MERCER – County and state officials are pushing back on a claim by northwestern Pennsylvania business leaders that Gov. Tom Wolf’s proposed severance tax on natural gas drillers would have a negative economic impact on the state.
Revenue from the tax would leverage $4.5 billion in bonds to restore critical infrastructure across Pennsylvania.
County Commissioner Tim McGonigle disputed claims made by his colleague, county Commissioner Matt McConnell, and Pennsylvania business groups about Wolf’s plan, RestorePA.
In a conference call for reporters earlier this month, McConnell and the Pennsylvania Chamber of Business and Industry said the adoption of a severance tax in Pennsylvania would drive natural gas drillers out of the state.
McGonigle said establishing a severance tax, which would be based on the volume of natural gas extracted and the variable rate of gas prices, won’t dissuade companies from drilling in Pennsylvania.
“It’s not going to be a deterrent,” he said.
Drillers currently pay permitting and impact fees, but are not taxed on the product.
McGonigle said the state would not charge a higher tax than other gas-producing states. Pennsylvania is the only state in the shale gas region that does not levy a severance tax.
“We have to stay competitive,” he said. “We can implement a severance tax that is reasonable.”
McGonigle said Mercer County needs the revenue that would be culled from the tax with an expected $30 million in estimated bridge repairs over the next 10 years.
“We’re trying to rebuild Mercer County,” he said.
McGonigle said a severance tax is the best option to address those needs. Without support from the state, infrastructure repair cost would be borne entirely by local taxpayers.
“Those dollars don’t come out of the air,” he said. “It’s going to come from real estate taxes.”
McGonigle said increasing property taxes would be too much to bear for land owners.
Under Wolf’s plan, revenue from the severance tax would be used for flood prevention, eliminating blight and expanding broadband internet in rural areas where service is inconsistent.
Dennis Davin, secretary of the Pennsylvania Department of Community and Economic Development, also refuted criticism of the proposed tax.
“This is something that makes sense,” Davin said.
He cited Texas, which already has a severance tax, as proof that it doesn’t adversely affect drilling in a state.
Davin compared the $200 million in fee revenue generated over a year in Pennsylvania with the $1.4 billion in fee and tax revenue in Texas for the same period.
“They don’t produce much more than we do,” he said.
Davin stressed a severance tax, which would not be higher than other states assessing it, wouldn’t drive drillers to other states.
“These companies are making a lot of money,” he said. “This is where the action is right now.”
Davin insisted a severance tax is not opposition to drillers.
“We wholeheartedly support this industry,” he said.
According to Davin, the debt on borrowing to fund the work would not eventually fall on Pennsylvania residents’ laps.
“It should all be paid by natural gas,” he said.
Davin agreed with McGonigle that the only other way to generate revenue for infrastructure work is taxing residents.
“Either property or income taxes,” he said. “And nobody wants that.”
McGonigle, a Democrat, said the discussion about the governor’s plan should not come down to political party divisions. McConnell is a Republican. Wolf is a Democrat.
“It shouldn’t be a partisan issue,” McGonigle said.
County Commissioner Scott Boyd, also a Republican, did not participate in last week’s conference call. But Boyd said he agreed with McConnell that a severance tax could deter drilling.
“Is it worth slowing down the economy?” Boyd said.
He said the county needs the impact fee revenue.
“We have benefitted from that,” Boyd said.