Pa. Governor Revives Gas Severance Tax

WBOY-TV
21 January 2010
By Pam Kasey

HARRISBURG -- Pennsylvania Gov. Ed Rendell renewed his call Jan. 14 for a severance tax on natural gas.

"I continue to believe that we need a severance tax -- just as they are doing in many other states," he said.

Rendell first proposed the tax in February 2009 as a partial solution to budget problems.

The state was facing a $2.5 billion shortfall, local newspapers were reporting, and Rendell cited estimates that expected gas production from the Marcellus Shale would generate $100 million from the tax over the following year and $630 million annually in five years.

The Natural Resource Severance Tax Act, House Bill 1489, introduced by Rep. Camille "Bud" George, would have established a tax equivalent to West Virginia's 5 percent on the value of gas extracted plus 4.7 cents on every 1,000 cubic feet.

The bill was approved over the summer by the state House of Representatives, but the Senate later eliminated the tax in a budget bill.

Rendell also withdrew his call for the tax because gas prices plummeted, and he said he wanted to give the Marcellus industry a chance to get established.

But Jan. 14, he made it clear that he believes development of the industry now is well under way.

The Pennsylvania Department of Environmental Protection reported 195 Marcellus wells drilled in 2008 and 763 in 2009 and expects applications for 5,200 Marcellus wells in 2010, he said.

In addition, bids offered by five companies for gas leases in Pennsylvania state forests came in at $128 million, more than double the state's expectation.

"This week's auction results of more than $4,000 bid per acre ... is further proof of how well the industry is doing and how much this commodity is valued," Rendell said.

"Given that the industry is now firmly footed here and doing very well, I believe we should pursue the imposition of a tax on Marcellus natural gas extraction," he added. "I propose that this tax be effective this July, and I hope the legislature will embrace this proposal."

Rendell's office is predicting a $500 million revenue shortfall for the coming fiscal year, which puts pressure behind all new forms of revenue.

Matthew Maciorkoski in George's office said he expects that HB 1489 will be the vehicle for the severance tax.

It will have to be voted out of committee again, Maciorkoski said, some time after the governor's Feb. 9 budget address.

He expects that bill's tax provisions will remain the same as West Virginia's, with negotiations possibly taking place in the distribution of the revenues.