American Oil and Gas Reporter - June 2014 - 157

ConventionSection: Pennsylvania Independent Oil & Gas Association

Budget Gap Makes Industry
An Inviting Tax Target
By Danny Boyd
Special Correspondent
PITTSBURGH-Members of the Pennsylvania Independent Oil & Gas Association find themselves in the cross hairs
of a debate over how the commonwealth
will overcome a budget deficit of more
than $1 billion. With a state-mandated
budget deadline of June 30 fast approaching, talk of a new severance tax to fill the
budgetary hole was picking up steam in
late May as the association prepared for
the PIOGA Pig Roast, Equipment Show
and Conference, July 21-23 at Seven
Springs Mountain Resort in Champion.
Advocates of a levy on natural gas
production point to the existence of severance taxes in other producing states, but
fail to consider that Pennsylvania has the
country's steepest corporate income tax
rate at 9.9 percent, says PIOGA President
and Executive Director Louis D'Amico.
"We also have franchise fees," he
notes. "If you are a public company, you
are paying that. There are other taxes
and fees. We also bear the cost of having
the most heavily regulated oil and gas
industry in the country. I don't think it is
as tough to drill an offshore well in
Louisiana as it is to drill a Marcellus
well in Pennsylvania. I can tell you it
doesn't take as much paperwork."
Severance Tax Tribulations
A study from Pennsylvania's Independent Fiscal Office, modeled after the
federal Congressional Budget Office,
states that the commonwealth has one of
the country's lightest severance tax loads,
a reference to the impact fee authorized
by Act 13, which recirculates a share of
its revenues to affected municipalities,
D'Amico says. "That does not consider
all the taxes that Pennsylvania businesses
pay," he reasons. "They are not comparing
apples to apples."
While tax proponents often observe
that Texas charges producers a 7.5 percent
levy on the market value of natural gas,
the Lone Star State also provides rebates
on high-cost shale wells, D'Amico points
out, a matter not even under discussion

in Pennsylvania. Moreover, he reiterates,
Pennsylvania oil and gas companies already shoulder the significant tax burden
associated with doing business in the
Keystone State.
"We are paying millions, even billions
of tax dollars," he says. "We are not
getting away scot-free. We need to get
that message out. We need people to understand we are paying our fair share of
taxes in Pennsylvania."
The state has never imposed a severance
tax on coal, nor for gravel and shale mining, D'Amico observes. "The problem at
the capitol is nobody is thinking beyond
what happens once that tax takes effect,"
he adds.
A severance tax will cost Pennsylvania
investment and jobs that also translate
into additional tax revenue, he insists.
"The people of Pennsylvania are going
to pay for it in lost jobs," D'Amico insists.
"And more importantly, with Pennsylvania
producing nearly 25 percent of the nation's
natural gas, we are looking at everybody
in the United States paying more for gas
and dampening enthusiasm for industry
development."
Nevertheless, many lawmakers believe
companies active in the Marcellus will
accept a severance tax, PIOGA representatives say, which complicates the
way forward for both the association and
the municipalities that receive a portion

of impact fee revenues. Richard Gmerek,
president of Gmerek Government Relations and PIOGA lobbyist, articulated
that theme during the Eastern Oil & Gas
Conference and Trade Show in Pittsburgh
on May 13.
The gubernatorial race, which Gmerek
says could magnify the issue, pits GOP
incumbent Tom Corbett against Democrat
and severance tax supporter Tom Wolf,
winner of the May 20 primary. While
Corbett has opposed new taxes, the governor has expressed a desire to boost education spending, Gmerek points out.
"With a $1 billion hole, it is going to be
tough to find that kind of money," he adds.
The governor is indicating he will cut
$800 million in state spending, which
leaves the general assembly responsible
for cutting another $400 million, Gmerek
relates. Adding fuel to the debate is talk
of a debt rating downgrade, he imparts.
With the severance tax debate escalating, he observes that Republicans hold
a 27-23 edge in the Senate and a 111-92
advantage in the House. However, Gmerek
continues, 24 legislators, including a
number of key industry allies, have announced plans not to seek re-election,
which could change the complexion of
the legislature and create a number of
challenges for the industry.
Despite the fact that the GOP holds
majorities in both legislative chambers, a

PIOGA Chairman Gary Slagel
(left) talks with Pennsylvania
Lieutenant Governor Jim
Cawley between sessions at
EOGCTS, held May 12-14 at
Heinz Field in Pittsburgh. During his keynote remarks,
Cawley told PIOGA that much
of the push to institute a severance tax in Pennsylvania
was based on politicians' desire to fund their preferred
projects instead of allowing
the revenue to address the
needs of producing areas.

JUNE 2014 157

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