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Legislators Target a Severance Tax – in Name Only

Over the last few weeks, state legislators have prioritized raiding conservation funds and cutting environmental protection agencies under the guise of getting serious about balancing the budget. 

This was no more evident than when the House of Representatives recently considered a “severance tax in name only,” in which legislators proposed changing the name of the natural gas “Impact Fee” to “severance tax.”

In other words, the House proposed last minute legislative deception to make it look like it passed new revenue. It’s like saying they balanced the state budget by passing a law that changes the word “debt” to the word “surplus,” or rebranding carbon pollution as “good for farmers and agriculture” and calling it promising for the planet.

The Fake Severance Tax Gambit

On Saturday, July 21, the House was convened to develop, debate, and vote on bills that would raise enough revenue to pay for the budget the legislature passed a few weeks earlier. (i) Of environmental concern, legislators proposed taking money from funds dedicated to land conservation, supporting parks, farmland preservation, and water pollution projects to balance the budget. (ii)

The legislature doesn’t have to take a sledgehammer to these programs as it has many other revenue options at its disposal, including some that have significant support among the general public. One of those ideas is implementing a severance tax on natural gas drilling, which has received support from 58 percent of the public when polled. 

As such, the House called an Energy and Environmental Resources Committee hearing on July 22 to vote on severance tax proposals – House Bill 113 (Rep. Harper, R) – which would levy a 3.5 percent severance tax and use the revenue to pay down the pension liability and help balance the budget.

Rather than take up the bill on its merits, House legislators concocted a plan to replace the bill with language that renames the already existing “Impact Fee” on gas wells a “severance tax.” 

I’ll state that again so it sinks in: Instead of debating a real severance tax, the legislature wanted to rename an existing fee, and call it a good day’s work.

Ultimately, the House didn’t follow through with the fake severance tax gambit because members were sent home after an overall budget agreement couldn’t be made. But it’s indicative of how many more of our legislators are interested in gutting conservation and environmental protection rather than coming up with an equitable budget solution that doesn’t require doing so.

Pennsylvania Doesn’t Have a Severance Tax

The fake severance tax gambit highlights the common myths holding back its passage, the most prominent being industry’s charge that Pennsylvania already levies a severance tax and instead calls it by a different name – an “Impact Fee.” 

While it’s true that the Commonwealth charges a fee on gas wells, it’s much different than a severance tax, and the distinction means Pennsylvania taxpayers are leaving hundreds of millions of dollars in potential revenue on the table.

Pennsylvania’s Impact Fee is an annual charge on gas wells that is tiered to the price of natural gas and declines over time. It’s structured to provide more revenue as the number of gas wells increases. Revenue flows back to municipalities to invest in fixing infrastructure degraded or oversubscribed by increased industrial use. It’s a popular program and serves an important purpose, supporting local municipalities with small local tax bases to deal with rising infrastructure costs.

On the other hand, a severance tax charges a percentage of the average market price of the gas extracted, plus a flat fee for every thousand cubic feet of gas extracted. It’s structured to provide more revenue as the price of gas increases, or as the amount of extracted gas increases. 

It’s easy to see why the gas industry doesn’t want a severance tax and pushes the argument we already have one. 

Their top goal is to increase the price of natural gas in Pennsylvania to increase their profits. They’re doing so by limiting new drilling, and building new pipeline projects to sell the gas outside of the state and, more importantly, outside of the United States at a higher price. 

As the value of gas increases, a severance tax would become more lucrative, whereas Impact Fee revenue would remain static or decline. Keeping the Impact Fee is more profitable to an already very profitable gas industry.

This act of corporate trickery is having a ripple effect throughout the state budget. 

The Pennsylvania Budget and Policy Center estimates that the Commonwealth would raise at least $480 million more revenue per year through a severance tax than the Impact Fee. 

In other words, Pennsylvania is leaving a significant amount of budget revenue on the table by not levying a severance tax and are instead cutting core environmental protection programs to try and balance the budget.

Calling a Spade a Spade

To be fair, balancing the budget always includes a mix of budget cuts and new revenue. Both are needed to equitably close a $3 billion structural deficit that has dragged on too long. Calling a spade a spade, the legislature isn’t acting fairly and is eviscerating environmental protection and conservation programs and selling it as needed budget cuts.

For over a decade, the legislature has stripped to the bone the Commonwealth’s environmental protection programs and support for our parks and forests. These agencies currently can’t complete their most basic functions, like protecting the public’s drinking water or cleaning up the Susquehanna River basin. Parks and forests are understaffed and are sitting on years of past maintenance backlog exceeding $1 billion. 

Certainly, times are tough for state budgeting, but these fundamental state programs have given more than enough toward balancing the budget. Rather than dangerously cutting environmental protection programs yet again, as well as taking dedicated money from land conservation and water projects, legislators need to look elsewhere to balance their budget. 

This includes taking a hard look at their rhetoric around a severance tax (and other potential revenue raisers) and asking whether protecting soaring gas industry profits is worth harming the Commonwealth’s environment and public health.

(i)Note that the legislature already slashed environmental investments this year. The FY2017-18 budget cuts water, land, and air protection and conservation programs by 2 percent to 7 percent compared to last year’s budget (and up to 33 percent compared to these budgets 15 years ago).
 (ii)Specifically, the legislature was targeting: (1) Environmental Stewardship Fund, which supports everything from greenways, trails, and community parks to water cleanup and wildlife habitat protection; (2) Keystone Recreation, Park, and Conservation Fund, which is the chief way Pennsylvania conserves and protects public lands and historic sites as well as invests in libraries, public parks, and new lands for recreation; and (3) Farmland Preservation Fund, which is how state and county governments purchase conservation easements to preserve Pennsylvania farms to slow the selloff of those lands for development.


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