shale project, Pennsylvania will also become an energy-producing state, Pashinski said.

Pennsylvania must assess a severance tax, a tax on the gas that comes out of the ground, he said.

“Marcellus Shale is one of the richest gas fields in the world,” he said. “There are trillions of cubic yards of gas.”

A severance tax is in the natural gas industrial business model in every state except Pennsylvania, Pashinski said.

The House approved a bill last week setting a significant tax rate at 39 cents per thousand cubic feet, or mcf, of natural gas at the wellhead. Senate Republican leaders have proposed setting a severance tax rate at 1.5 percent during the first five years of a well’s operation before a 5 percent rate kicks in.

Goodman said he expected the tax – once the House and Senate get together on the issue – to end up being between 5 and 7 percent.

But he cautioned a good chunk of the money has to go to ensuring environmental protection, including hiring state Department of Environmental Protection inspectors.

Our area should have learned from what the coal industry did to the local environment, Goodman said.

“This is coal revisited,” Goodman said. “In the early 1700s, coal operators wanted to come in, and said ‘if you don’t let us come in, we’ll go to Kentucky or West Virginia, and come back here later.’

“But look at what happened. I know a place in Girardville where orange water oozes out of the ground.

“We are the Saudi Arabia of gas,” Goodman said. “This project will create 111,000 jobs. We have to be careful.”

Knowles said the tax should be fair.

“There are 23 to 28 shale deposits in the country,” Knowles said. “We don’t want them to abandon this project. These jobs start at $20 to $22 per hour. They are good jobs.”

One problem is, Pennsylvania residents are not trained or experienced enough in the field to get the jobs right now.

“They took an old valve plant in Bradford County and turned it into classrooms,” Knowles said. “We have to work with community colleges to increase the training.”

The taxes and fees from Marcellus Shale will raise an estimated $1 billion a year. While some want to put all of it into the state’s general fund, Seip wants to put half in the general fund, and the other half into transportation – mass transit, roads and bridges.

Seip suggested revamping the state’s sales tax law to tax more goods and services – raising $6 billion to $7 billion – to fund road and bridge repairs, and to replace the property taxes on primary homes.

“The sales tax law has not been revised since 1971,” Seip said.

His so-called Sales-tax Modernization Addressing Real Tax equality plan, or SMART plan, would subject the following items to the state’s 6 percent sales tax: Newspapers and magazines, advertising, catering, investment consulting, scientific research, and admission to theaters, museums and sporting events. High school sports would be exempt.

The legislators said property owners do get gaming funds toward reducing property taxes but often don’t realize it because the rebate comes in the form of a property tax reduction.

The legislators said Pennsylvania benefits much more than other states with gaming.

“New Jersey gets 9 cents on every gambling dollar, while Pennsylvania gets 55 cents,” Pashinski said. “About 34 cents goes into the general fund, 12 cents to save the equine industry, 5 cents toward tourism, the state’s second-largest industry, and 4 cents to local governments.”

Pashinski and Goodman said their constituents receive a $200 rebate on their property taxes every year from gaming.

Goodman said the 12 cents toward the equine industry is money well spent.

“We saved about 40,000 jobs and created another 8,000, (in the gaming industry)” Goodman said. “Dealers are making $35,000 to $40,000 a year.”

jdino@standardspeaker.com