The Senate Environmental Resources and Energy and Finance Committees held a hearing Monday on natural gas severance tax proposals and their impact on the gas industry and Pennsylvania’s economy.
Most of the questions from Republican Senators raised fears about the negative impact of a severance tax on continued drilling and production of natural gas in the state.
Eileen McNulty, Acting Secretary of Revenue, provided an overview of Gov. Wolf’s severance tax proposal, which is designed primarily to fund a significant increase in funding for basic education and not environmental programs.
However, she appeared to be unprepared to answer basic questions from Senators about the impact of the proposal or other details about how it would work.
Republican Senators expressed concerns about the artificial natural gas price floor of $2.97 in the Governor’s proposal used to calculate the tax, when the current price of gas was $1.10.
Republican Senators also suggested the effective tax rate of the Governor’s proposal was 20-21 percent making it one of the highest in the country. McNulty said Revenue had not calculated the effective rate of the tax proposal or the severance taxes in other states. She said the Governor’s severance tax rate would put Pennsylvania “somewhere in the middle” of other states with severance taxes.
Sen. Gene Yaw (R-Lycoming), Majority Chair of the Senate Environmental Resources and Energy Committee, asked McNulty several times about the provisions in the Governor’s proposal aimed at shielding landowners from paying the severance tax and overriding existing contracts they have with landowners.
McNulty said the provisions were reviewed by Administration attorneys and were thought to be adequate.
Sen. Yaw expressed his doubts about how the language could override existing contracts when there were 1,000 or more kinds of contracts between landowners and drillers.
Matthew Knittel, Independent Fiscal Office, testified any severance tax adopted by Pennsylvania was likely to be paid, for the most part, by natural gas consumers in other states noting U.S. Energy Information Administration figures show about three-quarters of Pennsylvania’s natural gas production was exported out of the state.
Knittel said if the Governor’s proposal is adopted it, “will likely move Pennsylvania from one of the lowest severance tax states to the highest tax state(s).” The IFO did calculations of the effective tax rates in other states.
The IFO said the current Act 13 impact fee has an effective tax rate of .8 percent and the Governor’s proposed severance tax had an effective rate of 7.3 percent. The next highest state was Oklahoma with an effective tax rate of 5 percent.
Lou D’Amico, President of the PA Independent Oil and Gas Association, David Spigelmyer, President of the Marcellus Shale Coalition, Bruce Grindle, Vice President of the PA Grade Crude Oil Coalition, and Gene Barr, President of the PA Chamber of Business and Industry all testified along the same theme-- a severance tax would be bad for the drilling industry and bad for Pennsylvania’s economy.
Michael Wood, PA Budget and Policy Center, supported a severance tax saying oil and gas development companies pay little or no corporate income tax due to federal energy development tax incentives. Wood said there is “no factual basis that the industry would somehow work differently in Pennsylvania and become unprofitable due to the tax.”
Nathan Benefield, Vice President of the Commonwealth Foundation, said it was a misconception that gas drillers pay no or little taxes noting drillers paid more than $600 million in Act 13 impact fees from 2011-2013. He noted that other states-- like Texas, Wyoming and West Virginia-- with severance taxes had no corporate or personal income taxes.
Also providing written testimony to the Committees were: Associated Petroleum Industries of PA, the Environmental Defense Fund and America’s Natural Gas Alliance.
Copies of testimony and a video of the hearing are available on the Senate Environmental Resources and Energy Committee webpage.
Sen. Gene Yaw (R-Lycoming) serves as Majority Chair of the Senate Environmental Committee and Sen. John Yudichak (D-Luzerne) serves as Minority Chair.
Sen. John Eichelberger (R-Blair) serves as Majority Chair of the Senate Finance Committee and Sen. John Blake (D-Lackawanna) serves as Minority Chair.NewsClips:
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