Post by melody on Feb 12, 2015 19:44:23 GMT -5
GOV. WOLF PROPOSES NATURAL GAS SEVERANCE TAX TO FUND EDUCATION
By Virginia Lucy, PLS
2/11/15
Gov. Tom Wolf today announced a proposal to impose a severance tax on natural gas drilling to help fund public education in Pennsylvania.
Dr. Kathy Taschner, superintendent of the Coatesville Area School District, welcomed Gov. Wolf to Caln Elementary School where he made his announcement. She highlighted the positive attributes of the district, its teachers, and its students. Noting thirty percent of the district’s funding is from the state, Dr. Taschner also touched on the fiscal challenges facing the district, such as a higher proportion of students eligible for free and reduced lunch, soaring special education costs, a shortage of textbooks, and the need to eliminate and furlough positions in an effort to put more dollars into the classroom.
Gov. Wolf remarked that since fiscal year 2010-2011 Coatesville Area School District has been defunded $3.5 million, noting that this is “not good economics.” Pennsylvania ranks 45th in state support of education, he continued, when it should rank first. Gov. Wolf pointed out that Pennsylvania “sits on top of one of the richest deposits of natural gas in the world” which gives Pennsylvania the ability to address the issue of education funding.
“A severance tax on that resource would be something that is really appropriate,” Gov. Wolf stated, adding that Pennsylvania would add itself to the ranks of the other states currently levying a severance tax: Texas, Oklahoma, North Dakota, Alaska, Louisiana, and West Virginia.
Entitling the initiative the Education Reinvestment Act, Gov. Wolf proposes a five percent severance tax on natural gas drilling, modeled after West Virginia, with a tax of 4.7 cents per thousand cubic feet added on volume. He estimated $1 billion in revenue during the first full year of the tax, the 2017 fiscal year. He noted the start date on the tax would be January 1, 2016, making fiscal year 2015-2016 only a partial year.
Gov. Wolf reiterated that Pennsylvania is the only state with natural gas not currently imposing a severance tax and noted Ohio’s proposed severance tax of six percent. He stated the proposal provides protections for property owners who lease their land for natural gas extraction to prevent natural gas drillers from passing the tax through to them. Remarking his understanding of other challenges the budget faces, he stated he would address those in his budget address but wanted to start by focusing on “investing smartly and adequately” in education.
Gov. Wolf then addressed questions from members of the media.
Can you have both the severance tax and impact fee under current law?
The severance tax would not be on top of the impact fee. The impact fee would be rolled into this proposal and localities will get money from this new tax.
How will the tax revenues be divided?
Given what we are spending on the impact fee going to localities, the lion’s share of this tax would go to education. Some ofthis would go to adequate oversight to ensure the drilling is done correctly and alternative energy development.
What is your message to state lawmakers who are gearing up for gridlock and who may want to exchange liquor privatization in exchange for this proposal?
I don’t think lawmakers are gearing up for gridlock. I’ve met with lawmakers and we all recognize the voters voted for divided government but not gridlock and dysfunction. What is heartening for me is how much we agree. We all want the same ends: a great strong economy, good jobs, schools that teach, government that works. We have different ideas on how to get to those goals. But I don’t think we’ll have gridlock. There are proposals from both Democrats and Republicans on a severance tax. A Republican member of the House has proposed a 3.2 percent severance tax and a Democratic senator who has proposed an 8 percent severance tax; I’m proposing something in between, in line with what surrounding states are doing and what I think we need to develop a really healthy gas industry in Pennsylvania.
Some have argued that the revenue may fall short of $1 billion; it might be $675 million. What do you say to that?
We can argue math all the time. I don’t know what will happen to the price of gas so that’s a fair argument. Things change. But this is based on the best projections of some very bright people and whether it is $500-600 million or my projections are over $1 billion, it’s real money and it’s money our schools desperately need.
The Marcellus Shale Coalition says you are using an outdated number from a while ago not factoring in the over production and drop in price.
I’m not sure they’ve seen this proposal. My numbers come from pretty reputable sources.
Can you explain the structure?
