Some legislative Democrats concerned that Schwartz would add a 5 percent tax on top of the $200 million a year annual fee currently imposed.
By Peter L. DeCoursey
Bureau Chief
CAPITOLWIRE
HARRISBURG (Sept. 4) – U.S. Rep. Allyson Schwartz, D-Montgomery, says it’s time to make natural gas drillers “share the wealth” with education, transportation and economic development programs, with a 5 percent natural gas extraction tax on top of the state’s current fee.
Gov. Tom Corbett’s staff and campaign manager say she would hurt jobs in the state and end the growth – and perhaps cause a decline – in what has become a vital industry in the commonwealth. Schwartz said natural gas drilling provides 30,000 direct jobs in the state, and tens of thousands more indirect job. Corbett’s energy executive, Pat Henderson, puts that number at 250,000.
Even the Democrat who represents the most shale drilling of any Senate Democrat, Sen. Tim Solobay of Washington County, was asked if he would vote for adding a 5 percent tax to the current fee of $200 million a year, based on production.
“No,” he said, quickly adding: “I would have to look at it.”
He later e-mailed that he would “need to see more info on the proposal and how it is being determined. But it does seem a little high.”
Sen. John Yudichak, D-Luzerne, another shale region Democrat and the policy leader for Senate Democrats on this issue, responded by e-mail: “There remains great legislative interest in developing a more comprehensive Marcellus Shale policy especially since the Administration’s county-based impact fee has proven to be terribly shortsighted both in terms of fiscal policy and environmental protection.”
Concern about whether both the fee and the tax should be levied was expressed by Solobay and by a pair of other shale-region elected Democrats, who spoke on condition of anonymity.
Schwartz said she would confer about the policy with industry figures, but felt her tax rate was fair and that there was “tremendous pressure” on legislative Democrats and Republicans to fund schools and other programs, and a growing view that a higher shale tax is the best way to do that.
Three of the other Democrats running for governor have backed a similar 5 percent tax on natural gas extraction: former DEP Secretaries John Hanger and Katie McGinty and York businessman Tom Wolf. Treasurer Rob McCord, campaigning regularly and expected to join the race later this fall, has also backed the idea of a natural gas tax, but has not released its details.
So far, only Hanger and Schwartz have released more detailed plans with a shale tax as their primary way to get revenues for education and other programs. But Hanger is projecting far less revenue from his tax plan than Schwartz predicts her levy will provide.
Efforts to get Wolf, McCord and McGinty to say if they backed adding a 5-percent tax on top of the current fee were unsuccessful. Hanger said he would replace the fee with a tax, but might be willing to look at a higher rate than 5 percent. He said that rate is used in West Virginia and would be “a floor, not a ceiling” if he were elected.
But all five have referenced a shale tax as the way the state can afford the increased spending on education, senior programs, transportation and economic development that they tout.
Schwartz also touted it as a fair alternative to hiking the state’s Personal Income Tax, as former Gov. Ed Rendell did by 10 percent in 2003, his first year in office.
If the state raises the natural gas tax as she proposes, Schwartz said then there will be “no reason to raise [personal] income taxes on businesses and individuals.”
Most of the state’s small businesses pay personal income tax rather than the corporate net income tax or other corporate levies.
Asked what she would say to those like Gov. Corbett and legislative Republican leaders who said from 2010 to 2012 even $500 million a year in higher taxes would drive shale jobs from the state, she said: “I would rather be standing with middle class Pennsylvanians” whom she said need state funding for senior programs, education transportation and not raising other taxes, “than with the energy companies.”
Henderson replied: “Governor Corbett is standing with the middle class – including the nearly 250,000 Pennsylvanians who work each day in the oil and gas industry and the tens of thousands of landowners who have been able to keep their family farm, send their children to school, and provide new opportunities to their families thanks to the responsible development of shale gas.”
Schwartz also said: “All Pennsylvanians deserve to share in the shale wealth and we can and we should.” She also criticized Corbett for doing too little to take shale revenues and invest them in education and her other favored priorities.
Henderson responded: “Governor Corbett also worked in a bipartisan manner with the General Assembly to make sure that gas operators pay their fair share. In addition to the $1.7 billion in other corporate tax collections, Pennsylvania communities are benefitting directly – right now – from the over $400 million collected in impact fees in just the last 10 months.
“Additionally, all Pennsylvanians are benefitting from lower energy costs. Natural gas prices are down 50 percent, and electricity costs down 40 percent, since the onset of shale gas production. This translates into over $1,000 in savings for each household – much more for small business owners and manufacturers.”
Corbett campaign manager Mike Barley wrote in an e-mail: “If this is a preview of Allyson Schwartz’s tax and spend agenda, Pennsylvanians better hide their wallets.”
“Congresswoman Allyson Schwartz’s proposal to drastically increase taxes on the shale gas industry will cost Pennsylvanians good-paying, middle-class jobs by forcing the industry to relocate to more business and energy friendly states. … This industry has helped to reignite growth and opportunity in areas of the state that have been in decline for decades.”
Schwartz said of such criticisms: “This will be a disagreement we will have.” Speaking of legislative Republicans, she asked: would they “rather raise taxes on middle class Pennsylvanians?”
And she said that since drilling companies pay rates of 5 percent or higher in other resource-rich states, she did not believe this tax rate would drive them from Pennsylvania. Business groups and industry figures have noted that many of those states lack the additional corporate taxes the industry pays in Pennsylvania.
Hanger, whose plan is similar to Schwartz’s, but replaces the fee with the tax, rather than levying both, said the idea that a tax would drive jobs to other states “is silly.”
“Our shale gas is the lowest cost to produce and has the highest profit margin,” he said. “And anyone running to another state would be running to another state with a tax, and many of them would be higher than the West Virginia rate” that he says is a floor and Schwartz is proposing.
McCord spokesman Mark Nevins commented: “There’s no question that the companies that are reaping huge profits from Pennsylvania’s natural resources have an obligation to compensate the residents of the commonwealth for that privilege. On that there should be no disagreement. The question is, who do you trust to invest that revenue to maximize the impact for our future? Clearly politics as usual will not get us the results we deserve.”
“By contrast, as treasurer, Rob has taken a more innovative approach, developed over twenty years as a business leader, to solving some of our biggest challenges. If we truly want to get Pennsylvania back on track, that’s the kind of fresh approach to leadership we need from our next governor.”
Wolf said: “I’ve been advocating for a tax on natural gas extraction for more than four years and am glad Congresswoman Schwartz is doing so as well. It’s simply not right that Pennsylvania is the only state in the country that does not charge a tax on oil and natural gas extraction – even Texas does.”
McGinty campaign manager Mike Mikus responded: “As former Environmental Protection Secretary who helped create thousands of energy jobs, there is no candidate in this race who understands Pennsylvania’s energy issues like Katie McGinty does. She has been calling for a severance tax for years because she believes that Pennsylvanians should be fairly compensated for their natural resources so that we can reinvest in Pennsylvania.
“Katie believes that a responsible severance tax should be competitive with West Virginia and Ohio to ensure that Pennsylvanians can have the opportunities to get jobs within the industry here. “
Hanger said: “This is money the industry can afford to pay, pays everywhere else and frankly, laugh at Gov. Corbett for not exacting it from them here.
