Pa. House approves tax on gas drilling in Marcellus Shale

Posted: September 30, 2010

HARRISBURG - By a slim but bipartisan margin, the Pennsylvania state House rammed through a historic bill establishing a first-ever tax on natural gas extraction in the Marcellus Shale.

But with Senate Republican leaders balking at what they say is an unacceptably high rate, the bill's fate is far from sealed.

The bill's passage, in a 104-94 vote, sets the stage for what could be intense negotiations with the Senate over the tax rate and how best to distribute hundreds of millions of dollars in revenue to state coffers, environmental programs, and local municipalities.

Some Democrats representing the heavy gas drilling region in the southwest part of the state voted against the bill, but the majority of Democrats pushed the bill through with the help of 12 Republicans. Most of the 12 Republicans come from the southeast part of the state, including Philadelphia suburbs, where there is virtually no gas drilling. (A small part of Bucks County is considered in the shale region.)

House Democratic leaders called their bill a starting point and said they recognized it will be changed in the Senate, but they were optimistic the two sides could reach a deal.

Gov. Rendell said he, too, would be willing to negotiate to reach a deal before the session ends, which given the current schedules, means roughly three weeks.

The bill would impose a tax of 39 cents per thousand cubic feet, or roughly 10 percent.

Many Republicans assailed the tax rate as the highest in the nation, a figure disputed by some analysts.

Hours before the legislation cleared the House, Senate President Pro Tempore Joe Scarnati (R., Jefferson) called the tax rate on drillers "absolutely ridiculous."

"We are not going to entertain a tax rate here in the Senate that is punitive to this industry," Scarnati said. "I think we need to have some leaders and statesmen step up to the plate here and make sure this industry isn't chased out of the state."

Pennsylvania is the only state among 30 gas-producing states with active drilling that does not have a so-called severance tax.

Scarnati favors a "phased-in" tax, endorsed by the industry, that would set the severance tax at 5 percent, but cut the rate to 1.5 percent during the first five years of production, to allow operators to recover their investments more quickly.

House members debated for hours Tuesday over the distribution of the roughly $300 million in revenue expected in the first year. (That amount would balloon to $578 million in fiscal 2014-15, legislative analysts say.)

The final House bill directs 60 percent of the revenue to municipalities and environmental cleanup programs, while 40 percent would go toward plugging a hole in the state general fund.

Environmental groups praised the bill's passage, saying the tax will help restore depleted cleanup funds, such as Growing Greener, and cover the environmental costs associated with drilling.

Kathryn Klaber, president of the Marcellus Shale Coalition, which represents gas companies, characterized the tax as "enormous" and "uncompetitive."

"Votes for this misguided, unprecedented tax that narrowly passed this evening, are votes against the job creation and the responsible development of clean-burning domestic natural gas," she said in a statement.

Drilling in the Marcellus Shale natural gas reserve, which lies a mile below the surface across most of the state, is a relatively new industry made possible by advances in technology.

In the last three years, companies have invested millions of dollars to open wells, created tens of thousands of jobs, and paid out large sums to many landowners in rural areas for drilling rights.

But the drilling also brought with it environmental headaches, accidents at well sites, and fears about water contamination.

Given the Senate's concerns about the bill, one thing is clear, Scarnati said: Lawmakers will not meet the Oct. 1 deadline they set in the summer to pass the tax.

"The deadline will not be reached, but we're not slamming the door," Scarnati said.

He said the Senate would "continue to negotiate in good faith, but whether or not adults can come together and get something reasonable is yet to be seen."

He added there was a "slim to none" chance that the Senate would add more session days next month, and ruled out returning for a lame-duck session after the election if the tax issue is not resolved.


For Pennsylvania House roll call votes, go to

pahousevote


Contact staff writer Amy Worden at 717-783-2584 or aworden@phillynews.com.

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