Industry proposes shale fee, Pileggi proposes shale/property tax swap

CAPITOLWIRE: Marcellus Shale insiders propose impact fee: $50,000 per well the first year, $30,000 per well the second year, $10,000 per well the third year and no fee thereafter. Senate Majority Leader Dominic Pileggi, R-Delaware, proposes to tax natural gas extraction to freeze property taxes for senior citizens. Senate President Pro Tem Joe Scarnati critiques industry plan, opposes Pileggi bill. House Majority Leader Mike Turzai, R-Allegheny, said none of the taxes or fees will pass by June 30.

By Peter L. DeCoursey
Bureau Chief
Capitolwire

HARRISBURG (June 3) – As Marcellus Shale industry insiders, Senate Majority Leader Dominic Pileggi and others joined the ranks of those proposing natural gas extraction taxes or fees, House Majority Leader Mike Turzai, R-Allegheny, said no such plan will pass by June 30.

“You don’t have the governor on board and a significant group in the House and Senate are against any tax increase, and the folks that want it can’t agree on how to do it,” Turzai said. “That’s why I don’t think it gets done.”

Senate President Pro Tem Joe Scarnati, R-Jefferson, said a natural gas extraction fee plan will succeed: “If I can get 26 votes in the Senate for a reasonable impact fee, one that doesn’t reduce investment but does deal with the impacts, I am going to get it done. Then, we will send it to the House and they can see what they are going to do.

“This is an issue that isn’t going to go away. I want to figure out a way to get this through the Senate and give the House reasonable time to act before we get to June 30th. That’s my goal.”

But while predicting a fee bill will pass, Scarnati said it won’t be the proposal of Pileggi, R-Delaware, to impose a shale tax to cut senior citizen property taxes. Scarnati said there were better ways to achieve both goals than Pileggi’s bill.

Pileggi staff said he looked forward to working with Scarnati on the issue.

Many lobbyists and lawmakers believe a fee or tax on natural gas extraction may pass, and are debating which one could or should, as the House and Senate ready their Monday return for the 24 days leading to the June 30 state budget deadline.

Gov. Tom Corbett also continues to say he wants to wait until fall to resolve the impact fee issue, after his Marcellus Shale Commission reports in July.

COMPETING TAX AND FEE PROPOSALS.

• Scarnati has proposed a sliding fee on natural gas extraction, which he says will rise from $10,000 per well annually to $35,000 per well annually, depending on the price of natural gas and the amount each well produces. Industry analysts say it will rise to $50,000 per well in early years, and depending on the price of natural gas, could remain there. Sixty percent of the funds go to local impacts, with the rest going to various state police, environmental and statewide impacts. He said amendments will likely be proposed to his bill by Sen. Mary Jo White, R-Venango, whose Senate committee holds jurisdiction over the bill. “She wants to put her imprint on the bill and I believe that will put it closer to 26 votes in the Senate,” he said. Scarnati declined to discuss any changes, but industry sources said her imprint is expected to involve changes in the tax-like rate structure of Scarnati’s bill, although how significant the changes will be, sources declined to say. Her staff said this week it didn’t know when they would deal with the bill or what approach would be taken.

• Sen. John Yudichak, D-Luzerne, has proposed a shale tax plan based on one supported by former Gov. Ed Rendell, but at a lower initial-years rate. Corbett has said he would veto any plan similar to Yudichak’s or a plan from Rep. Kate Harper, R-Montgomery;

• The members of the Marcellus Shale Coalition are pushing a straight fee proposal. It has been presented to legislative leaders and the governor after a lengthy internal discussion about how to present it to state officials. Coalition officials declined to confirm or discuss the offer. Corbett has indicated he will accept only a fee on natural gas extraction for local impacts, not a tax. The industry proposal is $50,000 a well the first year it is drilled, when local impacts are greatest, $30,000 per well the second year, and $10,000 per well the third year. Those involved with the proposal say it will out-pace the Scarnati bill in revenue, but Scarnati says he has yet to see evidence of that claim. Legislative leaders say the lack of a fee after the third year of drilling is a problem and that any bill based on this proposal will add a fee in future years. The industry responded that after the third year, direct local impacts diminish. They said a proposal like Scarnati’s which keeps the $10,000 per well fee after the 15th or 20th year of operation, will cause them to shut down wells once their production is down. Scarnati said he is willing to discuss that issue, and resolve it to avoid any disincentives to companies: “We want them to invest here and keep investing here.”

