Drilling tax proposal sparks blowback

The U.S. oil and gas industry is mounting an aggressive campaign to beat back a Pennsylvania proposal to impose a new tax on natural gas production in the state.

To gas drillers, the plan by Gov. Tom Wolf (D) threatens to stop in its tracks the economic and employment gains of the last seven years, when the Keystone State added jobs amid a national recession.

The boom was largely due to hydraulic fracturing and other unconventional drilling techniques that propelled the state to becoming the No. 2 producer in volume, behind only Texas. Pennsylvania now produces more than an eighth of the country’s gas.

{mosads}“There’s a broad consensus that, during the period of time in the U.S. economy when both economic growth and employment growth were stressed, the natural gas industry was one of the bright spots in both job growth and economic growth,” said Frank Macchiarola, the top lobbyist for America’s Natural Gas Alliance, one of the national groups involved in the Pennsylvania fight.

“And to threaten that, it really doesn’t make any sense,” he said.

Pennsylvania is historically a swing state in national elections, so the debate could play a role in the 2016 campaign, when presidential candidates will search for issues to edge out their competitors. Voters will also decide whether to reelect Sen. Pat Toomey (R), who has declined to take a position on the tax.

The plan unveiled in February reflected a campaign promise from Wolf, who beat then-Gov. Tom Corbett (R) last year by nearly 10 points, due in part to Corbett’s cuts to education.

Known as a severance tax, Wolf’s proposal would charge gas drillers 5 percent of the value of the gas they produce, plus 4.7 cents per 1,000 cubic feet as a backstop against low prices.

Wolf has tapped into Pennsylvanians’ anger about education cuts by planning to put the largest chunk of the expected $1 billion in added revenue from the tax into schools.

“Pennsylvania is the only gas-producing state in the country that doesn’t have a severance tax,” said Jeff Sheridan, Wolf’s spokesman. Currently, the state charges relatively low drilling fees that amount to less than 2 percent of the gas value and go mostly to the counties that host the wells.

“Oil and gas companies in Pennsylvania are not paying their fair share, and schools across Pennsylvania are really struggling after years of mass cuts,” Sheridan said.

“We’re only asking for a very reasonable severance tax.”

But drillers say it’s anything but reasonable.

The American Petroleum Institute commissioned a study earlier in May concluding that the tax threatens billions in investment dollars and thousands of jobs.

“In 2016 alone, more than 6,000 job losses could occur, not just in the oil and gas sector but also across a range of industries that are part of the gas industry supply chain and from service industries,” Stephanie Catarino Wissman, of the group’s Pennsylvania office, told reporters.

“By 2025, supported employment in the state could drop by nearly 18,000 relative to projected levels without the tax,” she said.

Lee Branstetter, a public policy and economics professor at Carnegie Mellon University, said national groups are paying attention because of the volume of gas produced in Pennsylvania, which exceeded 4 trillion cubic feet last year.

“You have to come to a place like Pennsylvania to get the resource,” he said. “As long as the fee is reasonable … people are going to pay it.”

Susquehanna Polling Research has found that 70 percent of the state’s voters support a severance tax.

Branstetter predicted that the tax plan would play into the 2016 national races, both for president and Senate.

“We’re having a larger national debate over how much we want to try to address social problems with expenditures, and how we fund those expenditures,” he said.

In declining to take a position on the tax, Toomey said it is an issue best addressed by elected leaders in Pennsylvania.

“I’m going to leave that to the state legislators and the governor to work out,” he told The Hill.

Former Rep. Joe Sestak (D), who is running to unseat Toomey next year, said in a statement that he supports the tax, citing the federal research money that went into developing fracking.

“A 5 percent return on taxpayers’ investment is reasonable, and I support it,” he said.

Pennsylvania Republican Reps. Glenn Thompson and Tim Murphy, whose districts host a large portion of the state’s gas wells, blasted Wolf’s plan.

“I think it’s a ridiculous proposal,” Thompson said, citing the state’s high corporate tax rate.

“I don’t think Gov. Wolf will kill the golden goose, but he’ll cause it to relocate for a considerable amount of time. And with that, he’s going to take a lot of jobs,” he said.

Murphy said the proposal is especially poorly timed with the coal and steel industries that were once important to his southwestern Pennsylvania district on the decline.

“I don’t think it’s good at all,” he said. “I think we ought to be looking at ways to expand natural gas in our state, like natural gas export facilities in Philadelphia.”

While the gas industry groups are weighing in, national environmental groups have largely stayed out.

“They’re bringing a lot of money in, doing a lot of media, a big media push,” John Norbeck, president of environmental group PennFuture, said of the industry involvement.

“These large, national, DC-based lobby firms telling Pennsylvanians what’s best for them, I don’t think it flies,” he said.