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Updated: Mar 9, 2021

Wolf says oil/gas industry needs to pay fair share through severance tax

By Paul J. Gough – Reporter, Pittsburgh Business Times

Gov. Tom Wolf and other administration officials said a severance tax on the state’s oil and gas industry is needed to fund a massive investment in workforce development that would help individuals and businesses recover from the Covid-19 pandemic — and that the mostly out-of-state companies and customers of the gas should pay their fair share.

In a news conference Tuesday, Wolf and other administration members positioned the $3 billion Back to Work PA program as something that will help the state with the post-pandemic recovery. And, they said, a severance tax from the oil and gas industry was a readily available source from which to pay for the initiatives.

“Other states … and stockholders of these companies have gotten the benefit of this (lack of severance tax),” Wolf said. “We need to make sure that we do everything we can to encourage, I think, this industry but we need to make sure it’s making a great contribution to Pennsylvania. Right now, we’re not asking it to do that.”

Wolf said that natural gas companies are paying only $37 million in state taxes along with the proceeds of the impact fee, which was $173 million in 2019 and will be less this year.

“The gas industry does not pay local property taxes. They’re not contributing to the schools,” Wolf said. “This is a way I think we can encourage the industry to make sure it’s actually contributing something to Pennsylvania.”

Wolf said a severance tax, which along with the existing impact fee that natural gas companies pay to the state and local communities, would be a reasonable way to increase revenue while at the same time represent only a 2.8% tax. The severance tax, if enacted, would charge oil and gas companies for the amount of production at the wellhead.

Every other gas-producing state has its own severance tax and, Wolf said, it was built into the cost of business.

“Every other state that has natural gas, at least major gas-producing states, are charging this, and it hasn’t seemed to have a bad effect,” Wolf said. “The bad thing right now in 2020 was the market price of natural gas. The severance tax doesn’t effect that, especially a very modest tax like this on top of whatever the price is.”

That was disputed by Marcellus Shale Coalition President David Callahan.

“Gov. Wolf and his team simply don’t get it. Pennsylvania already has a severance tax: it’s the impact fee, which has funded $2-plus billion for community and economic programs across the entire commonwealth over the last several years,” he said. “It was disappointing to hear the governor once again call for additional energy taxes that will harm consumers, local jobs, American energy production and the commonwealth’s ability to recover from the pandemic.”

The governor has put a severance tax into his budget proposal every year he’s been in office, and every year it’s been beaten back by the Pennsylvania Legislature. But Wolf positioned the severance tax as something that would be borne for the most part by out-of-state companies and out-of-state customers of the gas.

“I think everybody in Pennsylvania should really be in favor of this. This is something that most Pennsylvanians will not pay,” Wolf said.

DCED Secretary Dennis Davin said about 75% of Pennsylvania’s natural gas is exported out of state.

“To put it simply, we have a product people want, a resource that is subject to market demands, and it is being exported solely to benefit other states,” Davin said. “We have this resource at our fingertips. It’s the funding that we need to position Pennsylvania for a stronger recovery and use it for our collective benefit."

MSC’s Callahan said the governor was using “fuzzy math” and that the tax rate would be 12% and not 2.8% as he suggested during the news conference.

“If the governor was serious about accelerating our economic recovery — which should be a top priority for every policymaker — he’d be focused on growing and encouraging natural gas production, infrastructure and use, not punishing this critical industry and its hardworking women and men that are helping combat this pandemic," Callahan said.

Back to Work PA would provide an estimated $3 billion initiatives to build up reliable broadband access, put more money into development programs including Business in Our Sites, Industrial Sites Reuse Program and the Pennsylvania Industrial Development Authority, and provide more money to municipalities to bolster their finances wrecked by the Covid-19 pandemic. The proceeds of the severance tax, $300 million a year estimated, would pay for the $3 billion bond issue that would fund the program initially over 30 years.

Back to Work PA would also increase apprenticeship programs and workforce development as well as raising subsidies for child care in Pennsylvania. In a news conference Monday, Wolf said that individuals and businesses are hurting and need immediate relief due to the pandemic’s impact. He cited the $145 million in grants for the hospitality industry that the administration made available from the workers compensation fund.

“They need more than just one-time fixes,” Wolf said. “Our businesses need a comprehensive, forward-thinking plan to bolster our economy and support our workforce.”

Acting Labor & Industry Secretary Jennifer Berrier, pointing to the severity of the economic and labor stresses due to the pandemic, added: “We are in the middle of one of the most important eras for economic and workforce development.”

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