After years of debate, severance tax saga continues

• Marie Cusick
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  Marie Cusick was the Harrisburg reporter for StateImpact Pennsylvania.

Pennsylvania remains the only major gas-producing state in the country without a severance tax. This fact has been a major sticking point in Harrisburg– for a really long time.

Now state lawmakers are once again looking to place new taxes on natural gas drillers. A gas severance tax the Senate approved this week is expected to bring in $100 million to help plug a $2.2 billion budget hole. The measure has an uncertain future in the Republican-controlled House. Still, it’s the closest the state has gotten to enacting such a tax in nearly a decade.

We looked back at how debate has unfolded over the years:

In 2009, the state House-which was then controlled by Democrats-passed a severance tax. It was defeated by Republicans in the Senate.

And while talk over the tax continued in subsequent years, Pennsylvania’s natural production has skyrocketed. Last year alone, it topped 5 trillion cubic feet, almost as much as the entire nation of Qatar.

Rep. Greg Vitali (D- Delaware) thinks he knows why the state doesn’t tax gas production.

“I think the answer starts and ends at the power of the gas industry,” he says. “Just look at the enormous influence they have on the legislature. Look at the money they give, and look at the lobbying.”

All told, the gas industry has spent nearly $60 million on lobbying in Pennsylvania since the drilling boom began. But the industry is quick to point out, they do pay for the privilege of working here.

In 2012, the legislature passed a special “impact fee.” So now, gas companies pay a fee for each well they drill. In the first year of the life of a well it can range from about $40,000 to $60,000, depending on the price of gas. Whereas, a severance tax would be paid based on how much gas is produced, when drillers “sever” the resource from the earth.

Former Republican Governor Tom Corbett signed the impact fee into law. He often touted the fact that most of the money was sent right back to communities where drilling occurs–helping to cut local taxes, improve roads, and emergency responsiveness.

He was staunchly against the idea of a severance tax.

“Who better to know where to spend the money than the county commissioners, the township supervisors, the mayors?” Corbett said at a 2013 event promoting the fees. “It’s not necessarily Harrisburg.”

Since it was enacted, the impact fees have brought in more than a billion dollars.

But, in the past few years revenue from the fees has trended downward, even though gas production has shot up. That’s because its driven by the price of gas, and the number of new wells drilled. A report earlier this year from Moody’s Investor Services noted the situation was hurting local governments’ budgets.

As Mark Ryan of Pennsylvania’s Independent Fiscal Office points out, there is no link between revenue and gas production.

“I’d say there’s no relationship because for the most part, it’s really the price that I think has driven the impact fee.”

Gas supporters say the fees really do amount to a tax. Some have started calling it an “impact tax.” They argue state lawmakers shouldn’t come looking to drillers, every time they need more money.

Whether the impact fee is really a tax or not became the subject of disagreement between Corbett and the conservative activist Grover Norquist.

For his part, Gene Barr, head of the Pennsylvania Chamber of Business and Industry, thinks the impact fee is a tax.

“Politically, it was probably a mistake to call it an impact fee at that time,” says Barr. “Should we have called it a severance tax? Maybe we should have. Maybe then we wouldn’t be in this position.”

By the summer of 2014, the Corbett administration was staring down a similarly massive budget hole. Surprisingly, Corbett’s budget secretary Charles Zogby said the administration would be open to a severance tax.

“There’s multiple [revenue] options we can look at,” Zogby told reporters at the time. “I’m not ruling out a severance tax.”

In the end, it didn’t happen that year. But what did happen was an election that brought a new governor to town. Democrat, Tom Wolf made taxing the natural gas industry a central campaign pledge. In his first budget address to the legislature back in 2015, Wolf made a big push for it.

“This is not about politics or ideology,” Wolf told lawmakers. “It’s simply common sense.”

But Wolf faced strong opposition from the Republican-controlled legislature. In his first year in office, Wolf and the Republican legislative leaders wound up in a nine-month-long budget standoff. Part of that show-down was over a severance tax.

Chief among the critics of such a tax was House Speaker Mike Turzai.

“I think the governor’s severance tax proposals are designed to stop the growth of natural gas,” he said at a 2015 news conference. “It’s going to stop energy independence, and it’s going to stop the growth of jobs in the Commonwealth of Pennsylvania.”

But now that Senate Republicans have agreed to this latest version of the severance tax, the ball is back in Turzai’s court, and the rest of the House.

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