Editorial: Caving in to industry

Gov. Rendell's decision to back away from his excellent idea to tax the natural gas being extracted from the massive Marcellus Shale region of Pennsylvania is understandable, but also very disappointing.

Rendell has been offering concessions right and left to get Republicans to agree to a state budget, which was due weeks ago. Now, he has bought the sob story that taxing this fledgling enterprise would likely kill it.

No doubt the operators of Pennsylvania's spanking new casinos are wondering why they couldn't get an exemption from taxes until they get their sea legs, too. They didn't need it, and it's a dubious argument that the gas drillers need that big of a break.

Sure, like everyone else, they have been hit hard by the recession, which has drastically reduced the demand for natural gas. That means previous revenue projections from a gas-extraction tax are way off. But it doesn't mean there wouldn't be any revenue at all.

In fact, Atlas Energy's recently released second-quarter report fairly glows with optimism about its Marcellus Shale operation in southwestern Pennsylvania. It increased by 50 percent its estimate of the natural gas it will extract by the end of 2010. Atlas also reported a net-income decrease; so not everything is rosy, but neither is the situation dire.

There is still a lot of money to be made from shale-derived natural gas in this state, and taxing its extraction would help the state pay for the environmental impact associated with a process that could pollute nearby streams.

A report by the Marcellus Shale Committee, a mouthpiece for the industry, said it could create more than 98,000 jobs and add $14 billion to the state economy in 2010. It predicted a $25 billion impact on the state economy in 2020. That's not a pre-recession estimate; the report was released just six weeks ago.

The report also says that if Pennsylvania imposes a severance tax, it will collect $1.4 billion less in state and local taxes in 10 years than it would if it allowed the industry to grow without a tax. The report doesn't say there would be no revenue to collect, because that would be a lie.

No one wants to pay taxes, but the recession has raised the need for new revenue sources. All of the 14 states with greater natural-gas production than Pennsylvania are collecting a severance tax or fee, so why not here? The industry is still set to boom once the recession ends and demand goes up.

Now, it could be that the tax as proposed by the governor would be a strain on the new industry, and it needed to be fine-tuned. Other states have made adjustments in their tax. But instead, Rendell seems to have abandoned the idea for now. He said he would work with the industry to develop a "fair tax" that could be considered next year. Expect the industry to still say, "Not yet!"