Wolf fleshing out natural gas severance tax proposal
THORNDALE – Gov. Tom Wolf fleshed out his plan to tax natural-gas drilling Wednesday, saying it would bring Pennsylvania into line with other gas-producing states and generate as much as $1 billion a year largely earmarked for helping the state’s financially strained public schools.
The Democrat made his case for the tax during a visit to Caln Elementary School in Thorndale, located in one of the poorest school districts in Chester County, as he kicked off a statewide “Schools that Teach” tour.
Wolf proposes a two-pronged approach: a 5 percent severance tax on the value of the gas, plus 4.7 cents per thousand cubic feet of gas extracted from the Marcellus Shale formation to help restore public school aid cut under his predecessor, Republican Tom Corbett.
His proposal, modeled after West Virginia’s tax, also contains safeguards that would bar drilling companies from passing the cost of the tax onto the many Pennsylvania landowners who leased parcels for drilling.
He estimated the revenue could reach $1 billion by 2016-17, the first full year the proposed tax would be in place. He responded to critics who suggested that estimate is inflated by acknowledging revenues are likely to fluctuate based on market prices. The governor said “the lion’s share” of the money would be funneled to schools, but declined to be more specific about exactly how much.
He acknowledged a portion of the revenue would replace what is now provided by a per-well “impact fee” imposed under Corbett that helps municipalities affected by drilling – a fee critics say amounts to a 1 or 2 percent tax rate. Additional shares would go to the Department of Environmental Protection and development of alternative energy sources, he said.
Wolf faces Republican majorities in both houses of the Legislature, which would have to approve any new tax, but he professed optimism that a compromise is possible, noting that lawmakers from both parties have proposed similar taxes.
“We all want the same ends,” he said. “We want a great, strong economy. We want good jobs. We want schools that teach. We want government that works. We have different ideas as to how we get to those goals. But I think we’re not going to have gridlock.”
House Majority Leader Dave Reed said the 4.7-cent-per-1,000-gallon levy, when combined with the severance tax, would push the effective rate of Wolf’s proposal to 7.5 percent, which he said would be one of the nation’s highest.
“We all need to remember, there is no ‘free money,”‘ said Reed, R-Indiana.
Senate Majority Leader Jake Corman, R-Centre, reiterated that Republicans will not support new taxes until significant steps are taken to rein in the mushrooming costs of public pensions.
“We support education funding, however, right now, two-thirds of every new dollar coming into the state coffers goes directly to pay state pensions. The reality is that we have to reform the pension system this year – we have to plug the leak.” Corman said.
Industry advocates said companies have poured hundreds of millions of dollars into the impact fee, most of which flows through counties to municipalities that host the gas wells. They said a new tax would discourage capital investment and hurt the small Pennsylvania businesses that are important parts of the supply chain.
“Pennsylvanians are looking to their elected officials to help create new jobs, not new taxes, especially during these difficult and challenging times,” said David Spigelmyer, president of the Marcellus Shale Coalition.
The governor said Pennsylvania ranks 45th nationally in state financial support for public schools. He said the state has “defunded” Coatesville Area School District, where Caln Elementary is located, by $3.5 million since 2010-11.
“That’s not good economics. It’s not smart,” he said.
Wolf paid quick visits to a couple of classrooms in the old but sparkling school building before the new conference. A second-grader presented him with a sweatshirt as a souvenir.