Blog: Morning Must Reads: A Natural Gas Severance Tax This Year?

Chris LilienthalCross posted at Third and State

Momentum is building to enact a natural gas severance tax in Pennsylvania. But don't take it from us.

The Triadvocate has an analysis of the debate that concludes an extraction tax is "almost a fait accompli."

"As April moves forward and we continue to get depressing news from the Department of Revenue about tax collections (the state is now $175 million behind projections for the year), there is some renewed discussion at the very highest levels of the General Assembly about an extraction tax being levied on natural gas drillers in Pennsylvania.

But unlike past discussions that have been taking place since the waning days of the Rendell Administration, this time the possibility of the tax actually being levied is more than just idle talk. It is almost a fait accompli."

The Triadvocate bases its analysis on three factors: lagging General Fund revenue collections, growing support for a severance tax among some members of the House and Senate GOP, and a sense among some (not all) drilling companies that it is best to negotiate a reasonable tax in line with other states now rather than next year when the state may have a new governor.

Meanwhile, The Associated Press reported this week that another GOP lawmaker is joining the chorus calling for a severance tax.

Monroe County Representative Mario Scavello, who is running for a newly created Senate seat, is seeking co-sponsors on a bill to impose a 5% tax on the highest-producing shale gas wells. Tom McGarrigle, a Republican candidate for an open Senate seat in southeastern Pennsylvania, supports a 4% tax, while Representatives Tom Murt and Eugene DiGirolamo, Republicans from the Southeast, favor enacting a 4.9% tax.

Governor Corbett's administration maintains its opposition to a severance tax, as reflected in a National Journal story this week asking "Is Pennsylvania Wasting Its Fracking Wealth?"

That story also notes the state's current drilling impact fee has failed to keep pace with rising gas production.

"Between 2012 and 2013, revenue from the fee increased by 11 percent, jumping to a record high of close to $225 million last year. But the leap was significantly smaller than the overall rise in production. Natural-gas output increased by more than 37 percent in the same period, when it rose to 3.1 trillion cubic feet, according to Pennsylvania state estimates.

Skeptics say the math doesn't add up. "We haven't captured the gains we're seeing in production and that means we're essentially giving away money right now that other states are collecting," said Sharon Ward, the executive director of the left-leaning Pennsylvania Budget and Policy Center.

A report released last month by a state data agency has added fuel to the fire. It concluded that Pennsylvania has the lowest effective tax rate on natural-gas production in a survey of 11 of the largest shale-gas-producing states."