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New natural gas proposal draws mixed reactions

By   /   April 28, 2011  /   No Comments

Would count as tax increase, says group behind no-tax pledge

By Eric Boehm | PA Independent

The top Republican in the state Senate on Thursday unveiled a new state fee structure for natural gas drillers operating in Pennsylvania to mixed reviews.
The concept is receiving only a lukewarm reception from other lawmakers and environmental groups, though the drilling industry seems willing to accept the plan.
Senate President Joseph Scarnati, R-Jefferson, said the concept behind the “local impact fee” is to collect revenue from gas drillers to help local governments, environmental projects and the state’s infrastructure deal with the impact of natural gas drilling. According to Senate Republican projections, the fee would generate $76 million in revenue this year and nearly $150 million in 2014 as the industry grows. 
Sixty percent of the revenue would go to local governments and none of it would go to the state’s budget. The remaining money would go to environmental districts and infrastructure work.
Drilling companies said Thursday they were open to discussing the new fee.
“We are very supportive of the concept,” said Matt Pitzarella, spokesperson for Range Resources Corp., one of the largest drilling companies operating in the state. “Clearly, the costs have to be fair and thoughtful and competitive.”
The Pennsylvania Independent Oil and Gas Association, which represents 800 small drilling companies in the state, expressed in an emailed statement a “continuing commitment to engage with stakeholders over the concept of an impact fee.”
Environmental activist groups, which have been leading the unsuccessful charge for a natural severance tax in the state, were less enthusiastic about the new proposal.
Jan Jarrett, executive director of Harrisburg-based environmental lobbying firm PennFuture, said the proposal was a first step towards a larger discussion on a severance tax.
“Now it’s not a matter of whether there will be a drilling tax; it’s a matter of what the tax will look like,” said Jarrett, who also criticized the plan for failing to deliver “vitally necessary environmental protection funding.”
Scarnati’s plan would assess a “base fee” of $10,000 per well, which would rise with increases in production and natural gas prices. The state’s Public Utility Commission, which regulates all utilities in the state including the natural gas industry, would collect the fees and distribute it according to a formula to be formalized in the legislation.
Scarnati said his goal is to give local and county governments 60 percent of the fee revenues to mitigate the impacts of natural gas drilling. The local impact portion would be split between counties with drilling sites, municipalities with drilling sites, and municipalities without drilling sites that are adjacent to others that have drilling.
The remaining 40 percent of the fee revenues would be divided among the state’s conservation districts and statewide infrastructure projects.
Gov. Tom Corbett has repeatedly said he would veto any proposal to tax the natural gas industry and took a pledge during his gubernatorial campaign to not raise any taxes. Scarnati said he had been given a “caution light” by the governor with regard to the local impact fee plan.
“I don’t have a red light, and I don’t have a green light,” Scarnati said. 
He acknowledged the final judgment on whether the plan passes the governor’s “no-tax” pledge would be Corbett’s signature.
The Corbett administration is also trying to figure out what to do with several natural gas drilling issues.
Shortly after being sworn into office, Corbett formed a commission to examine a variety of issues surrounding the natural gas industry in Pennsylvania. Lt. Gov. Jim Cawley, who is heading the commission, said a severance tax would not be considered, but left the door open to recommending a local impact fee if sufficient needs were identified on a local level.
The Scarnati proposal — if eventually signed into law by Corbett — would count as a tax increase, according to Americans for Tax Reform, the Washington, D.C.-based nonprofit lobbying organization behind the “no-tax pledge” taken by Corbett during his gubernatorial campaign last year. 
Patrick Gleason, director of state operations for ATR, said the plan would count as a tax because some funds would go to municipalities that do not have drilling and would be used for projects not directly related to the natural gas industry’s operations.
“This looks pretty clear-cut to be something we would classify as a tax increase and a pledge violation,” Gleason said, adding that ATR would make a formal determination only after legislation was introduced.
Scarnati said he plans to have legislation introduced within the next week, with a final vote in the Senate possible by early June. He said the fee negotiations should be part of the overall budget discussion, even though the revenue would not be used to fill the state’s $4 billion deficit.
On the revenue side, the plan would be retroactive to 2010, and Scarnati estimates $45 million in back payments that would have to be paid by the end of the year. An estimated $76 million in revenue from natural gas production in 2011 would be due in March 2012.
The plan expects fee revenue will expand to $103 million in 2012, $127 million in 2013 and $149 million in 2014, based on the assumption that 1,500 new wells will be drilled in the state every year.
Scarnati said the revenue estimates were on the conservative side, and representatives of the drilling industry agreed.
A Penn State University study on the economic impact of the natural gas industry estimates that 3,000 new wells will be drilled every year for at least the next decade.
State Sen. John Yudichak, D-Luzerne, minority chairman of the Senate Environmental Committee, said he had concerns about the limited resources generated by the proposal, but he was encouraged that it was a step toward a comprehensive natural gas policy.
In the state House, neither caucus is rolling out the red carpet for the plan.
House Minority Leader Frank Dermody, D-Allegheny, said the proposal was a “weak alternative” to a severance tax and would not provide enough protection for the environment and people.
Steve Miskin, spokesperson for House Majority Leader Mike Turzai, R-Allegheny, said the proposal was worthy of further staff evaluation but did not have the full support of the caucus immediately.