Amid budget woes, gas drilling tax turns GOP heads
HARRISBURG – Slapping Pennsylvania’s booming natural gas industry with a new tax has long been the currency of Democrats, and now an increasingly grim budget picture is turning Republican heads in the GOP-controlled state Legislature.
Some Republicans in the Capitol are predicting that a tax on natural gas extraction could end up in whatever final budget legislation emerges, probably in late June. The multinational industry has been a lightning rod since it arrived in Pennsylvania five years ago, and raising taxes on it would be preferable to cutting aid to schools or the poor, some Republicans say.
One obstacle is Gov. Tom Corbett. The Republican has publicly opposed a tax on the industry, both before and after he was persuaded by the Legislature’s Republican leaders to sign legislation in 2012 that imposed an impact fee on the industry.
Still, the tax-like impact fee is equivalent to a much lower tax rate than many other gas-producing states charge the industry, and the issue of raising taxes on Pennsylvania’s natural gas industry is popular in opinion surveys.
For now, Republican budget makers are watching the performance of April’s state tax collections and keeping their options open.
“There’s some support for an extraction tax in some quarters,” said Senate Appropriations Committee Chairman Jake Corman, R-Centre. “I don’t think it becomes a real discussion until the budget numbers crystallize. But if there’s a $500 million-plus hole to fill, I don’t know that people are going to want to go into the budget and peel away education spending. Then an extraction tax becomes a more serious discussion than it has in the past.”
House Appropriations Committee Chairman Bill Adolph, R-Delaware, agreed with Corman.
“It’s something we definitely have to consider,” Adolph said.
A $500 million hole is easily within reach.
In February, Corbett proposed a $29.4 billion spending plan for the fiscal year that starts July 1, an increase of almost 3.7 percent over the current year’s approved budget. To deliver an extra $240 million in grants to public schools and meet rising health care and pension costs, Corbett’s budget proposal took some risks.
It predicted robust tax collections. It asked lawmakers to delay $170 million in pension payments. It counted on $100 million from taxes on newly legal gambling in bars.
Now, tax collections are falling hundreds of millions of dollars behind expectations. Support for Corbett’s call to postpone pension payments is in question and only a fraction of the gambling revenue is likely to materialize.
Some Republicans say a majority in both chambers now exists for an extraction tax.
“I always thought going back three years ago … there were an easy 20 or 30 Republicans in the House who would vote for this,” said Rep. Eugene DiGirolamo, R-Bucks, one of several Republican lawmakers proposing a tax on the industry. “I think there’s a whole lot more than that right now, if we could get this issue up for a vote. I would bet there’s 50 Republicans who would vote for this.”
One central question is whether Democrats and Republicans could agree on a tax structure and destination for the money, even if Corbett changes his position.
The Corbett administration has had no discussions on proposals to impose an extraction tax, said Patrick Henderson, an adviser to Corbett on energy policy. Meanwhile, House Speaker Sam Smith, R-Jefferson, said through a spokesman that he does not support an extraction tax and would rather try to fill a budget hole by selling liquor licenses to private-sector businesses.
David J. Spigelmyer, president of the Marcellus Shale Coalition, a Pittsburgh-based trade association, said the industry wants to be acknowledged for its contributions so far toward lowering energy bills, hiring more people and paying taxes and fees.
He has not, he said, been asked yet to support a tax increase, though he expects his organization may be asked to discuss it. Asked if the industry will oppose any tax increase, he would not say yes or no.
“We’re going to be engaged in dialogue,” Spigelmyer said. “I learned a long time ago that it’s hard to draw a line in the sand when you haven’t seen what you’re drawing a line in the sand on.”
Still, he issued a warning.
“Pennsylvania has already laid a significant new tax burden on this industry,” Spigelmyer said, “and it’s not going to be a panacea for everyone to balance their budgets on.”
Levy covers politics and government for The Associated Press in Pennsylvania. He can be reached at firstname.lastname@example.org.