Shale tax comes up dry for 3d year

Senate President Pro Tem Joe Scarnati lamented that the tax was in "a hold pattern."
Senate President Pro Tem Joe Scarnati lamented that the tax was in "a hold pattern." (BRADLEY C BOWER / Associated Press)

Pa. remains the only state not tapping extraction of natural gas. Corbett is waiting for a study report.

Posted: July 03, 2011

HARRISBURG - When the deal was finally done, the budget was smaller than last year's by 3 percent. It was on time by 13 minutes. And true to Gov. Corbett's pledge, it contained no new taxes.

So, as he prepared to sign his first budget late Thursday night, an exultant Corbett proclaimed the $27.15 billion spending plan a victory for "Pennsylvania's working families."

Corbett had reason to exult. He had confronted a $4 billion deficit head on and had gotten just enough consensus from legislative leaders on where, and how much, to cut.

At the same time, absent from the 373-page document were the words tripping off the tongues of virtually everyone involved in the budget debate and many across the state: Marcellus Shale.

For the third straight year, natural-gas drillers - who this year alone are projected to reap $3.6 billion in gross sales of gas extracted from the shale - get a pass on an extraction tax.

Pennsylvania remains the only major drilling state with no such tax.

That left Senate President Pro Tempore Joe Scarnati (R., Jefferson), who had pushed for making drillers pay an "impact fee" and whose upstate district is dotted with gas wells, voicing frustration that the issue was again in "a hold pattern."

He warned that it would grow only more politically charged as time went on.

Democrats are already painting his party as toadies to an industry that helped finance GOP campaigns including Corbett's; polls indicate that most Pennsylvania voters favor taxing the drillers.

"I think there is going to be some outrage that we walked away another year without doing it," Scarnati said Wednesday. "It's pretty tough for me to explain to people who have real, valid concerns about safety with this industry and the fact that we've cut all these dollars out of the state budget."

Could have had a tax, should have had a tax: That was the view of two Philadelphia men, one from each party, who not so long ago ran things in Harrisburg.

One is John M. Perzel - who, of course, has no special love for a governor who, as attorney general, brought corruption charges that are pending against him.

"I would have forced something on Marcellus Shale," Perzel, a Republican who was House majority leader from 2001 to 2004, said in an interview Thursday. "I would have looked for revenue sources that wouldn't have upset people."

The other is Corbett's Democratic predecessor, Ed Rendell. He first proposed a drilling tax in 2009, but pulled back after energy executives convinced him an infant industry needed room to grow.

He tried again in 2010. Unable to secure a tax in the budget that spring, he announced a commitment by legislators to pass one in the fall. The deal collapsed.

"I pushed hard to get a tax," Rendell recalled Thursday. "But it wasn't to be."

Corbett's maiden budget makes deep ($1 billion) cuts in aid to schools and colleges and slices millions from social-service programs that provide job training, health care, shelter, food, and counseling to the poorest citizens.

Deep cuts were needed, in part, because the temporary infusion of hundreds of millions in federal stimulus funds is ending - a fiscal fact one veteran legislator likened to a precipice.

Sen. Jake Corman (R., Centre), chairman of the Senate Appropriations Committee, said, "We've been living in a fantasy land for the past several years with all the federal money coming down. Putting money that's short term into your annual operating costs leads to a cliff, which we had to drive right off this year."

The ranks of Corbett's own party were not entirely united on the shale issue. Despite his stance against any new tax, some GOP legislators tried last week to push through an impact fee.

That idea never made it to a floor vote, however, having been shot down by Corbett's threat of a veto.

Rep. Marguerite Quinn (R., Bucks) tried to tack on an impact fee by amending the fiscal code bill, a key piece of the budget package.

"I wound up withdrawing my amendment with a clear understanding that the fiscal code would not have gotten the votes it needed or passed the governor's desk," Quinn said.

"What I did get was a commitment from the speaker of the House and from our caucus chair that the shale will get taken up first thing in the fall."

But in a Capitol where the natural-gas lobby has become a formidable presence in recent years, her words have a familiar ring.

A year ago, Rendell announced a deal with lawmakers: They would pass the rest of the budget on time and approve a shale tax in the fall.

Not.

"The legislature promised it would," Rendell said Thursday, "and then reneged on its promise."

