Cold shoulder
After much speculation, Gov. Tom Wolf unveiled his plans this week for a severance tax on natural gas drilling.
Wolf’s proposal calls for a 5 percent tax on the value of natural gas at the wellhead, plus 4.7 cents per thousand cubic feet of volume pulled out of the ground to hedge against fluctuations in prices. The governor said his plan is modeled on neighboring West Virginia’s severance tax structure, and he projects it would generate $1 billion in its first year, which is about $800 million more each year than the current impact fee generates.
Wolf said while he hasn’t “worked out the formula” for how the money would be distributed, the “lion’s share” of funding would be used for education, with a certain portion of revenues going to communities impacted by the Marcellus shale drilling.
As expected, the proposal was rejected outright by most Republicans, including our local state senators. “We finally have some growth in this state, and now we’re talking about killing that very growth. My issue is that it’s taxing a specific industry,” said Pat Stefano, R-Bullskin Township.
“A severance tax on Marcellus Shale drilling would put at risk jobs and countless future projects,” added Camera Bartolotta, R-Monongahela.
Local members of the state House of Representatives, Tim Mahoney, D-South Union Township, Pam Snyder, D-Jefferson and Ryan Werner, R-Perry Township, were also opposed to the tax, mainly over the lack of specifics concerning the replacement of impact fees.
“The way the impact fee is set up right now, it tremendously helps out with rural Pennsylvania,” Warner said. “We are the ones who have to deal with the impact on the gas drilling. Whatever it is, I want the money to stay with us.”
So, can Wolf overcome those objections to get the severance tax passed by the state Legislature? Well, Wolf did make the tax one of his campaign centerpieces, and he did defeat Republican incumbent Tom Corbett handily in last fall’s election. The state also faces a budget deficit estimated by some at $2 billion.
However, Wolf will probably have to reduce the severance tax to make it appealing in any way to Republicans. House Majority Leader David Reed said the severance tax would in effect be 7.5 percent, among the highest in the nation. Perhaps Wolf proposed such a high percentage to give him some wiggle room in future negotiations with Republican leaders of the state Legislature.
Wolf will also have to come up with a concrete formula to replace the impact fee before any local legislator will support it. Wolf would be wise the lock in the $200 million currently allocated for the impact fee before doing anything else with the revenue.
From that point on, things could get very interesting. Republicans have hinted at some kind of grand deal where Wolf supports pension reform and the dismantling of the state store system in exchange for the passage of a severance tax. Certainly anything is possible in Harrisburg.
Wolf could also veto pension reform and an overhaul of state stores, but he won’t be able to pass a severance tax unless it’s approved by the state Legislature, which is controlled by Republicans.
Is there a way for Wolf and the Republicans in the state Legislature to reach a compromise on their differences? Who knows? That will definitely be the story to watch over the next six months or so in Harrisburg. Stay tuned.