Democratic Frontrunner for Governor Proposes Severance Tax On Shale Gas

Democratic gubernatorial frontrunner U.S. Rep. Allyson Schwartz announced Wednesday that as governor, she would impose a 5 percent severance tax on Marcellus Shale production.
Schwartz told reporters on a conference call that her plan for what she called a “reasonable, fair, moderate tax” would generate $612 million this year and nearly triple to $2 billion in about 10 years. She said she wants to use the money to invest in education and transportation infrastructure.
“Pennsylvanians deserve to share in the shale wealth and we can and we should,” Schwartz said, adding a tax on Marcellus Shale drilling would prevent increases in property and income taxes for residents.
Schwartz also insisted that the tax would not result in driving away the industry since her proposal is lower than taxes in other natural gas drilling states like Texas and Oklahoma that impose a 7.5 and 7 percent tax on companies respectively.
“They need to get that gas, we want them to get that gas. The state and the nation need them to get that gas,” Schwartz said. “This is very much being able to say to the industry, ‘Here’s some predictability.'”

Her fellow candidates in the field are making similar proposals.

John Hanger, former Commissioner of the Pennsylvania Public Utility Commission, has pushed for a severance tax on shale gas since he was Secretary of the Department of Environmental Protection under Governor Ed Rendell.
Hanger’s plan, released on his website earlier this summer, would also call for more oversight of drilling activity, including hiring an ombudsman to investigate complaints.
“I think focusing just on a drilling tax is to misunderstand the scope of the problem and the scope of the opportunity,” Hanger told StateImpact in a phone interview. “The drilling tax must be pared with important improvements in regulation and enforcement in the gas drilling industry.”
Democratic candidate Katie McGinty, another former DEP Secretary, also supports a 5 percent severance tax.
“Katie believes that a responsible severance tax should be competitive with West Virginia and Ohio to ensure that Pennsylvanians can have the opportunities to get jobs within the industry here,“ McGinty’s campaign manager Mike Mikus said in a statement.
Under Schwartz’s plan, the severance tax would be levied against drillers in Pennsylvania in addition to the impact fee passed by the state legislature last year as part of the drilling law known as Act 13. Last year, the fee brought in $204 million. Revenues are expected to drop to $198 million this year.
Most of that money goes to municipalities that are hosting the drillers, as well as to state agencies and is based on the price of natural gas and the number of operating wells. The severance tax would be based on the volume of gas produced.
Republican Governor Tom Corbett has said there is no need for additional taxes on the growing industry.
Corbett campaign manager Mike Barley slammed Schwartz’s proposal in a written statement.
“Between the State Democratic Party’s radical proposal to ban natural gas drilling and Allyson Schwartz’s agenda to tax the industry out of our state, it is clear that they have chosen to side with the special interest groups over the nearly 250,000 average working-class Pennsylvanians employed in natural gas and the millions more who are benefiting from this growing industry,” Barley wrote.

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