This is on production at the wellhead. My original proposal was strictly an ad valorem tax but I looked at what West Virginia is doing and theirs is a mix. An example of a volume tax is the gasoline tax where it is per gallon of gasoline. The rise in the price of gasoline has led many to purchase more fuel efficient cars which has resulted in less revenue because it’s a purely volume tax. West Virginia has a mix so that it can take into account volume regardless of price and price increases. The key is this is what our neighboring state has done and it’s worked. They have a healthy industry.
Will this have any impact on property taxes?
I’m not sure this would be the thing. I’m looking at this as an added investment but we also have to address the property tax issue. The Economist magazine noted that the United States is the only developed nation in the world that actually charges poor school districts a higher tax rate and gives the schools less money. There are no other developed nations that do that. It goes back to property tax. On average, throughout Pennsylvania, the property tax may be reasonable, but there are huge disparities because of the small sizes of our districts. There are real concerns about relying so squarely on those taxes. Right now, the state funds in the 30 percent range in education which means the property tax has to play a big role in supporting education which just reinforces those disparities. This is separate and apart from that.
Can you clarify how much localities will receive?
I have not worked out a formula yet but the idea is that localities will get a lot of money from this and they will be in good shape as a result of this severance tax.
Will counties be made whole?
I am going to work as hard as I can. You are talking about a hold harmless provisions and I’m not going to make that guarantee, just because there might be a dollar over here that someone doesn’t get or a dollar somebody gets more. The idea is not to take away from our localities.
How do you feel about how this could potentially not hurt the natural gas industry?
I come from a business background. We all pay taxes and it’s what we invest, if done right, in things that create the public goods that make my economy work. It creates good employees for me, good customers, safe communities; those are things we pay for in our taxes. My argument, a reasonable tax is the best thing for the private sector.
How are you going to go about trying to convince the industry to sit down at the table?
I’m going to try to convince them that this is right. The alternative is not really no tax, the alternative is no drilling, a ban as in the case of New York. I think this is the best thing that could happen to the industry because it makes us all partners in the success of this industry. This is good business. If it were a huge tax, they might have an argument, but this is a reasonable tax.
To clarify, on the New York drilling ban, would you tell that to the producers if they don’t cooperate?
No, I’m just saying that’s a worst case example. There are alternatives other than putting a reasonable tax on this and will actually have the effect of having Pennsylvanians feel more supportive of this industry. No, that is not a threat; thank you for clarifying that. There are a range of decisions policymakers can make down the road. I’m making this one because I believe it’s in the best interest of the Commonwealth of Pennsylvania as well as the industry. This is a way of making partners out of Pennsylvania citizens and the industry.
Would you consider [liquor] privatization as a bargaining chip here? [Speaker] Mike Turzai (R-Allegheny) said he will try to push a bill through the week before the budget address.
I have the greatest respect for Mike Turzai. We don’t agree on everything and this is one of the things we do not agree on. We agree we do need to modernize state stores and make them more customer friendly. I don’t think there is as much passion for privatization as there is for modernization. I agree with that. I’m for Sunday sales. I’m for figuring out how to open state stores in supermarkets. I’m for sales from other states. I’m for things that will make this better for consumers. I don’t think we need to talk about modernization. I think it would be irresponsible to talk about this at this point. We have a resource here and it’s something we should make better and provide more revenues for Pennsylvania rather than just giving it away.
Would you consider that as a part of the give-and-take to get this done?
Modernization I’m on board already. I don’t have to negotiate that. I want to do that. I know we’ll have conversations on that and with all kinds of folks in the legislature including Sen. Andrew Dinniman’s (D-Chester) colleagues in the Senate.
I’m certainly willing to have conversation but I’m not willing to give up on principals I hold deeply and I don’t believe in privatization.
On the property tax question, your biggest proposal on that front was the overhaul of the income tax. Is that something we can look forward to in your legislative program this year?
I’m still working on that. The budget address is March 3rd, so we are three weeks away from that so I’m still working through the details of that. Throughout the campaign, what I talked about was a fairer tax system and what we have here with a huge budget deficit is an opportunity to do a rest and make a fairer tax system in a lot of ways. I also talked about a reduced corporate net income tax, reducing property tax. I’m talking about a fairer Pennsylvania.