And even if a drilling fee or tax gets debated this fall, it will face strong resistance.

House Majority Leader Mike Turzai (R., Allegheny) said the industry had delivered jobs for thousands of recession-weary Pennsylvanians.

"I'm not advocating for a tax, and I won't be in the fall," Turzai said, adding that the industry already paid income and other taxes. "We don't have a special tax on pharmaceuticals or the production of coal in this state. Why single out the natural-gas industry?"

Nevertheless, Corbett has said he remains open to impact-fee ideas to address the effects of drilling on roads and streams upstate. He has promised to address the issue - after his Marcellus Shale Advisory Commission releases its report, due July 22.

One longtime scholar of Pennsylvania politics suggests Corbett is employing the old name-a-panel strategy.

"The commission is a face-saving device so that in the fall he can say he capitulated to the commission and the voters," said G. Terry Madonna, pollster and political scientist at Franklin and Marshall College. "But if it doesn't get done, it becomes a battle cry in next year's legislative elections."

Industry officials said they found no joy in the legislature's failure to resolve the tax issue, since Corbett had said he was awaiting guidance from his commission.

"We'll have a better idea on July 22 what the fee recommendation will look like," said Kathryn Z. Klaber, the president of the Marcellus Shale Coalition, a trade group.

Natural-gas producers have pushed for a host of changes in regulations that would be part of a package including a severance tax or an impact fee.

"The industry's been very clear we'd like to see consensus over a competitive fee. But we don't make the decisions," Klaber said.

"Given what we saw over the budget debate, this will, hopefully, help coalesce the many different views on taxes and fees into something where there could be consensus in the General Assembly and with the governor."

Amid the legislative debate, the coalition released a survey of its members indicating they had spent $411 million since 2008 on road repairs. Klaber brushed off suggestions that the release was meant to influence legislators' thinking; she said the information "was not meant to be timed for anything other than responding to a direct request from the members of the commission."

One industry official who asked not to be identified by name said drillers, too, were eager to reach an agreement, to get "some degree of closure" on an issue that has provided ammunition to anti-drilling activists.

"The longer it drags out," he said, "the worse you're going to be."

Scarnati professed optimism that the administration and legislature would tackle the issue in earnest this fall.

He said, "I think we can come to a reasonable agreement."


Budget Highlights

The Big Picture

 A decrease in state spending of about 3 percent.

Nearly $27.2 billion in taxes, fees, and other revenue.

No increase in the state income or sales tax.

Revenue

 Projected general revenue growth of $900 million,

or about 3.5 percent, in fiscal 2012.

About $500 million in surplus at the end

of fiscal 2011.

One-time Money

 About $150 million in surplus revenue from

fiscal 2011.

$50 million in state surplus and $50 million in legislative reserve funds (booked in the 2011 budget, but to be spent in fiscal 2012) on accountability grants for public schools. Much of this pays for all-day kindergarten and other early-childhood programs.

About $70 million in payments to nursing homes

put off until fiscal 2013.

Taxes

Continuation of the phaseout of the capital stock

and franchise tax on businesses, now scheduled to expire in 2014. The rate drops from 2.89 mills this year to 1.89 mills in 2012.

A 100 percent accelerated depreciation

on businesses' expenses at an estimated cost

of $200 million.

No tax on natural-gas drilling.

Spending

A cut of about $900 million, or more than 10 percent, in funding for instruction, accountability grants, special education, teacher training, student tutoring, charter school reimbursements, and other aid to public schools.

A reduction of about $220 million, or almost 20 percent, in funding for the 14 state-owned universities, plus the University of Pittsburgh, and Temple, Pennsylvania State, and Lincoln Universities.

A 10 percent cut, to $212 million, in aid

to community colleges.

A decrease of 0.5 percent to $10.6 billion for the Department of Public Welfare, which includes health care for the poor, child care, and services for the disabled.

An increase of 7 percent to more than $1 billion

for debt-service payments.

An increase of 110 percent to $600 million

in school-employee pensions.

A decrease of 35 percent to $213 million for the Department of Community and Economic Development.

$1.9 billion, the same amount as the previous year, for the Department of Corrections.

A decrease of 7 percent to $135 million for the Department of Environmental Protection.

- Associated Press


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

Inquirer staff writers Angela Couloumbis and John Manganaro contributed to this article.

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