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Wolf, shale industry do battle over proposed severance tax

The shale gas industry and allies of Gov. Wolf ratcheted up rhetoric this week over a key component of the state's stalemated budget debate: Imposition of a severance tax on natural gas production.

Gov. Tom Wolf. (MICHAEL PRONZATO/Staff Photographer)
Gov. Tom Wolf. (MICHAEL PRONZATO/Staff Photographer)Read moreMICHAEL PRONZATO/Staff Photographer/File

The shale gas industry and allies of Gov. Wolf ratcheted up rhetoric this week over a key component of the state's stalemated budget debate: Imposition of a severance tax on natural gas production.

The Marcellus Shale Coalition says the proposed tax is the harshest in a series of hostile actions the Wolf administration has taken against the gas industry, one of the state's better-performing economic sectors in the last decade.

"Since Gov. Wolf was elected, he has been talking about this industry being successful, but his actions really don't match the words," said David Spigelmyer, president of the coalition. He characterized Wolf's manner as a "my way or the highway" approach.

The Democratic governor is calling the severance tax a mechanism to fund schools. The tax on gas production would generate $1 billion in its first full year, most of which would go to education.

But $225 million of gas-tax revenue would replace the current shale impact fee, which is assessed on a per-well assessment and mostly goes to drilling communities. About $10 million of the severance tax would pay for more drilling enforcement.

An additional $55 million of the severance tax revenue would pay off a proposed $675 millionstateeconomic development bond issue, of which $225 million would be allotted to energy projects, mostly renewable energy.

The shale-gas coalition objects that the gas industry would subsidize competing green-energy projects.

"A bill of goods has been sold here that this is all about school funding, and frankly it's more about picking winners and losers and funding a broader environmental activist agenda," Spigelmyer said.

The governor's team says the trade group does not speak for the entire industry. John Hanger, Wolf's policy chief, said some industry executives recognize the need for a severance tax to spread shale-gas benefits across the state.

"We had more than a few companies coming to Pennsylvania who were amazed that we had no [shale gas] severance tax," Hanger said of his time as environment secretary in the Rendell administration. "Privately, they thought Pennsylvania was being a chump for not having one."

The sniping is occurring amid a surge in rival ad campaigns over the state budget standoff. Wolf on June 30 vetoed a Republican budget that did not include a severance tax. Until the impasse is resolved, the state has no budget.

An affiliate of the Democratic Governors Association, whose biggest source of funding is public-employee unions, last week launched commercials bashing the vetoed GOP plan as letting the oil and gas industry off the hook, underfunding education, and deepening thestate's deficit.

On Monday, Americans for Prosperity, an advocacy group founded by the billionaire energy executives Charles and David Koch, kicked off a radio campaign that says Wolf is "cooking up schemes to hike your taxes."

The shale coalition says the severance tax is only one of several unfriendly actions Wolf has taken.

Wolf remade the Oil and Gas Technical Advisory Board, not to the industry's liking. It imposed stricter gas-drilling regulations, which the industry says would raise costs without increasing environmental protections.

The state cut its estimate of direct and induced jobs generated by the industry to 89,000 from more than 200,000.

"To scale back those numbers to drive some broader political agenda is kind of silly," said Spigelmyer. Hanger said the old estimate was "glaringly wrong," and the new estimate still amounts to an "impressive" 1.5 percent of state employment.

"There's nothing hostile about that," Hanger said.

The state last month also announced its "intention" to impose a record $8.9 million fine against Range Resources Corp. of Fort Worth, Texas, for allegedly failing to fix a natural gas well in Lycoming County that it says contaminated nearby water wells. Range denies its operations were at fault. The highest previous fine was $4.5 million against EQT Corp., which the company is challenging.

Spigelmyer says the higher cost of doing business in Pennsylvania will drive the industry to divert investments to more hospitable states.

Wolf's advisers say that's a hollow threat: Pennsylvania is now the nation's second-biggest natural gas producer because the Marcellus Shale is such a rich resource.

"Frankly, gas drilling will stop just about everywhere else in North America before it stops in Pennsylvania, because we have the best resource right here," Hanger said.