Next Years Severance Tax (better late than never?)

House to focus on drilling issues next year

by robert swift (harrisburg bureau chief)
Published: December 1, 2009

HARRISBURG – House Democratic leaders are making taxation and regulation of natural gas drilling in the Marcellus Shale formation top priorities next year.

The effort will get started with statewide hearings by the House Environmental Resources and Energy Committee and House Democratic Policy Committee, said Majority Leader Todd Eachus, D-116, Hazleton.

A renewed push to enact a state severance tax on gas production as well as legislation to address drilling-related issues ranging from protection of water supplies to royalties for landowners is part of the legislative focus.

“We are going to take up the issue of the Marcellus Shale extraction tax,” added Eachus in a recent interview. “We really think the development of the Marcellus Shale should have a social benefit.”

Interest in the impact of drilling activities in the Marcellus formation underlying Northeastern and Central Pennsylvania built steadily this year stemming both from fiscal concerns over the large state revenue deficit and environmental concerns highlighted by the recent federal lawsuit by 15 families in Susquehanna County alleging that Cabot Oil and Gas Corp. damaged their health and property.

Earlier this year, Gov. Ed Rendell proposed a five percent severance tax modeled on the West Virginia levy while the Department of Environmental Protection hired additional gas well inspectors with revenue from a fee hike on oil and gas exploration permits.

Rendell eventually said it would be premature to implement a severance tax for fiscal 2009-10, but House Democrats rallied behind the idea and included it in their version of the budget bill. The final $27.8 billion budget is without a severance tax. This is mainly due to because of opposition from Republican lawmakers who said a tax would discourage drilling companies from creating new jobs.

Rendell thinks the timing is right to include a severance tax as part of the 2010-11 budget, said John Hanger, acting Secretary of the Department of Environmental Protection.

“The governor is open to what the details of the severance tax would be,” he added.

One unresolved issue is the distribution of severance tax revenues.

“My (bill) would devote gas revenues to both the municipality and the county where natural gas is extracted, the Liquid Fuels Fund (for local road work), as well as to LIHEAP (low-income heating), environmental stewardship and state government,” said Rep. Camille George, D-74, Houtzdale, the environmental panel chairman.

Other drilling issues await Harrisburg’s attention.

George wants action to protect the existing 12.5 percent royalty to property owners for gas production on their land. He is awaiting a decision from the state Supreme Court on whether the royalty is to be calculated after deducting post-production expenses such as processing, marketing and transportion from the producer’s proceeds.

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