A decade later, gas drilling tax politics roil Pennsylvania

(Harrisburg) —  A decade after energy companies began realizing the explosive economic potential of the vast Marcellus Shale natural gas reservoir, the politics of taxing it still roils Pennsylvania, now the nation’s No. 2 gas state.

Democratic Gov. Tom Wolf made taxing Marcellus Shale production a centerpiece of his successful 2014 campaign, and it stands to be prominent in next year’s re-election bid after three years of pressing the Republican-controlled Legislature to make multibillion-dollar exploration companies pay their “fair share.”

It’s closer than ever: tax legislation passed the Senate in July, and a similar bill underwent two days of debate this week in the House of Representatives, where Republican leaders oppose it. Still, any final vote will won’t occur before December, and the bill may not survive opponents’ efforts to attach provisions that will split supporters.

“The governor ran on getting this done and if he gets it done does that help him? Sure,” Rep. Garth Everett, R-Lycoming, said. That may motivate some Republicans simply to vote against it, Everett said: “I’m sure there’s politics involved.”

Fights over the industry’s practices and pipelines have flooded courts and shaped local races, including Everett’s. An opponent of a tax, he supports the House’s tax legislation because it includes a provision he has sought to prevent the industry’s perceived abuses of landowner royalties.

The tax debate also has inflamed geographic differences, with southeastern Pennsylvania Republicans joining Democrats largely from eastern districts against much of the rest of the state.

“Unfortunately there is a very strong effort from the east to attack what is our core industry in the west,” said Rep. Eric Nelson, R-Westmoreland, during a debate Monday.

It’s hard to overestimate the Marcellus Shale’s impact.

Pennsylvania is producing 30 times as much natural gas as it did a decade ago, and the Marcellus Shale is the nation’s most prolific gas reservoir. Pennsylvania has rocketed from an industry backwater to within striking distance of Texas, the No. 1 gas-producing state.

The industry has drawn tens of billions of dollars of natural gas from the ground, transforming local economies and helping drive natural gas to about half its 2009 price. Meanwhile, the industry has deployed lobbying muscle and campaign contributions in the Capitol.

Taxing it looms large for Wolf’s prospective re-election foes.

House Speaker Mike Turzai, R-Allegheny, is a staunch opponent of a tax. Sen. Scott Wagner, R-York, told a crowd in September that he had urged House Appropriations Committee Chairman Stan Saylor to block a Marcellus Shale tax to stop Wolf from getting re-elected.

A tax was first proposed in 2009 by then-Gov. Ed Rendell, a Democrat.

Three years later, Republicans brokered a deal among themselves for a per-well “impact fee” designed to satisfy calls for a tax and the anti-tax politics of then-Gov. Tom Corbett, a Republican. The fee has produced an average of about $200 million annually, most of which returns to drilling communities.

Critics say the fee packs a relatively paltry tax rate when natural gas prices aren’t rock bottom. Exploration companies in Texas pay substantially more in natural gas taxes, although industry lobbyists in Pennsylvania argue that prices there are higher.

Studies conclude that, to the extent that producers pass down the cost of a tax increase, out-of-state customers will foot most of the bill, according to the Independent Fiscal Office, a legislative agency.

Still, many western and northern Pennsylvania lawmakers fear an economic hit to their districts, where landowners reap royalties and business owners from landscapers to heavy equipment dealers benefit from drilling industry needs.

“You can see it when you drive into my district,” said Rep. Tedd Nesbit, R-Mercer, describing the money flowing to farmers who lease their land. “There’s new silos, new combines, and that money was spent locally.”

To draw Republican support, the House tax proposal is substantially smaller than what Wolf sought, and it has picked up passengers, including Everett’s royalty legislation and industry-friendly provisions.

Whether or not it passes, a tax remains popular in opinion surveys and promises to be grist on next year’s campaign trail. Supporters contend that, the sooner a tax passes, the sooner the industry will benefit from financial predictability after years of political football.

“We’ve been going back and forth on this since the Rendell years,” said Rep. Gene DiGirolamo, R-Bucks, who wrote the tax bill. “You would think the industry would want some closure on this.”