By Kevin Zwick
Staff Reporter
Capitolwire
HARRISBURG (June 24) – Two top Republican leaders offered their own counter-proposal to Gov. Tom Wolf’s severance tax plan: “Nothing.”
“Our counter-proposal was nothing. Yeah, nothing,” said Senate President Pro Tem Joe Scarnati moments after he and House Speaker Mike Turzai met with top Wolf administration staff. The governor did not meet with the leaders.
“We are not sending the governor a severance tax,” said Scarnati, R-Jefferson. “We’re working in the time frame of June 30th and there is no severance tax on the table and I don’t see the future of a severance tax on the table as we work today.”
“Zero is not where the people of Pennsylvania are, it’s not where the governor is, we are ready to negotiate a serious severance tax,” said John Hanger, Wolf’s policy director, during a brief press conference with reporters shortly after the meeting.
Despite public opinion polls showing support for a severance tax, the industry and its allies in state government have pushed back against past proposals, sending them over the cliff. Wolf’s proposal appears headed for the same fate.
Not only have legislative leaders poo-pooed his plan, Hanger said the administration compromised on key areas of Wolf’s proposal, including removing the $2.97/mcf floor price for natural gas, and guaranteeing the impact fee will remain as is, meaning the governor agreed to remove the maximum cap of $225 million annually.
“Given uncertainties in the market, it is difficult to estimate price in out years with any certainty, therefore it is difficult to estimate the effective rate,” said Wolf spokesman Jeff Sheridan via email. “We still believe a severance tax would generate $1 billion in its first full year. Our severance tax is still based on West Virginia’s model: 5 percent severance tax plus 4.7 cents per thousand feet of volume on extraction.”
House GOP spokesman Steve Miskin said the meeting was the first time Republicans saw what the administration was willing to change. But, he said, there still is no spend number agreement between the Legislature and Wolf.
“There is no reason to counter-propose until you know how much you want to spend,” he added. The House will decide Thursday or Friday when to start moving its own proposal, which is when they will reveal how much they are willing to spend, Miskin said.
On Wednesday, a new Independent Fiscal Office report says the 2015 impact fee collections could drop below the $200 million threshold for the first time.
“It speaks volumes that this is not a time to put a tax on an industry that has falling prices and falling consumption,” Scarnati said.
Wolf’s proposal included a fixed $225 million annual payment to impacted municipalities, but it was removed as part of Wolf’s compromise offer. Opponents to the cap say it would have prevented municipalities from benefiting from any rebound in natural gas prices and activity which could produce more impact fee revenue.
Wednesday’s IFO report says that under current prices and trends, the possible drop in impact fee collections would be due to fewer wells being drilled due to low natural gas prices, as well as lower fee payments from older wells and more wells being categorized as lower-producing “stripper wells.”
The low gas prices would trigger a provision in state law lowering the fee payment schedule, meaning drillers would be paying less per well in 2015 than in prior years – $5,000 less per well than in 2014, the report says.
The IFO noted Department of Environmental Protection data on new unconventional wells spud from January to June this year showed a 30-percent decline. New wells in their first year of operation pay the impact fee at the highest level, which also offsets the decline in fees received from existing wells as they age.
“Low regional prices motivate much of the recent decline in drilling activity,” the report says. And “a large inventory of non-producing wells, as well as low spot prices, suggest that new drilling activity will not offset reductions from the first half of the year.”
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