Meadville Tribune

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April 11, 2014

Dems running for governor propose taxing gas drillers to benefit education

HARRISBURG — Democrats running for governor seem to be competing to convince voters they will dip deepest into the pockets of gas drillers to replace $1 billion that Gov. Tom Corbett has cut from education spending.

All four candidates running for the party’s nomination propose a severance tax on the value of natural gas pumped from each well. The candidates vary slightly in approach, but all say schools will be the beneficiary.

Pennsylvania now charges gas companies an impact fee — $50,000 per well in the first year, which diminishes until it expires 15 years later. The fee is roughly equivalent to a 2 percent severance tax, according to an Independent Fiscal Office report, which is far less than the Democratic candidates say it should be.

Corbett has steadfastly refused to support a severance tax, arguing that it would slow the growth of the gas drilling industry.

“Governor Corbett has worked to ensure we are safely and responsibly using our natural resources to reduce energy prices for families and small businesses, grow our economy, and create family-sustaining jobs,” Corbett spokesman Billy Pitman said. “Our liberal Democratic opponents have never seen a tax increase they didn’t like and continue to prove their misguided tax-and-spend policies are out of touch with Pennsylvanians.”

But Chris Borick, a political science professor at Muhlenberg College, said the Democrats’ push to link a drilling tax to education spending is an astute political move intended to capitalize on two of Corbett’s biggest weaknesses.

Polls show the public largely supports more school spending and blames Corbett for cutting education funds, he said.

At the same time, while most Pennsylvanians support the gas industry, he said, there’s broad support for raising the extraction tax. The public generally doesn’t agree that it would drive away drillers, Borick said.

Most of the proposals floated by the Democratic candidates and lawmakers are in the range of a 5 percent severance tax, similar to West Virginia’s. The Pennsylvania Budget and Policy Center said the state would have generate another $300 million in revenue this year if drillers here paid a tax at the West Virginia rate.

Treasurer Rob McCord’s plan would give Pennsylvania one of the highest severance taxes in the nation — 10 percent.

Even at that rate, his campaign argues, Pennsylvania’s tax wouldn’t be as high as those in some other states, including North Dakota, Montana and Alaska.

It would provide enough money to continue sending funds to rural areas of the state that now get impact fees, while leaving hundreds of millions of dollars to spread around the state, said McCord spokesman Mark Nivens.

Pennsylvania is among the top states in natural gas production, yet is unique because it doesn’t charge a severance tax, according to a 2012 report by the National Conference of State Legislatures.

An analysis released last week by the state’s Independent Fiscal Office noted that a well’s value increases as it produces more gas. That means the “effective tax rate” of the state’s current impact fee — not tied to production — shrinks with time.

Just three years ago, the impact fee was the equivalent of a 5.5 percent severance tax. The IFO estimates, in 2014, it will amount to a 1.9 percent in tax on gas production.

The dwindling return makes it easier for lawmakers and gubernatorial candidates to argue that a severance tax could be increased in a way that continues to pour money into communities now receiving a cut of the impact fee while leaving millions for the rest of the state.

The state is projected to receive $224 million in impact fees this year, according to the Public Utility Commission. Most of it goes to counties and communities where drilling occurs.

About 20 percent of those local dollars goes to communities in the district represented by Sen. Gene Yaw, R-Lycoming County. He said the money has paid for all sorts of things, including extending water and sewer service, a YMCA, housing programs, municipal equipment and bridge repairs.

Bills currently circulating through the Capitol could raise up to $937 million through a combination of impact fees and severance taxes, according to estimates by the Senate Democratic Caucus.

Despite what proponents promise, Yaw said he’s skeptical that money for rural communities now tied to the impact fees would survive the legislative process.

“I guarantee we’re not going to get that money,” he said. “It’s a matter of where the votes are.”

The following is a summary of the proposals of each Pennsylvania governor candidate on severance taxes for gas drilling.

Democrat Katie McGinty: Two-tiered tax with a 4.5 percent charge on the wellhead price of gas and a production tax of 2 cents per 1,000 cubic feet. Promises to use all proceeds from a severance tax for education.

Democrat Allyson Schwartz: Wants a 5 percent severance tax to “support transformational investments in education, transportation, clean energy and the people of Pennsylvania.”

Democrat Tom Wolf: Calls for a 5 percent severance tax “for essential programming, the Department of Environmental Protection for improving oversight and strengthening regulations, and the local communities where drilling is taking place.” A spokesman says “essential programming” means school spending.

Democrat Rob McCord: Calls for a 10 percent severance tax “to invest $1.3 billion in early learning and our K to 12 classrooms.” McCord has the endorsement of the teachers union.

Republican Gov. Tom Corbett: The Republican incumbent has maintained a position staunchly against severance taxes, saying they will stymie the state’s gas drilling industry — one of the largest in the country in production terms.

John Finnerty reports from the CNHI Harrisburg Bureau for The Meadville Tribune and other Pennsylvania newspapers owned by Community Newspaper Holdings Inc. Email him at jfinnerty@cnhi.com and follow him on Twitter @cnhipa.

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