Natural Gas NOW
The Wolf Administration blew it at a PA Senate Appropriations hearing this week, proving just how little thought has gone into its severance tax proposal.
There’s no doubt the PA House Appropriation hearing was rough on the Wolf Administration when it came to its severance tax proposal, but the Senate hearing was a flash flood wipeout. Senator Scott Martin (Republican, Lancaster County) did the damage, and very effectively so, starting at 43:17 in this PCN video of the proceedings. It only took a few minutes.
I had never seen Martin in action before and it was definitely refreshing. He started off his questions by establishing two key facts. First, he noted Pennsylvania already has a severance tax called an impact fee. Secondly, he explained it generated what was, in effect, a 6.9% tax in 2015 and 5.0% last year, according to the Independent Fiscal Office. That’s how you do it; by setting the proper premise for your question and not accepting your opponent’s. I wish there more legislators in Congress who knew how to do that.
Martin then proceeded to question Secretary of Revenue Eileen McNulty and got her, in short order, to admit the following:
- The Wolf Administration proposed severance tax rate would be higher than 6.5% because it does not allow for the deduction of post production costs.
- Pennsylvania would be the only state with a severance that does not allow deduction of such costs from what is taxed. (McNulty tried to counter by saying Pennsylvania was the “only state that would allow for a credit of the impact fee” against the severance tax – completely ignoring the fact it is the only state that has an impact fee. It was a poor effort at deception by McNulty.)
- Natural gas commodity prices are ‘volatile’ but new pipelines should help raise both production and prices with respect to Marcellus Shale gas.
That last admission is an important one, of course. It means all the talk about how much revenue a severance tax would produce is purely speculative and none of it will ever happen without more pipeline infrastructure. The Wolf Administration will have an opportunity to demonstrate its understanding of the fact by quickly approving Pennsylvania permits for the Atlantic Sunrise pipeline.
If what’s happened to Utica Shale gas prices since new pipelines came on line also happens with Marcellus Shale gas it would welcome news for economic development in the Commonwealth and impact fee revenue as well as corporate and sales tax revenue would also increase, avoiding the need for an additional severance tax. That would be a win across the board for the Wolf Administration and the rest of us.
Meanwhile, my hat’s off to Senator Scott Martin, who knows how to ask good questions and get to the heart of a matter. He made it real easy to understand, didn’t he?