Pennsylvania Gov. Tom Wolf (D) outlined a proposed $29.9 billion budget on Mar. 3 that would involve $2.5 billion of net tax increases for fiscal 2016, including a 5% severance tax on natural gas.
Since taking office in January, Wolf has visited schools, saying revenue from gas taxes would increase public education funding. The state faces an overall $2.3 billion budget deficit. Industry has said a severance tax could hinder Marcellus shale investment and cost the region jobs.
A spokeswoman for the American Petroleum Institute said it appears Wolf wants to maintain an existing local impact fee as well as implement a severance tax on the gas industry although many details remained uncertain as of early March.
API Pennsylvania Executive Director Stephanie Catarino Wissman said the local impact fee has distributed more than $630 million to communities since 2012. Pennsylvania is the only state having a local impact fee, she said. It was established by Act 13 of 2012.
"That’s on top of over $2.1 billion in state and local taxes already generated by our industry," Wissman said, adding that the commonwealth figures among the top two US states for gas production. In 2014, operators in Pennsylvania produced 4 tcf, a 30% increase over 2013.
"The governor should focus on choosing forward-looking, pro-energy policies that will continue to benefit the commonwealth and its citizens," Wissman said.
In December, the Pennsylvania Budget and Policy Center calculated a 5% severance tax could deliver $1 billion in revenue. Natural gas industry representatives disputed the number, saying it was too high.
They cited lower prices being paid for natural gas, and the fact that Pennsylvania operators receive less because of their inability to get gas to pipelines.
The PBPC revised its estimate, stating that in 2015-16 a 5% severance tax would yield $675 million at a gas price of $2.67/Mcf. A current state impact fee on gas generates an estimated $270 million.
David Spigelmyer, president of the Marcellus Shale Coalition, and Lou D’Amico, president of the Pennsylvania Independent Oil and Gas Association, both have said previously that the state’s impact fee, enacted in 2012, is working.
They have suggested a severance tax would lower investment by the industry in the state.
Spigelmyer said Mar. 3 that, "Natural gas development in the commonwealth continues to be an absolute game-changer for each and every one of our 67 counties, bringing about positive progress and broad-based benefits to all Pennsylvanians."
He said higher energy taxes on an industry already generating "substantial tax revenue for state and local governments" would undercut Pennsylvania’s competitive position to attract investments.
Spigelmyer said industry was willing to work with state government officials but he warned that, "Now is the absolute wrong time for onerously higher energy taxes, which threaten jobs and Pennsylvania’s long-term competitiveness as well as our manufacturing potentials."
PIOGA’s D’Amico has noted the gas industry was the "only extractive industry being targeted for a severance tax."
"We’ve been through this before," D’Amico said of earlier severance tax proposals.
"PIOGA remains firm in opposition to a severance tax. While touting the need to invigorate middle class jobs, his tax will cost 75,000-100,000 jobs depending on the oil and gas jobs at a minimum."
Wolf’s severance proposal signals what D’Amico called "a return to…big- government spending policies, sacrificing private sector jobs to fund an ever bigger, ever more costly Pennsylvania government."
Separately, Pennsylvania Sen. Ryan P. Aument (R) issued a statement on Mar. 3 in reaction to the governor’s proposed budget.
"We cannot ask our friends and neighbors to hand over even more money in the form of enormous tax increases without first fixing the structural deficit problems in the state budget," Aument said.
"When dealing with complex problems…simply throwing money at the problem will not solve anything. In this case, calling for crippling increases to broad-based taxes in order to pay for massive increases in state spending will only make these problems more difficult to solve in the future."
Aument said he suspects the final budget approved by the General Assembly "will differ substantially" from Wolf’s proposal.