PA Natural Gas Looking for Taxing Leadership

By Kevin Ferris

Inquirer Columnist

Looking at the job and revenue potential from the Marcellus Shale natural gas formation, it's easy to be grateful for the wisdom and foresight of the benevolent being who blessed Pennsylvania with this economic hope in hard times.

However, looking at how state government handles money, it's also easy to imagine that same being reaching for a chisel to carve out an 11th Commandment:

Thou shalt not let greedy Harrisburg pols squander the rewards of Marcellus Shale.

Here are two quick examples why.

In the midst of the Great Recession, SEPTA workers recently went on strike, outraged by the stinginess of an 11.5 percent pay increase. So Gov. Rendell finds $7 million of tax money for signing bonuses.

The legislature cuts funding for programs like the Philadelphia Veterans Multi-Service & Education Center, but wouldn't trim its own slush fund, estimated last month at $200 million. Maybe lawmakers need the cash for bail as Attorney General Tom Corbett scoops them and staff members up by the busload for misusing taxpayer funds in the Bonusgate scandal.

Now Harrisburg wants more to play with, through a severance tax on natural gas extraction. I say no. The industry says no. Some lawmakers say no. When the governor finally said no last year, the idea was shelved.

But no is unlikely to prevail.

Rendell has raised the tax as a possibility for the next round of state fiscal follies. It's understandable. This year's expected budget woes could make last year look like the good times. And most states impose some kind of tax on the production or removal of oil, gas, or other natural resources.

The revenue can be substantial. Judging by census figures from 2007, severance taxes can be a considerable portion of a state's tax collections: 7.1 percent in West Virginia, 10.6 in Oklahoma, 16.2 in New Mexico. Most states collect far less, but Alaska is the winner at 64.4 percent. The 5 percent severance tax Rendell proposed last year would mean projected revenue of $107 million in its first year, and up to $632 million by 2013-14, according to the Commonwealth Foundation. (That can fluctuate dramatically as prices change.)

It's tough for politicians to ignore such potential. So let's assume the tax is coming. Does it have to go to the state's general fund? No.

Instead, share the bounty with taxpayers, either by adding to the current property-tax rebate programs or by paying a dividend directly to state residents.

Pennsylvania has been in the rebate business since the lottery was started, and increased the effort when slots parlors came online. So the infrastructure is in place.

Alaska offers annual dividends to state residents. It started setting aside oil revenue when the Alaska pipeline began production in the 1970s. First came the Alaska Permanent Fund, with a constitutional protection of the principal. The dividends began in 1982. They can range from $300 to $2,000 per person, with $17 billion spent so far. At last count, the fund balance was a healthy $34 billion - even with recent stock market setbacks.

Lawmakers there still debate whether the fund should cover more state expenses, whether to continue the dividend, or what to do when the oil runs out. But if you have to argue about money, better from atop a $34 billion reserve than a deficit.

Harrisburg has the bickering and deficits without the luxury of a reserve, so saving now when there are so many bills to pay might not seem possible. But such foresight - even if lawmakers skip the dividend part and at least establish a protected fund - would ensure that future generations benefit from the Marcellus windfall, too.

I canvassed some of the gubernatorial candidates about how they would spend severance-tax revenue if it were available. Most at least thought it was a good idea to keep Marcellus money out of the general fund and dedicated to specific purposes.

Among the Democrats, Jack Wagner would target localities affected by drilling and environmental protections; Joe Hoeffel would focus on environmental issues related to drilling as well as expanding the Growing Greener program; Tom Knox would look at job creation; and Chris Doherty would create a low-interest loan program for small businesses and a fund to deal with environmental emergencies. (Republican Corbett did not respond to calls. Democrat Dan Onorato expects to announce a plan soon.)

All address the general welfare, but none provides a direct benefit to individuals, and most leave Harrisburg too much leeway on spending the money.

Long-shot GOP candidate Sam Rohrer, a state representative from Berks County, had the most original idea. He suggests looking at leasing more state lands for drilling and the subsequent royalties. (There's an argument to be made that this would bring in more revenue than a severance tax.) Rohrer would take 50 percent of the royalties and put it toward property-tax relief, with the other half helping local governments with drilling expenses.

I'm not sure if Rohrer's candidacy or ideas will attract much attention, let alone prevail. But it's early, in the campaign and in the debate over natural gas taxes. Still plenty of time for some wisdom and foresight to prevail - and to obey that 11th Commandment.