If Pennsylvania wants to continue to benefit economically from its Marcellus Shale natural gas boom, it should avoid slapping drillers with a severance tax.
That’s the warning issued by John Felmy, chief economist with the American Petroleum Institute, who visited Palmer Township Friday to address a meeting of the Lehigh Valley Tea Party.
“We entice industries to come to us by paying them subsides,” Felmy said in an interview before the event “Now we want to tax them. That is upside down economic policy.”
Democratic Gov.-elect Tom Wolf ran on a platform of taxing natural gas drillers to raise money for education and other state budget priorities. He comes into office facing a projected fiscal year-end deficit of $2 billion, and is under pressure to find new sources of revenue.
Felmy said Pennsylvania may be the only major gas producing state without a severance tax on extracted gas, but its corporate tax rate of 9.99 percent is one of the highest in the nation.
Pennsylvania assesses drillers a relatively low, flat impact fee on each drilling rig, regardless of production. Most of that money goes to local communities where the rigs are located. Most other states place a percentage tax on the volume of gas extracted.
If drillers believe a new tax is too onerous, they could move drilling rigs to other states with natural gas reserves such as Ohio, Felmy said, echoing an argument offered frequently by outgoing Republican Gov. Tom Corbett in defending his decision not to enact such a tax.
“The gas won’t leave, but the rigs will,” Felmy said. “Ohio has a more attractive mix of oil and natural gas liquids in their gas than Northeastern Pennsylvania.”
Wolf spokesman Jeff Sheridan said the governor-elect has no plan to abandon his call for a 5 percent severance tax on natural gas.
“I and the majority of Pennsylvanians don’t buy the industry spin that oil and gas production are too burdened when they are getting rich at the expense of our children,” Sheridan said. “We need to be reasonable and a 5 percent tax is in line with states around us.”
As for corporate taxes, Sheridan said research has shown natural gas drillers, many of which are based in Delaware or set up as partnerships, aren’t paying as much as other industries in Pennsylvania.
The Pennsylvania Budget and Policy Center reported earlier this year that drillers paid $10.3 million in corporate net income taxes in Pennsylvania in 2013, when it produced 3.1 trillion cubic feet of natural gas, compared to $17.1 million in 2009 when it produced 65 billion cubic feet.
Felmy is scheduled to speak tonight at 7 at the Charles Chrin Community Center of Palmer Township, 4100 Green Pond Road.