Range Official: Deal Will be Struck With Pa. on Drilling Tax

Washington PA Observer Reporter
1 October 2010
By Michael Bradwell, Business editor
mbradwell@observer-reporter.com

A Range Resources official who spent significant parts of the last two months in Harrisburg working with state senators on natural gas severance tax proposals related to Marcellus Shale drilling said Thursday he's confident that a compromise on the tax will be reached this fall.

Ray Walker, senior vice president for Range's Appalachian Shale division headquartered in Southpointe, said Wednesday's passage by the state House of a bill that would impose the state's first-ever tax on natural gas extraction will face strong deliberation in Senate chambers.

The House-passed measure sets a rate of 39 cents per 1,000 cubic feet, which a legislative analysis projected would net more than $316 million in 2011-12, its first full year, and would rise to $578 million by 2014-15.

The House measure, which passed 104-94, advances efforts to collect revenue from a statewide drilling boom taking place in the Marcellus Shale fairway, which covers a wide swath of Pennsylvania.

The House bill's passage was hailed by environmental groups as a "reasonable and robust tax." It would dedicate 60 percent of revenue for environmental needs and local municipalities, with the rest going into the state's general fund.

However, for the first three years, the split would be made only after the first $70 million goes to the general fund and $5 million for job training.

While Walker said Range supports a severance tax and the House bill's intention to return a significant portion of revenue to local municipalities and conservation efforts, he said the levy that passed the House is too high for his industry.

"Thirty-nine cents is completely insane, unreasonable and job-killing," he said, noting that if it becomes law, the levy would be twice as high as West Virginia's 5 percent tax, currently the highest among shale-drilling states.

But it isn't just the gas industry that sees the tax as being too onerous.

Most House Republicans voted against the bill, including John Maher, R-Upper St. Clair. All nine Democrats who voted against it are from western districts, including Bill DeWeese, D-Waynesburg, and Jesse White, D-Cecil. Area representatives who supported the bill included Tim Solobay, D-Canonsburg, Peter Daley, D-California, and David Levdansky, D-Elizabeth.

"I was the primary sponsor of a severance tax bill when I was Majority Leader in 2007-08, and I am still 100 percent in favor of a tax," said DeWeese. "But, I was flabbergasted at the outrageously slender piece of the revenue pie that was being returned to the townships and other local municipalities."

DeWeese said he is hopeful that when the bill returns from the Senate it will have a significantly more "robust slice of the proceeds generated from the Marcellus bonanza" going to the townships in his district.

White, who has supported the idea of a local share portion of any revenue generated from a severance tax, said in a statement Thursday he voted against the bill for initially putting 70 percent of revenue into the general fund in the early years of the tax and for what he said was its unreasonable rate.

"We send enough of our hard-earned tax dollars to Philadelphia and elsewhere through the state's general fund," White stated. "I wouldn't be doing my job if I voted for a severance tax that is better for Philadelphia County than it is for Washington, Allegheny or Beaver counties.

"This bill would institute the highest tax rate on natural gas extraction in the nation, and I worry that it would kill the jobs we have worked so hard to create through this industry," White said.

"Now that the legislation is back in the Senate for consideration, I hope that chamber will work to lower the tax rate. I want to see the millions of dollars generated from natural resources in our region stay in our region where they belong."

DeWeese said the House Democratic proposal was crafted to be the largest in the United States. "I was more in favor of having the amount be somewhere in the middle of the national statistics, possibly approximately to what West Virginia had," DeWeese said.

DeWeese said he will give a favorable vote to the passage of the severance tax in short order if the local government share is closer to 80 percent.

"It is now at 40 percent and environmental projects will be well-funded, but I am still disappointed that my local townships are being short-changed," he said. "Roads and bridges are tied with water quality and quantity as my number one priorities."

White is planning a debate on the issues surrounding the Marcellus shale at 7:30 p.m. Oct. 20 at the Mt. Pleasant Township Fire Department. His opponent in the November general election, Greg DeLuca of Beaver County, has been invited to participate.

Walker said he believes a compromise that will produce a lower severance tax rate will come from the Senate, noting that key legislators from both chambers are already indicating some kind of accord. Senate President Joe Scarnati, R-Jefferson, said Wednesday that the bill did not do enough to help communities that host drilling activity.

"Listen to what Scarnati and (Majority Appropriations Committee Chairman) Dwight Evans, D-Philadelphia, are saying," Walker said. "They're saying Pennsylvania needs to remain competitive with other shale states.

"I think there will be an agreement in principle fairly soon," Walker said, adding that while it probably won't come by Gov. Ed Rendell's deadline of today, it could happen this fall.