Although Severance Tax Passage Looks Bleak, Rendell Says Still Possible

Governor’s News Release

Governor Rendell: Proposed Severance Tax Compromise is Fair

Urges Legislature to Continue Working to Enact a Bill by Session’s End

HARRISBURG – Governor Edward G. Rendell said today that a proposed compromise currently under consideration for a new natural gas severance tax is fair, reasonable, and in the best interests of the natural gas drilling industry and Pennsylvania taxpayers.

He also stressed that there is time to enact the tax into law before the end of the legislative session if the industry and Senate Republicans have the will to support it. Procedural or constitutional roadblocks to passing a bill, identified by Senate Republicans after consulting with the Legislative Reference Bureau, can be easily overcome in a number of different ways, under legal opinions rendered by that same bureau.

“The process questions are just a red herring. If the Senate wants to get this done, there are legal ways to get it done,” Governor Rendell said.

Following meetings yesterday that included executives of major gas drilling companies and some Republican and Democratic members of the state House of Representatives, and this morning with state Senate Republican leaders, a plan emerged to phase in the tax over the next three years while exempting up to 10 percent of some production and distributions costs. It would yield approximately $42 million in the current fiscal year and $134 million next fiscal year, climbing to $296 million by 2014-15.

That is less than the amount to be raised by a House-passed bill and by the original plan that the Governor introduced in February, but more than a proposal put forth recently by Senate Republicans.

“This is fair. It is a significant compromise. The industry should accept it. The Senate Republicans should accept it,” Governor Rendell said.

During the meetings of the past two days, industry executives noted that they are under a disadvantage when attempting to obtain financing because of the doubt about future tax costs in Pennsylvania.

“The industry has told us time and time again that they are hurt on Wall Street because there is no certainty about the tax rate in Pennsylvania,” the Governor said.

When passing the state budget in July, the legislature made a written commitment to enact a tax on the burgeoning Marcellus Shale natural gas drilling industry this fall, to take effect Jan. 1, 2011. Revenue would be divided among the state General Fund, environmental funds, and local governments that are dealing with substantial cost increases associated with drilling activity.

“I believe strongly that we made a promise to the people of Pennsylvania and I know how badly we need the revenue,” the Governor said. “Our environmental challenges are not going to go away; if anything they are going to get worse. We need it for the Environmental Stewardship Fund. And, local governments are starving as they try to deal with the burden of the drilling that is going on in their communities.”