Pennsylvania gas industry the fuel to solve budget woes

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Gov. Wolf ran on a 5 percent extraction tax.

Harrisburg lawmakers have been accused of plenty of bad traits over the years – and we’ve done some of that accusing – but in light of their recent actions, here’s another this body deserves:  They must suffer from a crippling fear of success.

Consider that in the past decade or so, two major and lucrative industries have taken hold in Pennsylvania: gambling and gas drilling.  Both have performed beyond expectations, enriching their operators.  And yet, a decade in, lawmakers find themselves once again scrambling to cover a massive budget hole and so desperately out of ideas that they have considered borrowing to cover the deficit.

What’s wrong with this picture?  Plenty, especially when it comes to the gas industry, which enjoys access to the Marcellus Shale formation virtually unfettered by anything, including a tax on the trillions of cubic feet of gas that they extract from our land each year.

They do pay a slight fee based on the number of wells.  But after years of resisting this obvious and fair source of revenue, the State Senate last week approved a proposal that would add an extraction tax to gas drilling of the Marcellus Shale.  Finally!

While it’s hard to know what the House will do with this. This step is an accomplishment of sorts, albeit one derived from  a $2 billion budget shortfall and a now-empty bag of tricks and gimmicks used over the years to paper over an ongoing structural deficit.

Pennsylvania has been in an enviable position since the discovery of new ways of accessing the abundant gas in the Marcellus Shale formation.  We’re not the only state that is drilling for gas, but we are the only one that doesn’t tax the gas extracted from the wells.

The current fee has a minimal impact on the state budget, and has actually declined in recent years.

Gov. Wolf campaigned on a 5 percent extraction tax; that’s the rate that West Virginia taxes gas extraction. The Senate is proposing a small tax that coupled with the current impact fee, would bring the effective tax rate to 2 percent, according to the Pennsylvania Budget and Policy Center.  It will bring in about $100 million this year.

But two booby traps come with this proposal:  The bill also calls for loosening of permitting regulations. Fracking has a huge impact on the environment, so this is especially troublesome. But the worst part of the proposal would impose a 5.7 percent tax on consumers’ purchase of natural gas. That would bring in $303 million – three times the revenue from gas drillers.

That’s a stunning insult to taxpayers, whether they’re gas consumers or not. (The gas that Pennsylvania’s customers use doesn’t even come from Pennsylvania.   Most of the gas extracted here goes elsewhere.)

It’s a stark picture of lawmakers’ priorities that they would burden consumers instead of an industry that should be paying its fair share for the riches it gains here.

Is Harrisburg is so accustomed to failure that it doesn’t even recognize a clear path to success?

Then again, maybe we’re being too kind.  In a recent statement, the rating agency Standard & Poor’s had a less polite way of describing the situation:

“Pennsylvania’s chronic misalignment and eroding general fund position, particularly during a period of economic growth, demonstrate a pattern of financial mismanagement.”

An extraction tax is a logical solution to our massive problem. Too bad the current proposal falls far short of being a solution.