By Virginia Lucy, PLS
2/11/15
Gov. Tom Wolf today announced a proposal to impose a severance tax on natural gas drilling to help fund public education in Pennsylvania.
Dr. Kathy Taschner, superintendent of the Coatesville Area School District, welcomed Gov. Wolf to Caln Elementary School where he made his announcement. She highlighted the positive attributes of the district, its teachers, and its students. Noting thirty percent of the district’s funding is from the state, Dr. Taschner also touched on the fiscal challenges facing the district, such as a higher proportion of students eligible for free and reduced lunch, soaring special education costs, a shortage of textbooks, and the need to eliminate and furlough positions in an effort to put more dollars into the classroom.
Gov. Wolf remarked that since fiscal year 2010-2011 Coatesville Area School District has been defunded $3.5 million, noting that this is “not good economics.” Pennsylvania ranks 45th in state support of education, he continued, when it should rank first. Gov. Wolf pointed out that Pennsylvania “sits on top of one of the richest deposits of natural gas in the world” which gives Pennsylvania the ability to address the issue of education funding.
“A severance tax on that resource would be something that is really appropriate,” Gov. Wolf stated, adding that Pennsylvania would add itself to the ranks of the other states currently levying a severance tax: Texas, Oklahoma, North Dakota, Alaska, Louisiana, and West Virginia.
Entitling the initiative the Education Reinvestment Act, Gov. Wolf proposes a five percent severance tax on natural gas drilling, modeled after West Virginia, with a tax of 4.7 cents per thousand cubic feet added on volume. He estimated $1 billion in revenue during the first full year of the tax, the 2017 fiscal year. He noted the start date on the tax would be January 1, 2016, making fiscal year 2015-2016 only a partial year.
Gov. Wolf reiterated that Pennsylvania is the only state with natural gas not currently imposing a severance tax and noted Ohio’s proposed severance tax of six percent. He stated the proposal provides protections for property owners who lease their land for natural gas extraction to prevent natural gas drillers from passing the tax through to them. Remarking his understanding of other challenges the budget faces, he stated he would address those in his budget address but wanted to start by focusing on “investing smartly and adequately” in education.
Gov. Wolf then addressed questions from members of the media.
Can you have both the severance tax and impact fee under current law?
The severance tax would not be on top of the impact fee. The impact fee would be rolled into this proposal and localities will get money from this new tax.
How will the tax revenues be divided?
Given what we are spending on the impact fee going to localities, the lion’s share of this tax would go to education. Some ofthis would go to adequate oversight to ensure the drilling is done correctly and alternative energy development.
What is your message to state lawmakers who are gearing up for gridlock and who may want to exchange liquor privatization in exchange for this proposal?
I don’t think lawmakers are gearing up for gridlock. I’ve met with lawmakers and we all recognize the voters voted for divided government but not gridlock and dysfunction. What is heartening for me is how much we agree. We all want the same ends: a great strong economy, good jobs, schools that teach, government that works. We have different ideas on how to get to those goals. But I don’t think we’ll have gridlock. There are proposals from both Democrats and Republicans on a severance tax. A Republican member of the House has proposed a 3.2 percent severance tax and a Democratic senator who has proposed an 8 percent severance tax; I’m proposing something in between, in line with what surrounding states are doing and what I think we need to develop a really healthy gas industry in Pennsylvania.
Some have argued that the revenue may fall short of $1 billion; it might be $675 million. What do you say to that?
We can argue math all the time. I don’t know what will happen to the price of gas so that’s a fair argument. Things change. But this is based on the best projections of some very bright people and whether it is $500-600 million or my projections are over $1 billion, it’s real money and it’s money our schools desperately need.
The Marcellus Shale Coalition says you are using an outdated number from a while ago not factoring in the over production and drop in price.
I’m not sure they’ve seen this proposal. My numbers come from pretty reputable sources.
Can you explain the structure?