Several GOP senators have expressed concerns about Scarnati’s fee being based on the wholesale price of natural gas and the rate of production. As the bill moves forward, it is expected to end up as a compromise between the industry proposal and Scarnati’s.

Kathryn Klaber, president of the shale coalition, responded only with a written statement: “As a host of proposals regarding American natural gas production from the Commonwealth’s Marcellus Shale formation are considered in Harrisburg, our industry remains focused on continuing to be an active partner with policymakers in the Capitol and on the Governor’s Marcellus Shale Commission. As the Commission’s work progresses, with the aim of crafting common sense solutions, more policy specifics will certainly develop and take shape.”

• Pileggi has proposed a $250 million per year natural gas extraction tax, with the proceeds used to freeze the school property taxes of senior citizens who have owned a homestead for five years and do not get that levy reduced or eliminated by the state property tax and rent rebate program. Pileggi has said he supports Scarnati’s bill to take care of local impacts and that his would be in addition to that. He wrote in a letter seeking co-sponsors that he believes the natural gas extraction industry can afford a tax better than senior citizens facing rising property taxes;

• Rep. Nick Miccarelli, R-Delaware, is proposing a bill apparently similar to Pileggi’s, but Miccarelli’s bill uses the gas tax to cut the state’s personal income tax. That bill would would levy a tax of three percent on Marcellus Shale drillers. “The money would go directly to reducing the personal income tax from 3.07 percent to 2.99 percent,” explained Miccarelli in a press release. The tax rate would quickly rise to 5 percent, and then, Miccarelli asserted: “would generate, by fiscal year 2015, $1.1 billion.”

THE PLANS AND THE PLEDGE.

Legislative leaders noted that both Miccarelli’s and Pileggi’s bills would, unlike Scarnati’s and Yudichak’s, not run afoul of the Americans for Tax Reform pledge signed by Corbett and some lawmakers in each chamber.

The ATR pledge, championed over the years by the group’s founder, Grover Norquist, does not ban tax increases that use all revenues from a tax hike to reduce another tax. Pileggi and Miccarelli both say their bill does that.

As currently drafted, Scarnati’s bill does not have a tax cut to offset the fee revenues.

Meeting the terms of the ATR pledge could make it easier for Corbett to sign a bill, some House GOP leaders believe.

One Marcellus industry lobbyist said of the Pileggi and Miccarelli bills: “Those so-called ‘revenue-neutral’, Grover Norquist proposals aren’t likely to get any support from rural, Marcellus Republicans whose constituents and regional economic activity would bear 100 percent of a tax from which a vast majority of any resulting funds would flow to Suburban Philadelphia and Pittsburgh. Could you face your constituents after such a vote?”

And industry sources have said the governor has told them he will not sign Scarnati’s current plan into law.

“The governor has yet to tell me he does not support my plan or he supports it,” Scarnati reacted.

TURZAI: LACK OF AGREEMENT ON HOW TO TAX, HOW MUCH TO TAX OR HOW TO SPEND THE REVENUES WILL DOOM TAX

Polls have shown seven state voters in 10 support a natural gas extraction tax. Scarnati and Democratic legislative leaders have said they doubt a state budget can pass without a tax passing with it.

But Turzai said the group supporting a tax has reached no consensus beyond that broad conclusion.

“There is a sizable group in the House that does not want any tax at all,” he said. “And even among those that would want or live with it, there is just so much disagreement among them: how much to tax, how to tax and where to send the money?

