It’s that time of year again. Pennsylvania elected officials are debating the state budget deep into June and most likely into July. Another budget, another scramble to find monies to balance the budget and to fill an unending appetite of state government spending.
For the third year in a row, the governor has asked for a severance tax on natural gas extraction. Thankfully, there are other leaders in Pennsylvania who see how a punitive, short-sighted tax could stunt a revenue and tax producing energy industry rather than multiply it.
And, ultimately, that’s the problem. It’s a debate in the ‘need-it-now’ climate vs. a dialogue about ‘what the future’ could hold. Simply put, Pennsylvania has been having the wrong conversation about energy development for years. For our state coffers to collect the maximum amount of money from this industry, policymakers should focus on how best to help it grow.
During the previous administration, an impact fee, call it “Pennsylvania’s Severance Tax,” on natural gas drilling was enacted to help communities where the impact was occurring while also funding programs in all corners of the Commonwealth. It has worked well, delivering funds immediately after drilling begins, unlike severance taxes that are not collected and distributed until after abatement periods end.
While many in the public often hear the cry that “Pennsylvania is the only state without a severance tax,” this is blatantly false. Pennsylvania is the only state with the aforementioned “impact fee” and other states have taken notice, putting forward policy proposals to scrap their existing “severance” taxes and model what’s being done here in Pennsylvania. The impact fee in Pennsylvania adds approximately $200 million to local governments throughout the commonwealth annually — more than would be realized with Gov. Wolf’s proposal.
Speaking of economic growth, we agree with Gov. Wolf’s Secretary of Community and Economic Development Dennis Davin and the IHS Markit report on petrochemical facilities that Pennsylvania must maximize this energy opportunity by expediting pipeline build-out and completing an inventory of sites for industrial development. Because, after all, we want Pennsylvania to be a national leader in energy production, utilization, and the jobs that come with it. Because that’s what allows growth and additional tax revenues to be collected by the commonwealth.
As we enter the final throes of the ‘17-18 budget making process, we urge policymakers to refocus the conversation toward advancing economic growth and stop the counterproductive fixation on new taxes.
If this debate does come again, we ask you to consider the following questions:
1. What is the total cost of doing business in Pennsylvania (including the impact fee) compared to the total cost of doing business in Texas, which has a severance tax but no corporate income tax or personal income tax?
2. When before has a state government sought to attract new business development and investment with an additional, industry-specific tax?
3. With over half of all Pennsylvania homes relying on natural gas for home heat and appliance use, how would an additional tax affect their budgets?
4. With demand for natural gas poised to increase nationally by 40 percent through the year 2030 (possibly more in Pennsylvania), how would an additional tax on the industry affect residential, commercial, and industrial natural gas customers?
5. Have the effects of a new, additional, industry specific tax been examined on the petrochemical manufacturing end users?
6. If the Department of Community and Economic Development (DCED) believes that we should “proactively” and “aggressively” deploy new energy infrastructure, why would an additional energy tax be proposed simultaneously?
7. Why should a company choose to locate, invest, or expand operations in Pennsylvania when a new, additional industry-specific tax is proposed every year as a part of the Governor’s budget?
The answers to these questions lead to one conclusion: new jobs and economic growth don’t come from short-sighted and punitive taxation.