Following through on his campaign pledge, Governor Wolf made taxing the natural gas industry a central part of his budget proposal Tuesday.
Wolf wants to model it on West Virginia, with a tax on both volume and sales. Drillers would pay a five percent tax on the value of the gas, plus 4.7 cents per thousand cubic feet. The governor called it a common-sense approach. He projects it will bring in over $1 billion per year, which he wants to use to boost funding to public education.
“Natural gas production is growing faster in Pennsylvania than anywhere else in the country,” Wolf said in his budget address. “Yet, we are the only major producer of natural gas that does not ask drillers to pay their fair share or provide a return on our resources.”
His proposal assumes gas production and prices will consistently increase in the future.
But not everyone agrees that will happen.
Earlier Tuesday morning, the state Senate held a joint committee meeting to hear from local officials who argued it would be better to keep the current impact fee. Right now gas companies pay a flat fee every time they drill a well. So far, it’s brought in an average of $210 million per year, with most of the money going back to communities hosting drillers.
Wolf says local governments can keep that money. He’s proposing to set aside $225 million per year from the gas severance tax. It would be divided up the same way it is now– with the most money going back to regions with the most wells.
But some county officials, like commissioner Alan Hall of (R- Susquehanna County), worry a new tax will drive away business.
“If you put the severance tax in and it works, then you’re all heroes,” he told legislators. ”If you put the severance tax in and the industry walks away because it can’t maintain a profit, not only do you lose the impact fee, you lose the severance tax you wanted.”
Republican legislative leaders sharply criticized Wolf’s proposal as a massive tax and spending plan.
“Governor Wolf’s proposals were disappointing,” said House Speaker Mike Turzai (R-Allegheny). “It was disrespectful of hard-working people. He wants to take so much out of their pockets.”
Senate Majority leader Jake Corman (R-Centre) says he won’t discuss new revenues—like a gas tax—until the an agreement can be reached on overhauling the heavily indebted public pension system.
“Everything will have to be weighted and looked at to see how possibly it impacts the economy of Pennsylvania,” he said of Wolf’s new revenue proposals. “But we’re going to focus on pension reform, because we’ve got to do that first.”
Wolf’s gas tax plan was also met with criticism from both fracking opponents and advocates. The industry says it will hurt jobs and investment. Environmental groups opposed to drilling think it will make the state too reliant on gas.
“Higher taxes mean driving development away from Pennsylvania, costing jobs and the loss of revenue which can pay for education, transportation, healthcare, and other state programs,” said Stephanie Catarino Wissman, head of the Pennsylvania American Petroleum Institute.
“The fact that DEP has verified 253 cases of contamination of private water wells by oil and gas operations should be enough evidence to convince the Governor to stop the bleeding. It’s simply wrong to sacrifice communities,” said Tracy Carluccio of Delaware Riverkeeper Network.
Wolf is also proposing to issue $675 million in new bonds to fund other energy investments. Among other programs, the bond plan includes $50 million to relaunch the Pennsylvania Sunshine solar program, $50 million for energy efficiency grants, and $25 million to extend natural gas distribution lines to manufactures and business parks. He projects the debt service on the bonds will be $55 million a year– to be paid from the gas severance tax.
The governor’s plan also includes a $10 million funding boost to the state Department of Environmental Protection, which would go toward plugging abandoned wells and increasing environmental enforcement.