This is on production at the wellhead. My original proposal was strictly an ad valorem tax but I looked at what West Virginia is doing and theirs is a mix. An example of a volume tax is the gasoline tax where it is per gallon of gasoline. The rise in the price of gasoline has led many to purchase more fuel efficient cars which has resulted in less revenue because it’s a purely volume tax. West Virginia has a mix so that it can take into account volume regardless of price and price increases. The key is this is what our neighboring state has done and it’s worked. They have a healthy industry.
Will this have any impact on property taxes?
I’m not sure this would be the thing. I’m looking at this as an added investment but we also have to address the property tax issue. The Economist magazine noted that the United States is the only developed nation in the world that actually charges poor school districts a higher tax rate and gives the schools less money. There are no other developed nations that do that. It goes back to property tax. On average, throughout Pennsylvania, the property tax may be reasonable, but there are huge disparities because of the small sizes of our districts. There are real concerns about relying so squarely on those taxes. Right now, the state funds in the 30 percent range in education which means the property tax has to play a big role in supporting education which just reinforces those disparities. This is separate and apart from that.
Can you clarify how much localities will receive?
I have not worked out a formula yet but the idea is that localities will get a lot of money from this and they will be in good shape as a result of this severance tax.
Will counties be made whole?
I am going to work as hard as I can. You are talking about a hold harmless provisions and I’m not going to make that guarantee, just because there might be a dollar over here that someone doesn’t get or a dollar somebody gets more. The idea is not to take away from our localities.
How do you feel about how this could potentially not hurt the natural gas industry?
I come from a business background. We all pay taxes and it’s what we invest, if done right, in things that create the public goods that make my economy work. It creates good employees for me, good customers, safe communities; those are things we pay for in our taxes. My argument, a reasonable tax is the best thing for the private sector.
How are you going to go about trying to convince the industry to sit down at the table?
I’m going to try to convince them that this is right. The alternative is not really no tax, the alternative is no drilling, a ban as in the case of New York. I think this is the best thing that could happen to the industry because it makes us all partners in the success of this industry. This is good business. If it were a huge tax, they might have an argument, but this is a reasonable tax.
To clarify, on the New York drilling ban, would you tell that to the producers if they don’t cooperate?
No, I’m just saying that’s a worst case example. There are alternatives other than putting a reasonable tax on this and will actually have the effect of having Pennsylvanians feel more supportive of this industry. No, that is not a threat; thank you for clarifying that. There are a range of decisions policymakers can make down the road. I’m making this one because I believe it’s in the best interest of the Commonwealth of Pennsylvania as well as the industry. This is a way of making partners out of Pennsylvania citizens and the industry.
Would you consider [liquor] privatization as a bargaining chip here? [Speaker] Mike Turzai (R-Allegheny) said he will try to push a bill through the week before the budget address.
I have the greatest respect for Mike Turzai. We don’t agree on everything and this is one of the things we do not agree on. We agree we do need to modernize state stores and make them more customer friendly. I don’t think there is as much passion for privatization as there is for modernization. I agree with that. I’m for Sunday sales. I’m for figuring out how to open state stores in supermarkets. I’m for sales from other states. I’m for things that will make this better for consumers. I don’t think we need to talk about modernization. I think it would be irresponsible to talk about this at this point. We have a resource here and it’s something we should make better and provide more revenues for Pennsylvania rather than just giving it away.
Would you consider that as a part of the give-and-take to get this done?
Modernization I’m on board already. I don’t have to negotiate that. I want to do that. I know we’ll have conversations on that and with all kinds of folks in the legislature including Sen. Andrew Dinniman’s (D-Chester) colleagues in the Senate.
I’m certainly willing to have conversation but I’m not willing to give up on principals I hold deeply and I don’t believe in privatization.
On the property tax question, your biggest proposal on that front was the overhaul of the income tax. Is that something we can look forward to in your legislative program this year?
I’m still working on that. The budget address is March 3rd, so we are three weeks away from that so I’m still working through the details of that. Throughout the campaign, what I talked about was a fairer tax system and what we have here with a huge budget deficit is an opportunity to do a rest and make a fairer tax system in a lot of ways. I also talked about a reduced corporate net income tax, reducing property tax. I’m talking about a fairer Pennsylvania.
