PA trade association: Severance tax proposals are ‘short-sighted tax schemes’

By Andrew Staub | PA Independent

Pennsylvania lawmakers from both parties have lobbied hard this spring for a severance tax on natural gas drilling, their voices growing louder as the state’s revenue numbers continue to flag.

On Tuesday, industry and business leaders pushed back against the proposal, calling it an unfair tax that could strangle production and derail economic progress in the Keystone State.

“Make no mistake, these short-sighted tax schemes are based on politics, not economics,” said Stephanie Catarino Wissman, executive director of Associated Petroleum Industries of Pennsylvania. “They would destroy job growth and stifle the type of capital investment that is helping our state to grow.”

Proposals for a severance tax have been bandied about for years, even after the state implemented a local impact fee on natural gas drillers in 2012. That fee has generated more than $600 million so far, on top of the more than $2 billion the industry has paid in state taxes since 2007, Wissman said.

Natural gas production from Pennsylvania’s Marcellus Shale topped 3 trillion cubic feet in 2013, more than double the previous year’s production. That’s led to more jobs — and not just in the energy business, Wissman said, pointing to a ripple effect on the construction, chemical and even hospitality industries.

A severance tax could jeopardize that growth, she said.

Gene Barr, president of the Pennsylvania Chamber of Business and Industry, said the severance tax proposals are part of a continual “drum beat” that the state needs more money from businesses. He warned that the tax would likely be passed along to consumers.

While Tom Wolf, the frontrunner for the Democratic gubernatorial nomination, has argued the tax would be largely paid for by people outside of Pennsylvania, Barr said it’s “small consolation” to know it might be an exportable tax.

Republican Gov. Tom Corbett has staunchly opposed a severance tax, but that hasn’t stopped lawmakers from forging ahead with proposals. Earlier this month, a group of bipartisan lawmakers from both the state House and Senate gathered to reiterate their desire for a severance tax.

As pension costs devour budgets and the state continues to see declining revenue numbers, industry and business leaders know the natural gas industry is a revenue target even if they’re not sure a severance tax will pass.

The Pennsylvania Budget and Policy Center, a left-leaning think tank, found that a 4 percent severance could pull in $1.2 billion annually by 2019-20.

There seems to be a growing appetite for the tax — even among Republicans — as the state’s finances tighten. At least 25 Republicans in the House — and maybe as many as 30 or 35 — would support a reasonable severance tax, state Rep. Gene DiGirolamo, R-Bucks, said earlier this month.

“The votes are absolutely there in the House to get a severance tax done,” he said.

But Barr said it’s erroneous to think natural gas drillers wouldn’t leave behind Pennsylvania’s Marcellus Shale, especially if the regulatory and tax climate make it unfeasible to extract the gas.

“The reality is it can stay in the ground if it’s not economical to get out. That is just the simple truth,” Barr said.

Westmoreland Chamber of Commerce President Chad Amond said he supports a tax climate that will allow the natural gas industry to grow.

The local impact fee has already led to millions of dollars invested in emergency preparedness, public safety and infrastructure in Westmoreland County, where the natural gas industry has had a ripple effect on other businesses, Amond said.

Amond is concerned about what a tax overhaul could do.

“We know all too well that when sometimes the butterflies flutter their wings in Harrisburg, all too often it causes tidal waves in other parts of the commonwealth,” he said.

Andrew Staub is a reporter for PA Independent and can be reached at Andrew@PAIndependent.com. Follow @PAIndependent on Twitter for more.