Pennsylvania’s next governor will help determine a potential tax on natural gas drilling as an agreement on the issue between the state legislature and outgoing Gov. Edward Rendell is unlikely.
Last year, lawmakers forged a fiscal 2011 budget agreement with the intention that they would address a tax on the extraction of natural gas by Oct. 1, 2010 and implement the levy in January 2011. Rendell and his fellow Democrats, who control the House, have sought a higher tax rate than their Republican counterparts. GOP members hold a majority in the Senate.
The General Assembly recessed for the Nov. 2 election and Senate Republicans have said that they will not vote on taxing issues during Rendell’s lame-duck session.
Rendell proposed using an anticipated $70 million of extraction-tax revenue to help offset a $250 million decrease in funds from the Federal Medical Assistance Percentages program, yet the state has yet to implement such a levy on companies that export natural gas from Pennsylvania’s Marcellus Shale region.
The region takes up about two-thirds of the state. It holds natural gas in its rock formations.
Rendell earlier this month offered a compromise 3% extraction-tax rate for the first year that would increase to 4% in the following year and 5% in the third year. The governor’s original proposal included a 5% tax plus 4.7 cents per thousand cubic feet. The House in late September passed a bill that includes a 39-cent tax per thousand cubic feet on the extraction of natural gas.
Senate Republicans have pointed to Arkansas’ natural-gas levy in which companies pay an initial 1.5% tax to access gas reserves for two to three years. Rates then increase up to 5%, depending upon production levels. Rendell said the GOP won’t budge from their 1.5% tax proposal.
“With little time left to enact the severance tax, the Senate and House Republicans’ adamant refusal to advance a meaningful counter-proposal speaks volumes about their intentions,” he said.
“They clearly desire to put costs of natural gas drilling on the backs of Pennsylvania taxpayers, rather than on the large multinational oil and gas corporations who stand to reap enormous wealth from our state’s resources.”
Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi said that Republicans would like the dialogue to continue, but it must also include how the tax revenues would be allocated between the state and municipalities affected by natural-gas drilling.
“We are willing to continue negotiations on Marcellus Shale issues, as our letter to the governor on Wednesday made clear,” he said. “Issues such as the distribution of any tax revenue, coal-spacing, and zoning cannot logically be separated from the issue of imposing a reasonable severance tax. We have been and remain willing to negotiate within that framework.”