Analysts have said the polls show that rural Pennsylvanians in the areas where the drilling is taking place want a tax to repair the effects of drilling on their roads, regions and environment. The same polls show southeasterners want a tax to help pay for programs that help their region.

Said Turzai: “There are reasons that when former Gov. Rendell, and Senate and House majorities all agreed to put it in the fiscal code that they would pass a severance tax last year, they could not: they don’t agree on anything but that they all want a tax. When you get into the details, they all go their separate ways.

“That’s why I just don’t see it getting done by June 30. And I think the Legislature will end up not seeing this as a tax issue, but as a regulatory issue: how do we make sure the environment is safe, the impacts are dealt with, and the jobs keep coming? Passing a tax is not what we have been charged to do in the last election, it is not what we have in front of us.”

Scarnati disagreed, saying consensus was building, and if confronted with a bill the Senate passed, he believed the House would approve it as well

Pileggi spokesman Erik Arneson responded to Turzai: “We look forward to ongoing discussions with the House and the governor’s office.

SCARNATI DIFFERS WITH PILEGGI ON SHALE TAX, PROPERTY TAX CUTS

Corbett has remained publicly quiet about Scarnati’s proposal, but his staff has suggested he has concerns about its statewide impact funding, its distribution systems and plan, and other provisions.

But while Pileggi touts his plan as not being a net tax hike, Scarnati says he opposes it.

“Dominic’s plan is clearly a tax the governor won’t support and if you layer it on top of mine it would be the highest tax in the nation,” Scarnati said. “I don’t think that is what we should be doing. I am glad he supports my fee, but clearly I don’t support Dominic’s plan. Mine is one that will get to the governor, it’s a fair and reasonable fee and I still think it has the best prospects of getting something to the governor that he will sign.

“If we want to do something about property taxes, let’s enact a real back-end referendum and do something for everybody with property taxes, not pass the highest tax in the nation, if you layer Dominic’s on top of mine. What does that get us if it goes to the governor? Nothing!”

Arneson responded: “We very much look forward to working with Senator Scarnati and other members of our caucus on the issues of Marcellus Shale and property taxes.

SCARNATI WILLING TO NEGOTIATE ON INDUSTRY PLAN, DISCUSSES ISSUES WITH IT AND WITH HIS PLAN.

Asked about the industry plan, Scarnati said: “I know the industry has worked on various proposals, I am open to negotiations, it is just that negotiations have changed a bit, we have a chairwoman who has some views on this, and she is now part of this process.”

Backers of the industry plan say it will raise more per year than the $100 million to $170 million annual revenues predicted by Scarnati for his plan in the next several years.

Scarnati said that range is “the sweet spot we have to hit with some annual dollars flowing back to the communities. My goal is not only to hit a sweet spot for revenues to help the impacted communities, but also a sweet spot for bringing investment and jobs into the state.

“I am not so sure their scenario gets us to that sweet spot in terms of revenue, I am not saying it doesn’t, I have not seen a side by side comparison to show that to me.”

Scarnati and House GOP leaders agreed that the industry proposal to not tax wells after three years of production would not be part of any final fee legislation passed by both chambers.

“That three-year limit is not realistic,” Scarnati said. “The method that they’re using to frack these wells, eventually that sand they are pumping in, eventually that diminishes and re-fracking will be a major option for these companies, when they are going back to these wells for Marcellus or Utica shale. When we’re talking about fees and impacts, they are not just walking away from these wells and not playing with them again.”

Scarnati does agree with the industry’s critique of a provision in his bill that would assess a well at least $10,000 per year even after year 15 or 20, when production drops sharply.

Scarnati said he is willing to deal with that issue if production drops, but wants to retain a higher fee if a company goes back to drill the same well and gets new, higher production from a different shale formation.

“At the point where they are not collecting much, and might plug a well because of the fee, that is a discussion I am willing to have. Our goal is not to diminish investment in this commonwealth.”

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