TAX NEWS - June 2010

Pennsylvania bill to tax natural gas drilling on hold

HARRISBURG -- After hours of debate, the House on Tuesday abruptly halted a scheduled vote on a proposed severance tax on natural gas drilling in the Marcellus shale formation at the request of Democratic Gov. Ed Rendell.

Rendell, who favors the tax, asked House Appropriations Chairman Dwight Evans, D-Philadelphia, to "pull the bill" and see whether House leaders can broker an agreement today with Senate leaders on the tax and addressing the $1.7 billion budget gap. The bill, expected to raise $316 million, included a 10-cent hike on a pack of cigarettes. It was sent back to the Appropriations Committee.

Details were not worked out and "it would have made it difficult to go forward," Rendell said.

The budget is due July 1. Despite the postponed tax vote, Rendell said, "I'm the happy warrior. I'll be here all summer if it takes it."

Lawmakers have passed the state budget late since Rendell became governor in 2003.

But Evans warned lawmakers earlier: "We've got a job to do. The public is watching all of us."

The proposed natural gas extraction tax would give Pennsylvania the distinction of levying the highest such tax among states where drilling takes place, according to the Canonsburg-based Marcellus Shale Coalition. Some lawmakers are seeking a drilling moratorium in Pennsylvania.

Kathryn Klaber, the coalition's president and executive director, said, "This enormous tax hike and misguided call for blanket moratoriums on shale gas put Pennsylvania on a path to become one of the least competitive energy-producing states in the country."

House Minority Leader Sam Smith, R-Punxsutawney, said Democrats pulled the bill because they did not have enough votes to pass it.

Supporters of a tax did not agree on how much of the revenue should go toward balancing the budget and providing relief to local governments where wells will be drilled, and how much would fund environmental programs.

The Marcellus shale covers 93,000 square miles in Pennsylvania, West Virginia, Ohio and New York. In some places, it runs deeper than 8,000 feet under the surface and can be tapped for gas only with a high-pressure, liquid spray to break apart rocks.

Sen. Kim Ward, R-Hempfield, said she believes it would be unconstitutional to tax natural gas extraction but not levy a tax on other resources, including coal.

"You have to tax everything," she said. "You can't just pick one."

Sen. Jim Ferlo, D-Highland Park, suggested banning natural gas drilling on state forest lands and private property for one year while a commission considers the ramifications. He said he's concerned about existing natural gas leases in Pittsburgh.

There are 68 leases in Lawrenceville alone, City Councilman Patrick Dowd said. He said he and other council members next week will propose zoning regulations to deal with the possibility of drilling.

Neil Weaver, spokesman for the state Department of Environmental Protection, said the agency is not reviewing any permit applications for gas wells within city limits. A well cannot be drilled within 200 feet of a business or home without a waiver from the property owner, he said.