Wednesday, July 8, 2015

Inky Oped: Severance tax would hurt Pa.'s natural-gas industry

Severance tax would hurt Pa.'s natural-gas industry

By: Denise Furey
Two years ago at the Marcellus Shale Coalition's annual conference, Lt Gov. Jim Cawley warned Democrats in Harrisburg that one cannot both tax and ban shale-gas development. Unfortunately, the severance tax in Gov. Wolf's proposed budget could unintentionally do just that.
The Pennsylvania legislature offered Wolf an alternative budget with no severance tax, but he promptly vetoed it. I hope the legislature sticks to its guns.
The weak price of natural gas already has resulted in a reduction in the number of rigs in the state, down from 116 in 2012 to 47 in March. A severance tax would only further curtail the drilling of new wells and eliminate related construction jobs, not to mention the income tax and other related state revenues from those activities.
Wolf's plan would be particularly deadly to the sector. The governor wants to put a 5 percent tax, along with a fixed fee of 4.7 cents, on each thousand cubic feet of gas extracted. Also, he wants the tax assessed on a minimum price of $2.97. Today's market price for natural gas is $2.86, which is already below that base. Perhaps more importantly, gas producers in Pennsylvania are reportedly receiving significantly lower prices - ranging from $1.20 to $1.80 - owing to inadequate transportation infrastructure.
At these prices, the tax works out to be as high as 16 percent, making it one of the highest in the nation. If Wolf gets his way, drillers will look to develop reserves in other states - effectively banning new development in Pennsylvania. The American Petroleum Institute estimates that Wolf's plan would reduce the state's gross product by $20 billion through 2025.
Wolf wants the proceeds from the severance tax earmarked for public education. Sadly, I doubt any large portion of these tax revenues will go to classrooms instead of ever-expanding pension expenses. Ninety-eight percent of municipalities that petitioned the state for exemptions to increase real estate taxes at a rate above inflation from 2010 to 2014 cited pension expenses as a cause. Our underfunded pension plans are a real problem, but we won't solve them by derailing an industry that has been and could continue to be an economic engine in the state.

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