News Analysis: Will State Lawmakers Pass A Gas Severance Tax This Session?

Pennsylvania House Democratic and Senate Republican leaders say they'll try to agree on a compromise gas severance tax bill before mid-October. That's when the legislative session ends.The House has already passed a bill that imposes a tax. The Allegheny Front's news analyst Ann Murray joins host Jennifer Szweda Jordan to discuss the ins and outs of taxing natural gas in the state.

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OPEN: Pennsylvania House Democratic and Senate Republican leaders say they'll try to agree on a compromise gas severance tax bill before mid-October. That's when the legislative session ends.The House has already passed a bill that imposes a tax. The Allegheny Front's news analyst Ann Murray is here to discuss this.

JORDAN: Ann, the legislature had a self-imposed deadline to pass a bill by October 1st for a severance tax on natural gas production. What's the Senate doing right now?

MURRAY: The body is out of session until October 12 unless the president pro tem recalls the senators back sooner. But state senators have certainlybeen talking about the House vote on a gas severance tax.

JORDAN: There doesn't seem to be much enthusiasm for the House bill among Republican senators, does there?

MURRAY: No, no love there. Republican senators and many Republican House members say the tax rate of 39 cents per thousand cubic meters of gas that's extracted is too high and as Senate President Joe Scarnati says is "punitive to the gas industry."

JORDAN: But nine Republicans did vote for the House bill. Most other Republicans and some so-called Blue Dog Democrats in the House thought it was too high. Why did the nine house Republicans support the tax?

MURRAY: One big reason is the compromise in the bill about where the proceeds from the tax would go and how it would be divided. An amendment was passed to spend the first $75 million on the current state budget and provide job training for gas industry jobs. After that, 60 percent of the annual severance tax money would go to local governments and the state environmental stewardship fund which funds local projects. The rest would go to state government.

JORDAN: The Republicans have been the ones to push for more money to go back to local communities and environmental funds. How has that gone over among environmental groups?

MURRAY: Environmental groups and citizen groups have agreed that the majority of the tax money should be locally distributed to communities affected by drilling and environmental projects and not go into the state's general coffers.

JORDAN: How about outside the legislature. What has Tom Corbett,the Republican candidate for governor said about the House bill?

MURRAY: He's said all along that he's not in favor of a severance tax and the House bill didn't change his mind.

JORDAN: And Dan Onorato, the Democrat running for governor?

MURRAY: Onorato says that he thinks the House rate is too high but a rate floated by Senate Republicans is too low.

JORDAN: For some context, how much is the industry being taxed in other states, especially like our neighbors Ohio and West Virginia?

MURRAY: WVs two-tax approach applies a flat, 5 percent tax on the market value of gas sold and a 4.7-cent tax on each 1,000 cubic feet of gas produced. That works out to about 25 cents per 1000 cubic meters. Ohio's tax rate for natural gas is 2.5 cents per 1000 cubic feet. Louisiana charges 33 cents per 1,000 cubic feet of production of gas, generating $911 million last year. Texas charges 7.5 percent of market value on gas, generating $2.3 billion last year. And Oklahoma charges 7 percent of market value on gas, generating $1 billion last year.

JORDAN: Proponents of the House bill point out that other gas states also impose a property tax on natural gas.

MURRAY: That's right and Pennsylvania does not.

JORDAN: What numbers are Senate Republicans throwing out there?

MURRAY: There's a Senate proposal for a 1.5 percent tax that ramps up to 5 percent after three years of production of a well.

JORDAN: Governor Ed Rendell says he won't sign any severance tax legislation that phases in a tax rate on gas production. Why does he say he's completely dismissing that idea?

MURRAY: Rendell and others say that gas wells produce the most gas in the first couple of years of production so the gas industry would be given a gift from the state if production wasn't taxed until wells are less active.

JORDAN: So there could be holdups with the governor even if a compromise bill gets through this session?

MURRAY: Yes. Governor Rendell also says he thinks that a severance tax bill shouldn't include whether the industry can force land owners who don't want drilling on their property to participate, something critics call "forced pooling." Governor Rendell also says he thinks that the whole question of zoning for drilling in residential areas should be decided separately.

JORDAN: These are issues that the gas industry are pushing. How did the industry react to the House bill that calls for a 39-cent tax rate?

MURRAY: Former governor Tom Ridge who represents the Marcellus Gas Coalition calls the House tax rate "onerous" but says the industry should pay some kind of tax. According to the Pittsburgh Tribune Review, the Pennsylvania Independent Oil and Gas Association, which represents both Marcellus and conventional industries, opposes any tax.

JORDAN: So what are the prospects for a compromise bill?

MURRAY: Some political pundits say that the promise of money right now going to local municipalities and environmental projects might keep legislators working to compromise. State Auditor Jack Wagner says Pennsylvania is short $5 billion in fiscal 2011-12. That's because the state will lose federal stimulus aid that helped fill holes in the budget the past two years, and owes the federal government money for unemployment compensation payments and has to cover an $800 million spike in state pension costs for retirees. It's estimated the House bill would generate around 300 million the first year. No estimates yet out of the Senate.

JORDAN: Thanks, Ann.

MURRAY: You're welcome.