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Pa. GOP again resists including shale severance tax in state budget

Republicans in the Pennsylvania General Assembly left any severance tax on shale gas out of their version of the state budget when the GOP caucus in the state House released its financial plan April 3.

Democratic Gov. Tom Wolf's proposed budget included a 6.5% tax on the wellhead value of shale gas, with credit given for any payments already made under the state's per-well impact fee. It was the third time Wolf has tried to get a severance tax into the state budget only to be met with stiff resistance from the natural gas industry and the Republicans, who control both the state House and Senate.

Wolf's is not the only severance tax proposal for the new budget year in front of the Legislature. Republican Rep. Kate Harper introduced a 3.5% bill in January, and Democratic Rep. Michael Sturla introduced a 4% to 9% measure linked to the price of gas April 4.

As part of the $245.6 million in total cuts when compared to last year's $31.8 billion spending plan, the GOP House Caucus budget calls for $10.3 million in cuts for Pennsylvania's chief oil and regulator, the Department of Environmental Protection, or DEP. The department's environmental protection operations would get $4.1 million less in the new budget year, while environmental program management would get $1.9 million less when compared to the current budget.

The spending cuts are being proposed at a time when the industry has been pressing the DEP to eliminate delays in permitting. The Marcellus Shale Coalition, an industry trade group, said the DEP office in the southwestern corner of Pennsylvania takes up to 200 days to process permits, while its counterpart in the northeastern part of the state takes 40 to 45 days to process roughly the same number of permits.

The group reiterated its continued opposition to any severance tax April 4 and would not comment on the impact of the GOP's proposed cuts to the DEP budget. "We understand the tough budget challenges ahead, but Pennsylvania's unique natural gas tax — called the impact fee — has already generated more than $1 billion in new revenue for communities, environmental and conservation programs, and state agency budgets that oversee natural gas development," Marcellus Shale Coalition President David Spigelmyer said in an emailed statement, echoing the group's reaction to Wolf's proposed budget.

"Instead of saddling the industry with higher costs, Governor Wolf and the General Assembly should work to advance solutions that serve to maximize the generational manufacturing opportunities and economic growth potential for Pennsylvania and its citizens," Spigelmyer said.

Wolf's severance tax would appear to be dead on arrival again, veteran Pennsylvania pollster and political observer Terry Madonna said April. 4. "I just don't think he's going to get a severance tax through the Pennsylvania Legislature," Madonna said, noting that the GOP controls the House and has a veto-proof majority in the Senate.

"I've polled on the issue. [Severance taxes] are popular, as are most taxes that people think they don't pay," said Madonna, who directs Franklin & Marshall College's Center for Politics and Public Affairs. "If I was a betting man ? and occasionally I am ? I'd bet against a tax this year."

Pennsylvania's previous Democratic governor, Ed Rendell, was also unable to get the Republican-dominated state Legislature to pass a severance tax. His successor, Republican Tom Corbett, who served from 2011 to 2015, got an impact fee passed that charges drillers $40,000 to $60,000 on a sliding scale depending on the price of gas for each well drilled, with the fee reaching zero after 15 years of a well's life.

The $174.6 million the fee was estimated to generate for 2016, according to Pennsylvania's Independent Fiscal Office, is about 23% less than it was two years before, as drilling has slowed because of low prices, improved well designs and fracking tactics that enable to drill fewer wells.

Pennsylvania is the only large gas-producing state without a severance tax on gas production.