Republicans cool to natural gas severance tax

Harrisburg – Despite it being a locked inclusion for Gov. Tom Wolf’s budget address, Republican leaders confirmed Monday that they remain cool to the idea of a severance tax on natural gas extracts as a means to balance Pennsylvania’s budget.

After his Monday appearance at the Pennsylvania Press Club, House Majority Leader Dave Reed (R-Indiana) stated his caucus, despite some of his own members coming out with severance tax proposals of their own, is unlikely to support such a levy in the upcoming budget cycle.

“I think this misnomer that we’re going to solve budgetary woes with a severance tax, given the state of the industry and natural gas prices right now in Pennsylvania, it’s not accurate,” he said. “I think if it were more of a budgetary issue, you’d see a little more interest in it, both Republican and Democrat; but right now, we are looking at budgetary solutions, not just policies that make people feel good.”

One such proposal, introduced last week by Rep. Kate Harper (R-Montgomery), would put a 3.5 percent tax on the gross value of units severed at the wellhead and would split the proceeds equally between paying down Pennsylvania’s unfunded PSERS pension liability and funding the Pennsylvania State Police.

The legislation would also keep in place the Act 13 impact fee that helps local communities with funding to mitigate the effects of the natural gas industry’s use and growth in affected areas.

Despite the bill coming from within his own caucus, Reed said he is not concerned about a split of his party’s members in support of any one particular proposal.

“Everybody’s free to introduce whatever proposals they want,” he said. “They’ve done so in the past and they should feel free to engage in that discussion if it’s an issue they believe in.”

In the Senate, Republicans are still extremely cautious of using a natural gas severance to balance the budget.

Even with broad-based taxes being taken off the table by the governor, Republicans in the Senate have consistently said that until public pension reform as a major cost-driver is addressed, they will be opposed to large-scale tax increases.

However, in the depths of the 2015 budget impasse, some Senate leaders did ruminate on the idea of passing a shale tax, but one vastly different from what the governor was proposing at the time and under the conditions that such a tax would help the industry grow while also keeping in place the Act 13 impact fee that helps local communities and providing for some regulatory overhaul of the natural gas industry.

"At this point, nothing has changed when it comes to the appetite for a severance tax," said caucus spokesperson Jenn Kocher.

However, Gov. Wolf is still determined to introduce a severance tax proposal as part of his budget address early next month.

While details were not provided, Wolf spokesperson JJ Abbott confirmed that a severance tax will be included as part of how the governor hopes to address the budget for the coming fiscal year and engage the Legislature to work with him on his proposal.

According to Abbott, the governor believes the time is ripe for a severance tax given a number of indications showing increased market viability through production and price increases over the next several years.

"The governor continues to support a severance tax which he believes is a fair way to bring in revenue to support essential services like education," he said. "He strongly believes that a severance tax will provide benefits to the people of Pennsylvania and, in turn, the industry, by creating a mutual benefit from production for communities and the industry."

Gov. Wolf is set to deliver his FY 2017-2018 budget address on Feb. 7 before a joint session of the General Assembly.