Philly Deals: Corbett wants ethane-tax credit for Shell and others

Gov. Tom Corbett wants Pennsylvania to promise a 5-cent-a-gallon tax credit for Shell Chemical L.P. and other manufacturers using Pennsylvania ethane, a Marcellus Shale drilling-zone product the governor says could be the base for a new plastics industry.

Steve Kratz, spokesman for Corbett's Department of Community and Economic Development, which gives out business subsidies and tax breaks when it's not forcing cash-strapped city governments to pay their bondholders, called Monday to explain the thinking behind the idea, after Capitolwire.com columnist Peter L. DeCoursey posted an account of a "secretive" ethane-tax proposal in Corbett's budget.

"The Commonwealth has a tremendous opportunity to produce and use ethane to build a brand new industry," not just at Shell's proposed $1 billion Monaca works north of Pittsburgh, but at other plants that may use ethane to make ethylene and other plastics bases, Kratz told me.

"The tax credit would be 5 cents a gallon," Kratz said. Lately, ethane is selling for about 30 cents a gallon, my colleague Andrew Maykuth noted.

The Monaca plant could use 3.4 million gallons of ethane a day, according to a Pittsburgh Business Times report. At that rate, the benefit could be worth more than $60 million a year. Besides Shell, "anyone who buys" Pennsylvania ethane is eligible, "including upstream suppliers selling to a manufacturer and downstream manufacturers purchasing ethane derivatives," Kratz said.

The tax credit will be "limited to 20 percent of the taxpayers' qualified Pennsylvania tax liabilities," he added; the total maximum credits under the program would be $66 million in a year. The Monaca site is also eligible for Keystone Opportunity Zone tax breaks, which would enable the company to avoid other state and local taxes. The deal would start in 2017, the year Shell's plant is supposed to open.

Gov. Corbett's bottom line, according to Kratz: "The main purpose for this tax credit is to make sure the ethane that is produced in Pennsylvania is staying in Pennsylvania and would be used in Pennsylvania. Otherwise, it could be pipelined to the Gulf Coast and other areas where there is a robust petrochemical industry."

But first, he has to get it past the General Assembly, where not everyone is eager to help fund plastics jobs for Monaca. Why Pennsylvania would propose a multimillion-dollar "tax break to one of the largest companies in the world is very hard to imagine," State Sen. Vincent Hughes (D., Phila.) told my colleague Amy Worden.

"We need to have additional conversations with the governor's office to undersand the details," Senate Majority Leader Dominic Pileggi (R., Delaware) told my colleague Angela Couloumbis. But he agrees with the general principle: To lure an employer like Shell, "incentives must be part of the equation."

A survey of more than 125 high-end investment advisers who attended Oaks-based mutual-fund and investment-systems vendor SEI Corp.'s national meeting last month shows that 74 percent want Republican Mitt Romney to win the November presidential election — but that 63 percent expect Democrat Barack Obama will be re-elected anyway.

The advisers, who manage an average $150 million in client funds, are businesspeople who help business owners and other rich people plan investment, tax and insurance strategies, according to Steve Onofrio, the 24-year SEI veteran who manages the company's adviser network.

More than nine out of 10 advisers expect voters will again split control of the government between Democrats and Republicans, with each party retaining control of at least one house of Congress or the presidency.

Which is bad news, according to the advisers, since split government is likely to mean more "logjams in Congress" and a failure to resolve funding for medical care and Social Security "entitlements" — cited as the things that "most worry" four out of 10 and three out of 10 advisers, respectively.

By contrast, a modest 16 percent are more worried about "tax increases in 2013," and the number more concerned about housing, fuel prices, interest rates, or even unemployment are in the low single digits.

Why so little worry about taxes — and so much about divided government? The working rich expect to be taxed, but they dislike the uncertainty of recent years about the direction of future rates, which makes it hard to plan capital investment and other long-term spending, Onofrio told me.

Planners deal with that uncertainty by preparing alterative scenarios — changes they'll recommend based on whether income, capital gains, inheritance rates, and tax exemptions rise or fall.

Tax rates for many Americans are scheduled to rise when the Bush tax cuts expire at year's end, unless the divided Congress acts. Advisers "have plans at the ready" whichever way taxes go, Onofrio said.