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Wolf, the severance tax and the election

In about a month, Gov. Tom Wolf will once again give his budget address to the state legislature, and once again, he will likely ask lawmakers to enact a severance tax on the abundant gas flowing out from the Marcellus Shale in the Keystone State.

A state severance tax has been the subject of debate ever since hydraulic fracturing came to the state a decade ago, yet Pennsylvania remains the only major gasproducing state that does not have such a tax. It does have an impact fee that is assessed for every well, but that fee is not tied to the amount of gas produced, as a severance tax would be. The impact fee generates about $200 million per year, while a 5% severance tax, which has been Gov. Tom Wolf’s proposal in previous years, would bring the state five times that amount.

The gas industry claims that the state’s impact fee actually brings in more revenue than the severance tax of several other states. But that assertion is refuted by the Pennsylvania Budget and Policy Center, which wrote in the fall of 2017, “Compared to a [gas production volumeweighted] average of the other eight states, Pennsylvania’s impact fee raised less than half as much revenue per volume of gas extracted.”

Last summer, the state Senate approved a severance tax that would have been tied to the price of natural gas and would have ranged from 1.5 cents to 3.5 cents per thousand cubic feet of natural gas, and that was expected to have raised about $100 million. Added to the impact fee, that could have been the equivalent of taxes of about 2% on revenue from gas produced in the state. Given that the average paid in taxes in other states averages about 7%, whether through property taxes or severance taxes, it seems as though the severance tax the Senate Republicans approved was a reasonable amount. In return, the proposal called for some serious regulatory easing that gas companies had requested. The proposal, for instance, would have speeded up the process of permitting oil and gas projects and compelled the Department of Environmental Protection to hire third-party contractors to handle the permitting process.

But the House Republicans would have none of it; they dug in their heels and the severance tax died. At one point late in the year, there was once again discussion in the House about adopting a severance tax, but the Republicans’ cynical move to get this politically potent goal accomplished was to change the name of the impact fee and instead call it a severance tax. That effort died, too.

So why are Republicans so opposed to the idea of a severance tax that all other major gas-producing states have adopted? It’s not hard to believe it’s got something to do with the nearly $8 million in campaign donations Republican candidates have received from the gas industry in recent years. Also the gas industry has spent big money on lobbying: $3.7 million in 2017 alone according to Democratic Rep. Greg Vitali.

Since running for the state’s highest office in 2014, Wolf has said he would use the revenue from a severance tax primarily to shore up education in the state with large new investments in preschool, grades K through 12 and state universities.

For almost as long, Speaker of the House Mike Turzai has been vocally opposed to a severance tax. He has said, “I think the governor’s severance tax proposals are designed to stop the growth of natural gas, and it is going to stop energy independence, and it is going to stop the growth of jobs in Pennsylvania.”

This year, Wolf will be running for re-election as he tries to get his priorities reflected in the budget, which will likely include another go at a severance tax. One of Wolf’s announced opponents is Turzai, who will likely play to his base and again strongly opposed any attempt at the adoption of the severance tax. The three other Republican candidates who want Wolf’s job would also likely oppose a severance tax. One is Sen. Scott Wagner, who has expressed the view that if a severance tax is passed Wolf would be re-elected, so clearly he won’t support one. Pittsburgh-area attorney Laura Ellsworth, who has also announced her candidacy, emphasizes reduced spending on her website, so she likely wouldn’t support a severance tax. One of businessman Paul Mango’s top messages regards tax cuts for both businesses and corporations. It seems therefore the only gubernatorial candidate who will be pushing for the tax will be Wolf. But unless voters decide to cut into the Republican’s legislative lead in the heavily-gerrymandered state in the next election, the likelihood of getting one anytime soon seems remote.

 

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