Pennsylvania House Panel Suggests 'Highest Shale Tax in U.S.'

Pittsburgh Post-Gazette
28 September 2010
By Tom Barnes, Harrisburg Bureau

HARRISBURG -- A key House committee approved a Marcellus Shale extraction gas tax with a significant tax rate Monday, causing a Wexford-based industry group to say it is "stunned" that legislators want to give Pennsylvania the highest tax rate for shale gas in the nation.

The House Appropriations Committee voted to approve the gas extraction tax, with most Democrats in favor and all Republicans opposed. It would impose a levy of 39 cents per thousand cubic feet (MCF) of gas extracted. Legislators hope to generate at least $200 million, which would be split among the state's general fund, localities with Marcellus drilling and environmental costs.

The proposed tax could come up for discussion in the House as early as today, with a vote perhaps this week. It would still have to be approved by the Senate, which is controlled by Republicans, who are unlikely to approve the tax in its present form. They favor a tax more like the one in Arkansas, at 1.5 percent of the dollar value of gas extracted.

Friday is looming as the Legislature's self-imposed deadline for enacting a shale gas tax. Proponents of the tax say Pennsylvania is the only shale gas state without such a tax, but gas industry officials say the tax shouldn't be so large and noncompetitive that it would drive gas drillers to other states.

Especially unhappy is the Pennsylvania Independent Oil and Gas Association, based in Wexford. Its president, Louis D'Amico, wrote to all legislators Monday saying his group is opposed to the latest tax proposal, which would give Pennsylvania "the highest tax rate in the nation."

He said association members "are unified in opposition to a severance tax and are stunned that House leaders somehow believe a 39-cent per MCF will benefit Pennsylvania." He claimed it would "drive investment to other states with more predictable regulatory structures and hurt the economic growth" the state has seen.

He called on legislators to develop policies that "realize the long-term value of private investment over short-term revenue grabs from a severance tax."

But Democrats said the gas-drilling industry has vast resources, is investing millions of dollars in Pennsylvania and can afford a tax on Marcellus Shale extraction.

There are still major questions to be resolved before a bill is passed. The House bill would split the tax revenue 60-40, with the larger piece going to the state general fund and the smaller piece going for environmental improvements and to towns with roads damaged by drilling activity. House Republicans say they'd like to see the overall split reversed, with 40 percent to the state and 60 percent to local communities.

The 39-cent per MCF figure is up slightly from the 35 cents suggested earlier by Rep. David Levdansky, D-Forward. It also differs from Gov. Ed Rendell's idea to copy the West Virginia tax plan: 5 percent on the value of the gas extracted plus 4.7 cents per MCF. Mr. Rendell said Monday he still prefers his tax idea.

If the House does take the bill up for debate today, other changes are possible, because two dozen amendments have been proposed. There also is disagreement on whether to allocate $50 million of the Marcellus tax revenue for statewide property tax reduction, augmenting the $750 million being produced from slots revenue.

Mr. Rendell doesn't think gas tax revenue should go for property tax relief. He said more slots-generated money will be available from the SugarHouse casino that just opened in Philadelphia.

He wants to use perhaps $70 million of shale tax money to balance the state budget, which is $282 million in the red.

Towns that have Marcellus Shale drilling have suffered road damage from heavy equipment and want money from the tax to make repairs. Some local schools in the Marcellus area want some revenue because their schools are expanding as workers move in with their families.

Environmentalists want some of the money used to replenish the state's Growing Greener program, which seeks to preserve farmland and green space. Others want the revenue used to help the Department of Environmental Protection make up for budget cuts that have occurred in the past two years.

Bureau Chief Tom Barnes: tbarnes@post-gazette.com or 717-787-4254.