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Stalemate nears in Pa. Senate over 'shale tax'

HARRISBURG - No one in the Capitol is uttering the word dead yet, but prospects are dimming - and time is running out - to strike a deal on proposals to tax the extraction of natural gas from the Marcellus Shale.

HARRISBURG - No one in the Capitol is uttering the word


yet, but prospects are dimming - and time is running out - to strike a deal on proposals to tax the extraction of natural gas from the Marcellus Shale.

"We're still worlds apart," Senate President Joe Scarnati (R., Jefferson) said Tuesday, adding that chances of reaching an agreement "diminish by the hour."

Gov. Rendell put it this way: "The effort to get this done has broken down."

Lest anyone misinterpret the lame-duck governor's mood, he later compared Scarnati to Pinocchio.

Rendell and Senate Republican leaders spoke after a joint meeting Tuesday. The meeting's stated purpose was to bridge differences over how high such a tax should be, and how it should be distributed among the state, counties, and environmental causes.

Both sides said talks would continue, but neither sounded hopeful of finding common ground on the oft-proposed, oft-delayed "shale tax" before the Senate recesses Thursday before the Nov. 2 election.

The Democratic-controlled House last month passed a bill that calls for a tax of a minimum of 39 cents - roughly 10 percent - per 1,000 cubic feet of natural gas produced. Rendell has said he would support it.

Senate Republican leaders have derided the proposal, dismissing the rate as the highest in the nation and contending it would drive the natural-gas industry out of Pennsylvania. They have also said they believed the measure was passed in an unconstitutional manner.

They support a 1.5 percent tax on gas produced from large wells for the first five years, at which point the rate would jump to 5 percent. Rendell has said he would veto that proposal if it reached his desk.

The sides have been trying to negotiate a compromise since then, but consensus has been elusive.

And Rendell may have hurt his own cause Tuesday. Addressing reporters in his reception room in the Capitol, the governor dropped any pretense of political civility, accusing the Senate GOP of dragging its feet in hope that Republican nominee Tom Corbett - who opposes such a tax - would be elected governor Nov. 2. Democratic nominee Dan Onorato supports taxing natural gas.

At one point Tuesday, Rendell likened Scarnati - one of the top negotiators for the Senate Republicans - to the famous lying puppet.

"Check his nose out tomorrow - it's going to be a bit longer," Rendell said when told that Scarnati had said Senate Republicans have been negotiating in good faith.

Scarnati didn't mince words either.

"Since mid-July, our caucus has led discussions on policy and tax for this industry - and it just is stunning to me that at the last hour, we have the governor walking into a debate that he did not choose to be a part of the entire summer."

He added: "I can look anybody in the eye and tell anybody that the Senate Republicans lived up to the intent . . . to work through a complete policy for the gas industry."

Rendell's response: "Bull."

Lost in Tuesday's rhetorical volley was the fact that gas companies with multimillion-dollar high-tech drilling rigs have been plumbing the Marcellus Shale formation for several years without paying a levy on what they produce. That makes Pennsylvania the largest natural-gas-producing state without such a tax.

A coalition of gas companies drilling in Pennsylvania has said it would support a "competitively structured" tax - comparable to the one being pushed by Senate Republicans - if it were part of a larger package of legislative and regulatory changes.

Gas companies also believe tax revenue should go to municipalities where drilling occurs, as well as to conservation initiatives. Such a mix "will encourage job creation and critical capital investment . . . not discourage this economic activity," Kathryn Klaber, president of the Marcellus Shale Coalition, said in a statement Tuesday.

But other drillers oppose a tax, noting that they already pay various taxes and fees to the state.

Rendell initially proposed a natural-gas tax in early 2009. Industry leaders persuaded him to change his mind. But as the recession deepened and state revenue shrank, the governor resurrected the proposal in February in his final budget address.

The industry fought back, hiring an array of Harrisburg lobbyists and advocates that included several former Rendell aides and one former governor, Tom Ridge. During budget negotiations this summer, the legislature put off dealing with the natural-gas-tax issue until fall, promising to pass an extraction tax by Oct. 1.

Rendell said Tuesday that he had offered up a compromise: to tax gas production at 3 percent the first year, 4 percent the second, and 5 percent after the third.

The Senate is in session Wednesday and Thursday. Then its members break for the election. They have left open the possibility of adding session days next week, but did not plan to return after the election to vote on bills.

The House resumes work after the election.

"They made a promise to the people of Pennsylvania," Rendell said of legislators. "If that means that the Senate comes back next week . . . then that's what they should do."