Editor & Publisher, Marcellus Drilling News (MDN)
Pennsylvania State Senators Bartolotta and Stefano have taken on Governor Tom Wolf’s phony “Restore PA” severance tax gambit and turned it upside down.
Last month, MDN told you Pennsylvania State Senators Camera Bartolotta (Washington County) and Pat Stefano (Fayette County) had beaten PA Gov. Tom Wolf at his own game by offering to pay for his so-called “Restore PA” plan, not by using a severance tax on shale production, but instead by allowing more shale drilling on PA state lands.
Wolf has gallivanted around the state like Santa Claus promoting his “Restore PA” plan. It is a $4.5 billion plan that will, we’re told, get rid of lead paint in schools, fix flooding, repair old roads, upgrade trails, give rural residents internet access, and just about any other goody you can imagine. Wolf wants to pay for it by slapping a severance tax on the Marcellus industry.
Bartolotta and Stefano said they would introduce two bills to fund Wolf’s folly, but do so by allowing new shale drilling on state land instead of using a severance tax. This served the purpose of exposing Wolf’s plan as a lie. He doesn’t care a whit about all those things he says he wants funded. Wolf only cares about sticking it to shale companies with a new tax.
If he really cared about all of the goodies in his Restore PA plan, Wolf wouldn’t care where the money comes from, as long as it funds the goodies. When questioned about this alternative way of funding Restore PA, Wolf rejected it out of hand, further exposing him as a liar.
We figured this was just a brilliant political masterstroke by Bartolotta and Stefano. An exercise to expose Wolf.
However, it seems the two Senators are actually serious about their proposal! The proposal is not just about scoring political points, but actually funding Wolf’s projects (many of them anyway). Bartolotta and Stefano are about to unveil the proposed bills to make it happen. Wolf is still rejecting it, even before seeing the bills. Here’s an AP report (emphasis added):
Republicans who control Pennsylvania’s Senate are preparing an alternative to Gov. Tom Wolf’s proposal for a multibillion-dollar capital plan, funding it by removing restrictions on natural gas drilling underneath state-owned forest land rather than by taxing natural gas production.
The chief sponsors, Sens. Pat Stefano and Camera Bartolotta of southwestern Pennsylvania, said Tuesday that they expect the legislation to be unveiled this week, ahead of June’s budget negotiations between the Republican-controlled Legislature and Wolf, a second-term Democrat, in the nation’s No. 2 gas state.
The GOP plan could open up more potentially lucrative state forest acreage that has been off-limits to exploration companies since Wolf took office. It would allow the Department of Conservation and Natural Resources to decide whether to enter into new gas leases, but not require it to add acreage.
The plan envisions allowing exploration companies to reach below tracts of state forest land using underground horizontal laterals from wells drilled on privately owned acreage that is adjacent to it, Bartolotta said. She said it does not envision allowing new well sites on newly leased tracts of state forest land.
Drilling under another 781 square miles (2,023 square kilometers) of state forest land could yield $1 billion or more in upfront payments to finance a range of community projects, Stefano said. The Senate GOP plan is about one-fourth the size of Wolf’s “Restore Pennsylvania” program, and has another key difference: it does not envision borrowing.
Wolf in January proposed a $4.5 billion bond to be repaid over perhaps 20 years, including interest, by a new severance tax that is based on volume and floats with the price of natural gas. The goal, he has said, is to fix critical infrastructure and revitalize communities.
Using estimates of 2018 production and a price of below $3, the tax would yield about $550 million in a year. At a price above $6, the tax would yield about $940 million. It would not change a 7-year-old per-well “impact fee” that Pennsylvania imposes on exploration firms.
Past administrations have leased about 391 square miles (1,013 square kilometers) of state forest land. Meanwhile, the state does not own the subsurface mineral rights on another 547 square miles, state officials say.
Wolf’s severance tax proposal is likely doomed: House Republican majority leaders have rebuffed five straight years of Wolf’s severance tax proposals, including this one.
Wolf in 2015 banned new drilling leases in state forests, after making it a campaign promise in his successful bid to unseat former Republican Gov. Tom Corbett.
Wolf’s office said Tuesday that the governor has no interest in lifting that moratorium, “especially since it would generate such little revenue.” The Senate GOP plan isn’t a “realistic alternative,” his office said, but Bartolotta complained that Wolf is promising funding for all sorts of projects without support in the Legislature for the scale of borrowing it would require.
The Senate GOP’s plan targets a narrower scope of projects than Wolf’s proposal. It includes fixing blight, paving dirt roads, improving parks, cleaning up abandoned mines and upgrading flood and storm water control.
Wolf has campaigned around the state for four months on a broader range of uses for the money, including expanding broadband into areas that lack high-speed access to the internet and cleaning up environmental health hazards in schools, such as flaking lead paint.
On Wednesday, Wolf was scheduled to make his case for his plan at an event in Clearfield, a solidly Republican area, and he has secured the support of a number of municipal officials and Democratic lawmakers for forthcoming legislation.
Wolf’s office also criticized the Senate GOP’s plan as both unconstitutional — court rulings say revenue from state forests must be used to conserve and maintain them — and aimed more at helping the natural gas industry than Pennsylvanians.
Stefano insisted that the plan is, indeed, constitutional because the revenue would be used for conservation-minded projects.
Editor’s Note: What’s missing from the AP story is the implication of an additional severance tax on top of our existing severance tax (called an impact fee). The latter generated revenues of $209,557,000 in 2017. Let’s assume it goes up to $275,000,000, which is reasonable considering the 2018 production increases. Tom Wolf’s latest (8th) proposal for a severance tax would generate at least $550 million he says.
That means Tom Wolf is proposing a tripling of Pennsylvania’s severance tax, to the highest in the land. What does he expect this will do to the industry? Well, as a trust-funder, he probably doesn’t know and has no desire to know. But, we know. The industry will gradually invest elsewhere and revenues will decline as Pennsylvania kills its golden goose.
The Bartolotta and Stefano proposal, by contrast, would have zero impact on state lands or their use because drilling would be underground from private sites adjacent. It would also generate real additional state revenue without being a disincentive to the industry. So, naturally, Tom Wolf is opposed. What an arrogant goof.
This post appeared first on Natural Gas Now.