Key questions for evaluating severance tax legislation

Pennsylvania lawmakers are in the third week of a budget stalemate that even the most optimistic political observers saw from miles away. I cannot overstate how important these budget negotiations are to the environment. In addition to funding state environmental protection agencies, the budget negotiations include debate on levying a severance tax on natural gas drilling and using part of that revenue to invest in Pennsylvania's clean energy economy as well as enforcing environmental regulations.

So far, the severance tax has been a moving target in the budget debate. Negotiations have ranged from haggling over the details to outright hostility. Legislative leaders such as Rep. Mike Turzai (R-Allegheny) have been particularly outspoken and largely refuse to negotiate with Gov. Tom Wolf on any aspect of the tax. Other leaders, such as Sen. Jake Corman (R-Centre), are more open to negotiating.

Negotiations are expected to continue at least for another couple of weeks, if not longer. But as the negotiations drag on though, there are some key questions to keep in mind when evaluating any potential piece of severance tax legislation:

1. Where is the revenue going? The most important part of any severance tax proposal is how the revenue is invested. PennFuture has strongly advocated that part of the revenue must go to re-starting key clean energy programs as well as beefing up enforcement of environmental regulations. In both cases, budget cuts have severely depleted these programs at a staggering cost to the environment. Their inclusion in any severance tax legislation is crucial.
2. What about the Impact Fee? In 2012, policymakers implemented a "Impact Fee" on natural gas drillers that effectively taxes the industry at the lowest rate of any state with gas drilling. The majority of the revenue from the fee is returned to local municipalities impacted by drilling to rebuild their infrastructure. As a result, the Impact Fee is very popular among drilling counties, making whether the Fee remains or is eliminated due to levying a severance tax a key negotiation sticking point.
3. What about the price floor? Gov. Wolf's severance tax proposal includes a "price floor" of $2.97/mcf, meaning that natural gas drillers would be taxed at $2.97/mcf even if the price of gas falls below this level. In theory, the price floor protects state revenue from possible fluctuations in the price of gas as well as guaranteeing a minimum level of revenue. Currently, natural gas prices in Pennsylvania are lower than the price floor, but are expected to rise as pipeline projects are completed. Nonetheless, the natural gas industry still decries the price floor.
4. What about policy riders? During the course of crafting legislation, the General Assembly has a funny habit of sneaking in provisions in larger bills it knows it can't pass on its own. Their hope is no one notices. Any potential severance tax deal will offer an opportunity to do the same and we've already seen legislative leaders attempt to eliminate new oil and gas regulations by slipping a provision in the Fiscal Code bill. It's entirely possible a similar situation could happen again, potentially reducing the overall benefit of the deal.

Ultimately, the severance tax is crucial environmental policy - if not the most important piece of environmental policy to be enacted in 2015. It's vital we get it right.

Matthew Stepp is director of policy for PennFuture and works out of our Philadelphia and Harrisburg offices. He tweets @MatthewStepp.

To date, severance tax the most significant environmental legislation of 2015

June 1 was the unofficial start to Pennsylvania’s state budget negotiations. Expect the same budget showmanship and political stunts as years past but, nonetheless, this year’s budget negotiations have the potential to be an historic turning point. In fact, I’ll go so far as to say the Governor’s budget, anchored by a 5 percent severance tax on natural gas drilling, could be the most significant piece of environmental legislation of 2015.

That might sound off base to some so hear me out.

The overall impact of the severance tax can and will be measured by where the revenue it generates is directed, not necessarily from the direct impact of the severance tax itself. As most in the Commonwealth know, Gov. Tom Wolf has long proposed using most of the severance tax revenue to invest in education. But a deeper look at his budget also shows that the governor wants to leverage the severance tax to kick-start the state's clean energy economy and bolster environmental protection.

In particular, Gov. Wolf has proposed using a portion of the revenue generated to float a bond that would invest:

1. $225 million for clean energy and energy efficiency programs that will cut pollution and position Pennsylvania as a hub for clean energy jobs and industries;
2. $10 million to hire 50 new enforcement staff at the Department of Environmental Protection that will ensure Pennsylvania’s growing gas industry is safe and cleaner;
3. and $19 million to reduce the Department of Conservation and Natural Resources’ budgetary dependence on extractive industries so the state can increase its investment in our parks and forests.

The importance of restarting state investment in clean energy cannot be overstated. In four years, Pennsylvania went from being a leading state for clean energy job and industry growth to a lagging state because policymakers decided to end most incentive programs. The governor’s budget proposes to reverse that process by injecting some much needed investment in solar, energy efficiency, wind, and combined heat and power. It certainly wouldn’t be the end of the debate on state clean energy policy or proper investment levels but it’s a step in the right direction.

It’s critical that the clean energy and environmental protection piece of the governor’s budget proposal be included in all budget negotiations, particularly those surrounding the severance tax. It may sound funny linking natural gas drilling to clean energy but jump-starting these programs and industries requires revenue -- and the severance tax is the best bet.

Matthew Stepp is director of policy for PennFuture and works out of our Philadelphia and Harrisburg offices. He tweets @MatthewStepp.

June 2 committee hearing to examine Corbett public lands leasing proposal

Governor Tom Corbett's proposed 2014-15 fiscal year budget relies on $75 million from new leasing of Pennsylvania state parks and state forests for gas drilling. This proposal follows the terrible precedent set during the Rendell administration of balancing the state budget on the back of damage to our public lands.

Meanwhile, Governor Corbett and the General Assembly refuse to pass a severance or drilling tax for Pennsylvania as is the case in every other major natural gas producing state. Instead, the Act 13 impact fee passed in 2012 translates to one of the lowest effective tax rates in the country, leaving hundreds of millions of dollars on the table.

On Monday, June 2, the House Democratic Policy Committee will critically examine the leasing proposal at a public hearing entitled, "Drilling on Public Lands to Balance the Budget." The hearing is being organized by Rep. Greg Vitali, D-Delaware, minority chair of the House Environmental Resources and Energy Committee. It will start at 10:00 a.m. in Room 418 Main Capitol.

Panelists at the hearing will include:

• John Quigley, former secretary of the Department of Conservation and Natural Resources
• John Childe, chief counsel, Pennsylvania Environmental Defense Foundation
• John Norbeck, vice president and chief operating officer, PennFuture, and former director of the Bureau of State Parks
• Mark Szybist, staff attorney, PennFuture

Kudos to Rep. Vitali and Policy Committee Chair Mike Sturla, D-Lancaster, for bringing attention to this critical issue that should greatly concern anyone who cares about the future of Penn's Woods.

The next six weeks before the passage of the budget around June 30 will be critical in the effort to prevent further leasing of our public lands. Citizen activism will be essential to blocking the Corbett proposal.  

Steve Stroman is policy director for PennFuture and is based in Harrisburg.