American Oil and Gas Reporter - March 2016 - 30

Politics Threaten Pennsylvania Budget
CANONSBURG, PA.-Pennsylvania
remains without a final budget, but the
calendar has turned to primary election
season, and Gary E. Slagel, chairman of
the Pennsylvania Independent Oil & Gas
Association, opines that many of the
commonwealth's legislators may have
little interest in addressing the tax increases
that are the governor's answer to the revenue shortfall.
Slagel says he sees it as unlikely that
Pennsylvania House or Senate members
are going to consider tax increases, although Governor Tom Wolf has proposed
boosting income and sales taxes to help
close the state's budget gap, projected to
hit $1.9 billion.
According to the governor's office, after
Wolf vetoed a budget last June, his counterproposal to increase personal income
taxes failed to find support in the legislature
in the face of heavy Republican resistance.
In December, Wolf accepted parts of
a $30 billion balanced budget written by
Republican legislators, but vetoed many
portions. The piecemeal budget restored
partial funding to schools and public
agencies, Slagel says, but left the statehouse grappling with preparing two years
of budgets. Any of Wolf's proposed tax
increases are likely to meet strong resistance in the Republican-dominated House
and Senate, he predicts.
"We are hearing from a few House
members that they think a natural gas
severance tax may be in the works for
the fiscal year 2016-17 budget, not this
current budget," he says. "For example,
we have seen a couple proposals where,
based on the current price for natural
gas, the severance tax, or even a projection
of a future severance tax, affect an industry
that is struggling in these difficult times.
The current impact fee already represents
a significant tax on the industry-a tax
that is at a level higher than most other
state severance taxes, based on the current
price for natural gas. And, with 60 percent
of the impact tax going to local municipalities, there is significant interest in
making sure nothing happens to that revenue stream that has had a huge positive
effect on the local entities."
In his FY 2016-17 budget proposal
released Feb. 16, Governor Wolf was still
seeking a severance tax on unconventional
natural gas production, which his office
now projects would bring in $218 million.
Slagel points out Wolf has never called
for a tax on all gas production, and this
proposal would allow operators to take a
credit for their impact fee payments,
30 THE AMERICAN OIL & GAS REPORTER

which are levied only on unconventional
wells.
The governor's proposal also includes
an increase in personal income taxes to
raise $1.4 billion, revisions in sales tax
exemptions that would raise $415 million,
and increases in Pennsylvania's tobacco
tax to raise $604 million.
"There may not be any movement on
this incomplete budget until after the
May primary election," says Slagel, a
government affairs specialist at Steptoe
& Johnson in Canonsburg, Pa. "This is a
bizarre situation. This is a first-of-itskind situation for Pennsylvania."
President Louis D'Amico says the
budget and proposed severance tax go
hand-in-hand as the major issues for PIOGA. "We have a governor who is not
going be happy until he gets a severance
tax, we have a bunch of Republicans
who are tired of hearing about severance
taxes, and it is an election year. I fear
they may cave. We have to do everything
we can to convince them that it is a dumb
idea," he says.
The governor's severance tax, combined with low energy prices and proposed
regulatory burdens, is an attempt to punish
the commonwealth's natural gas industry,
D'Amico says. If enacted, he predicts it
will increase unemployment, push more
producers into bankruptcy, cut Pennsylvania gas production, and result in lower
net-tax revenues.
D'Amico points out there is only so
much in the pot of money coming in from
industry-paid taxes, and if the state collects
the money through severance taxes instead
of impact fees, that diversion will come at
the expense of communities.
"Operators don't care what Pennsylvania does with the money. But under
the severance tax proposal, those funds
would go to the commonwealth. Those
communities will receive less money,
and they are not going to be very happy
about it," he assesses.
He adds that the commonwealth is
about to find out how much political
power resides in those communities.
Property Rights
Pennsylvania lawmakers also are
weighing several bills addressing landowner rights, D'Amico says.
SB 147, sponsored by Senator Gene
Yaw, R-Williamsport, seeks to amend the
Oil and Gas Lease Act to grant royalty
owners the right to inspect producer
records to verify proper payments. According to the state legislative website,

the bill mandates all information provided
by the company would be confidential. It
also requires royalty payments be made
within 60 days of production. SB 147
was referred to the House Environmental
Resources and Energy Committee on Feb.
2 after passing the Senate in late January.
HB 621, introduced by Representative
Sandra Major, R-Honesdale, would allow
recorders of deeds to refuse documents
that assign more than 50 oil or gas leases.
The legislative website says the bill also
requires the lessor's name be indexed so
surface owners can more easily track
who owns the mineral rights beneath
them and allows counties that have not
adopted a uniform parcel identifier to
charge a $6 fee for each lease to be indexed. HB 621 is in the Senate Environmental Resources and Energy Committee.
Conventional Help
D'Amico says PIOGA also is monitoring a legislative attempt to force the
Pennsylvania Department of Environmental Protection to redo the portion of
its Chapter 78 rule making that pertains
to conventional oil and gas operations.
He indicates that many industry observers
think the commonwealth failed to properly
write regulations after it separated Chapter
78 into conventional and unconventional
rules (see related story page 80).
Senator Scott Hutchinson, R-Oil City,
introduced SB 1011, which would require
DEP to restart its work on Chapter 78
using a new regulatory analysis to determine the cost of compliance. D'Amico
says lawmakers have included the language
from the bill in the fiscal code, which is
the portion of the budget package that
directs how agencies should spend budgeted funds.
According to the legislative website,
SB 1011 declares the Chapter 78 regulations invalid and out of compliance with
the Regulatory Review Act. Media sources
note that during House and Senate budget
hearings, Republican members criticized
DEP for holding a short public comment
period for the regulations.
Another bill supported by PIOGA is
SB 279, also authored by Hutchinson,
which would establish the Penn Grade
Crude Development Advisory Council.
The legislative website says the council
would assist the DEP in making changes
that better address the differences between
conventional and unconventional oil and
gas production. Hutchinson says the council would be a public/private partnership.
The bill would encourage regulations

American Oil and Gas Reporter - March 2016

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