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Pa. governor tries for 4th time to establish shale gas severance tax

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Pa. governor tries for 4th time to establish shale gas severance tax

Presenting the state budget for his election year, Pennsylvania Gov. Tom Wolf pushed for a first-ever natural gas severance tax, the fourth time he has done so.

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Wolf's budget calls for a volumetric tax of pennies per Mcf on the state's gas producers that would raise roughly $250 million per year, which would be used to fund education programs from preschool through university. Wolf wants to increase education funding by $225 million, according to his budget materials.

Making the choice as stark as "kids vs. gas taxes" will not make it any easier for the shale tax to find the votes the Democrat needs in the Republican-controlled Legislature, according to veteran state political observer and pollster Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College in Lancaster, Pa.

"It's not exclusively a party vote," Madonna said. "It's a regional vote. There are Republicans in the southeast [in the Philadelphia suburbs of Bucks and Montgomery counties] who are all for it, but there are Democrats in the northeast and southwest who are against it."

"Bottom line: The shale tax is still a rough sled," Madonna said.

While Wolf estimated in his budget briefing that a gas severance tax would raise $248 million by tacking 4 cents/Mcf to the state's 15.5 Bcf/d of production, significantly less than the 6.5% tax on wellhead values he proposed in 2017, gas industry groups and the state Chamber of Commerce quickly pushed back against the move.

"The governor once again is putting politics first by proposing additional energy taxes that will make hiring and investing in Pennsylvania more difficult for local job creators, small businesses and manufacturers," David Spigelmyer, president of the gas industry trade group the Marcellus Shale Coalition, said in a statement. "Pennsylvania's natural gas tax — a tax that's paid in addition to any number of other state business taxes — has generated more than $1.5 billion in new revenue for communities and environmental programs across the entire commonwealth," he added, referring to the impact fee of $50,000 per well for new wells.

Pennsylvania's Independent Fiscal Office said the impact fee amounted to a 2.9% tax on gas production in 2017, when gas prices improved slightly. The impact fee's percentage take tends to be higher when prices are lower. The IFO estimated it at 6.9% in 2015.

"Everywhere else — Texas, Oklahoma, Louisiana, Alaska — they're bringing in billions of dollars from the oil and gas industries," Wolf said in his budget speech at the state capitol in Harrisburg. "Let's understand exactly what a severance tax is. It's a tax paid by people mostly outside of Pennsylvania to use our natural resources. And by failing to put in place this common-sense tax, we're actually just paying other states' taxes. When we fill up our cars or heat our homes, we're paying for Alaska's schools and Texas' roads. I don't know about you, but I don't remember getting a thank-you note from anyone in Alaska or Texas."