Severance Tax on Natural Gas Again Proposed by Pa. Governor

Gov. Tom Wolf has proposed a severance tax on natural gas production in every year of his administration, and it appears that 2021 will be no different.

Wolf, during a news conference last week, announced plans for a multi-billion dollar workforce development initiative to help workers impacted by the COVID-19 pandemic recover. The initiative, which would include job training and rapid re-employment, would be funded with a bond issue, which would be repaid using proceeds from a severance tax on natural gas producers.

The tax has met with stiff opposition from the natural gas industry and the Republican-controlled legislature. Other states, including West Virginia and Texas, levy a severance tax on the natural gas produced in their states. However, in 2012, Pennsylvania’s legislation instead adopted Act 13 which instated an impact fee paid by producers. That revenue is shared by state agencies, counties and municipalities where gas production is occurring according to a formula that takes the age of the well, the current market price of natural gas, and the volume of natural gas produced by the well into account.

“The COVID-19 pandemic has fundamentally changed Pennsylvania and exacerbated existing barriers for too many Pennsylvanians. It continues to have negative consequences for businesses, workers, and families throughout the commonwealth,” Gov. Wolf said in a press release announcing his legislative priorities for 2021. “To get Pennsylvania back on track from the disruptions the pandemic is causing, we need to make major, targeted investments to strengthen our economy, support workers and small business owners, rebuild our infrastructure, and help all Pennsylvanians build a path to financial security.”

Wolf did not say what the program would cost, other than it would be in the billions, but that it would build on the bipartisan Keystone Economic Development and Workforce Command Center, which recently released its annual report. The plan would have to be approved by the legislature.

Reaction was swift from the natural gas industry. “We all feel the pandemic’s ongoing pain, yet Governor Wolf’s fixation with higher energy taxes will only compound these historically difficult challenges. Increasing taxes on natural gas, one of the most essential products needed to keep us safe and defeat the pandemic, will put more Pennsylvanians out of work, increase energy bills for struggling families, small businesses as well as manufacturers, and further harm our economic recovery,” said David Spigelmyer, outgoing president of the Marcellus Shale Coalition who retired last week. He noted that the impact fee has brought in almost $2 billion in revenue since its inception.

Daniel J. Weaver, president and executive director of the Pennsylvania Independent Oil and Gas Association (PIOGA), added, “Gov. Wolf’s attempt to once again masquerade a job-killing severance tax as his Restore PA program is a proposal that will not generate significant revenue for the Commonwealth, while taking singular aim at a segment of the state’s economy struggling with low commodity prices and infrastructure bottlenecks impacting markets to the east and north. The triple threat of these challenges, the pandemic and a severance tax would continue the steady decline of our industry and the tax revenue the governor is hoping for, as evidenced by the 25 percent drop in impact fees this year.”

Given the legislature’s continuing opposition to a severance tax, it seems unlikely that Wolf’s plan will move forward with that funding source.