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House Co-Sponsorship Memoranda
House of Representatives
Session of 2015 - 2016
Regular Session
MEMORANDUM
| Posted: | January 4, 2016 02:45 PM |
|---|---|
| From: | Representative Jim Christiana |
| To: | All House members |
| Subject: | Responsible Severance Tax |
| Pennsylvanians have made it clear they want a severance tax on natural gas producers, and Gov. Tom Wolf hasn't been shy about his desire to tax the industry either. Throughout his gubernatorial campaign and his first year on the job, he pressured the Legislature to consider his punitive tax proposal, which was met with opposition from Republicans and Democrats. Halfway through the year, the severance tax conversation was postponed, but Gov. Wolf said publicly that he plans to re-address it in the near future. Despite what critics say, many Republicans support the concept of a severance tax, but simply reject the governor's punitive approach. We've maintained a seemingly unpopular yet factual argument-that Pennsylvania's impact fee, combined with the nation's second-highest Corporate Net Income Tax rate, means our drillers are paying more than their fair share. However, the governor and his anti-industry allies continue to say we are the only state without a severance tax, making it difficult for advocates of the industry to explain to the public and the media the absurdity of his proposal. Until recently, he has painted his proposal with a broad brush, stating only that he wants to tax the industry and collect billions in revenue. The severance tax debate is much more complicated than just combining the words "severance" and "tax" together in a stump speech. We must look closely at the specifics of each proposal and measure their consequences. Like many of you, I've been unable to support plans that call for a crushing tax on this industry, especially one suffering through an enormous decline. Although many view me as an unlikely severance tax advocate, there is a scenario that I can support. lt's important to remember, the impact fee was put in place to offset costs being absorbed by taxpayers in drilling communities. Pennsylvania made the decision to assess the natural gas industry in an unconventional way- with a per-well tax. A production-based tax didn't make sense for Pennsylvania at the time, because the industry was in its infancy. If Pennsylvania is ready to shift away from an unconventional tax to a traditional severance tax, the industry should not continue to pay the impact fee. Plans that call for a 5-percent severance tax on top of the impact fee would make our tax the highest in the nation, and no longer competitive with surrounding states. I will not support public policy that tells this industry and its employees to pack up and leave. It's time for us to address this issue in a responsible manner that provides predictability, so we can shift our focus to increasing demand and usage. I will soon introduce legislation that repeals and replaces the impact fee as implemented under Act 13. This proposal would set a minimum severance tax of 3 percent on the industry, and would incrementally increase to the governor's 5 percent severance tax rate. This incremental increase occurs only if and when the Pennsylvania market recovers. The next-most contested facet of the severance tax debate is the distribution of revenue. Under Act 13, our local communities get a lion's share of impact fee revenues. We can eliminate the impact fee and shift to a severance tax, while protecting those areas receiving funds under Act 13. Consistent with the current impact fee distribution, we must drive out the first $175 million generated by a severance tax as follows: $10 million to the Environmental Stewardship Fund; $40 million to the Marcellus Legacy Fund; and $125 million to counties affected by drilling. Of the remaining revenues, one-third will be returned to our communities and two-thirds will go to the General Fund. This formula provides funding for our drilling communities and creates enormous upside for Pennsylvania as the industry expands and prospers in the future. While there are many possibilities for revenue distribution, I believe this formula is the most responsible way to shift away from the impact fee to a severance tax. However, this revenue distribution formula is just an outline and should not be used as an excuse to avoid moving forward. I look forward to addressing this important issue in a bipartisan and responsible manner. Please join me in co-sponsoring this legislation. |