Another Natural Gas Severance Tax Bill Moving In House

The House Environmental Resources and Energy Committee today voted 17-9 to report out House Bill 1489 (George-D-Clearfield) which includes yet another version of a severance tax on natural gas production and includes a tax credit to help drilling companies hire Pennsylvania workers.
The bill was later referred into and out of the House Rules Committee with a recommendation it be referred to the House Appropriations Committee.
"The measure, House Bill 1489, is available now for consideration as part of the budget negotiations," said Rep. Bud George, Majority Chair of the House Environmental Committee. "It has been refined to provide more flexibility on how the tax is assessed and to ensure that the governments and resources being strained by the drilling boom are responsibly reimbursed."
Rep. George said the extraction tax on drillers was simplified to a flat tax that can be adjusted annually to reflect changes in gas prices, providing the industry and the Commonwealth clearer benchmarks.
The base and beginning tax rate would be 35 cents for every 1,000 cubic feet recovered.
"At the base rate, every 1 trillion cubic feet would garner $350 million," Rep. George said. "Based on projected production rates, House Bill 1489 could generate as much as $223 million in the 2010-11 fiscal year that begins next week and more than $400 million in 2011-12."
The tax rate would be adjusted once a year based on the previous 12-month average of natural gas prices.
"The measure accounts for both immediate and long-term needs of environmental-protection programs and state and local governments," Rep. George said. "No longer would Pennsylvania be the only major gas-producing state to make Commonwealth taxpayers shoulder the entire load for the risks and costs of what will be a long-term and lucrative venture for the gas industry."
Rep. George said the first $75 million from the $223 million anticipated from first-year-only severance tax proceeds would go "off the top" to the state's General Fund. The distribution formula for the anticipated $148 million remaining would be:
-- 50 percent to the General Fund;
-- 20 percent to a Local Government Services Account;
-- 15 percent to the Environmental Stewardship Fund;
-- 3 percent to the Conservation District Fund;
-- 3 percent to the Fish & Boat Commission;
-- 2 percent to the Game Commission;
-- 2 percent to the Low Income Home Energy Assistance Program, LIHEAP;
-- 2 percent to the Hazardous Sites Cleanup Fund;
-- 2 percent to the Oil & Gas Environmental Disaster Recovery Account; and
-- 1 percent to low-head dam removal and reconstruction projects.
After 2010-11, the "off-the-top" distribution to the General Fund would end, and all revenues would be distributed according to the base formula.
Rep. George said the Government Services Account would distribute 40 percent of its dedicated revenues to municipalities where the gas is severed, 30 percent to counties where the gas is severed, 20 percent to municipalities without producing sites but within gas-producing counties, and 10 percent to the Pennsylvania Emergency Management Agency.
"House Bill 1489 represents a collaborative effort combining ideas from across the state," Rep. George said. "It provides a legislative path for responsible budgeting and assessing of the costs of the Marcellus Shale drilling boom."
Rep. George said HB 1489 would also:
-- Prevent severance tax deductions from landowners' royalties;
-- Exempt companies extracting gas for in-plant use. Surplus gas sold from company wells would be subject to the tax;
-- Create a $2,500 tax credit for each job created for up to $25 million annually for gas-drilling firms hiring Pennsylvania workers;
-- Exempt stripper wells producing 60,000 cubic feet or less of gas a day.
Rep. Scott Hutchinson (R-Venango) serves as Minority Chair of the Committee.