AP NEWS

Wolf seeks $4.5B capital program paid by Marcellus Shale tax

January 31, 2019

HARRISBURG, Pa. (AP) — Gov. Tom Wolf said Thursday that he will ask Pennsylvania lawmakers to approve a severance tax on Marcellus Shale natural gas production to finance a multibillion-dollar capital plan for a wide range of projects, from controlling floodwaters to fighting blight.

Wolf, a Democrat, is kicking off his second term by floating a Marcellus Shale tax for a fifth straight year. Approval will be up to the Republican-controlled Legislature, which has thus far rejected Wolf’s overtures for a natural gas tax.

This time, Wolf is packaging it with a proposal to use the money to pay down at least $4.5 billion in bonds — and possibly more — for projects that might entice lawmakers in the nation’s No. 2 natural-gas producing state.

State government offers a collection of grant and low-interest loan programs, but Wolf said they do not come close to addressing the magnitude of the need.

“These are projects that are outside of the scope of any funding source right now in Pennsylvania and the thought is, in these areas, these are in some cases emergency needs and needs that could actually help create a foundation for some much better quality of life,” Wolf said during a news conference in his Capitol offices.

The projects would span rural areas and downtowns, and tie together a range of perceived needs, such as economic development, environmental improvements and flood disaster recovery.

House Republican leaders and the Pennsylvania Chamber of Business and Industry agreed Thursday that the state’s aging infrastructure needs attention, although they and natural gas trade associations warned that a severance tax would hurt the economy.

“The governor’s proposal includes three of the worst ways to grow an economy: taxing, borrowing and uncontrolled government spending,” House Republican leaders said in a statement.

Still, Wolf said a capital program that meets various needs in a range of geographical areas could change minds.

“This is something we all recognize we need,” Wolf said.

Wolf’s severance tax proposal is based on volume, and floats with the price of natural gas. It would take effect next year and not change a 7-year-old per-well “impact fee” that the state imposes.

It rises with the price of natural gas from 9.1 cents per thousand cubic feet when the price is below $3 up to 15.7 cents per thousand cubic feet when the price is $6 or above. Using estimates of 2018 production and a price of below $3, the tax would yield about $550 million in a year. At a price above $6, the tax would yield about $940 million, based on estimates of 2018 production.

Wolf has argued that Pennsylvania is the only major natural gas state that does not tax the product. The state imposes permitting fees and the impact fee, which is projected to produce a record $247 million to state programs and local governments, based on 2018 activity.

Wolf said he envisioned awarding the money over four years — spending it might take longer — and paying it down over 20 years, or less. The administration estimated that debt payments would peak at $360 million a year, but it did not immediately say how much, with interest, such borrowing might cost overall.

As of the end of 2017, the state reported about $12 billion in general obligation, voter-approved and highway debt, plus another $39 billion in debt at various agencies and authorities.

The administration unveiled the package ahead of Wolf’s budget address Tuesday to a joint session of the Legislature.

Aims of the capital spending include expanding high-speed internet access, improving storm water and flood control and cleaning up brownfields and blight in hopes of luring new businesses.

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