Norquist says House, Senate proposals are taxes, not fees
By Eric Boehm | Pa Independent
HARRISBURG — After a dizzying 72 hours, the Pennsylvania General Assembly is on the verge of agreeing to place a fee on natural gas drilling in the state.
Unless, of course, you would prefer to call it a tax.
The state House followed on the heels of the state Senate with the passage of a natural gas drilling “impact fee” Thursday afternoon, but the Washington, D.C., policy center which governs the “no-tax” pledge signed by Gov. Tom Corbett and about 30 Pennsylvania lawmakers said the House bill and its Senate companion are taxes, not fees.
Republicans said the passage of the bill was a key compromise and political achievement.
State Rep. Kerry Benninghoff, R-Centre, chairman of the House Finance Committee, said the bill could find success with the state House, Senate and Corbett.
“This proposal before you today is a compromise of many of your ideas, your proposals and your complaints,” Benninghoff told members of the House. “This bill is a tremendous compromise to make sure we protect the environment, to make sure we protect the water.”
A bill passed by the state House on Thursday will impose a $160,000 per-well fee on natural gas drillers, to be paid incrementally over the first 10 years of the well’s operation.
The bill also increases environmental protections by requiring larger setbacks of drilling rigs from waterways and supersedes local municipalities from using zoning ordinances to determine where drilling can take place by strengthening the state’s authority to regulate the industry.
The final vote in the state House was 107-76, with 20 members not voting, an unusually high number. Most of the bill's supporters were Republicans, and most of it opponents were Democrats. But four Democrats voted for the bill and six Republicans voted against it.
The bill will go to the state Senate, which passed its own natural gas drilling fee bill Tuesday evening.
The Senate bill would charge a per-well fee of $360,000 paid incrementally over a 20-year period. The fee would not be influenced by changes in price or volume, and it would generate an estimated $94 million this year, to be split 55-45 between local and state governments.
The House bill passed Thursday is expected to generate about $120 million in the first year, of which 75 percent would be directed to municipalities and counties which host drilling and 25 percent would go to the state government for various drilling-related issues, including rebuilding infrastructure, inspecting wells and funding health and fire services.
Americans For Tax Reform, or ATR, a Washington, D.C.-based conservative think tank that manages the “Taxpayer Protection Pledge” signed by Corbett and about 30 members of the General Assembly, weighed in on the proposal Thursday afternoon. In an open letter to lawmakers in Pennsylvania, the group left no room for doubt that the House plan is a tax and not a fee.
“Just look at where the money goes and it is easy to see that it does not pass the laugh test when it comes to trying to claim this as a fee,” wrote Grover Norquist, president of ATR.
Norquist said the revenue only should fund direct impacts caused by the natural gas industry and criticized the distribution of revenue. He also suggested that the regulatory and environmental portions of the bill be separated from the revenue-generating parts.
Local governments with no drilling would not receive any funds, which some members from both sides of the aisle criticized.
State Rep. Scott Conklin, D-Centre, said the bill contradicted itself, because it will ask local governments to enact the fee while at the same time telling the municipalities they would no longer have control over where drilling can occur.
“Who are we to decide what local people can do? We don’t have that right,” Conklin said.
Opponents of the bill also criticized the revenue generated by the bill.
The average Marcellus well will provide $16 million for drillers over its lifetime, based on current prices, and according to the liberal Pennsylvania Budget and Policy Center, the tax rate should be higher than 1 percent.
State Rep. Greg Vitali, D-Delaware, said the tax rate was a joke and an insult to the people of Pennsylvania.
Other states with taxes and fees on natural gas drilling have higher rates, but Pennsylvania’s corporate income tax of 9.99 percent is the highest in nation, which Republicans said justified the lower drilling fee.
State Rep. Bill Adolph, R-Delaware, chairman of the House Appropriations Committee, said that compromise was important, “because jobs are on the line” and Republicans said the tax rate was intended to keep jobs in Pennsylvania.
A study from Penn State University found that the natural gas industry has created 24,000 jobs since 2008. Republicans said the industry has infused more than $10 billion into the state’s economy.
A tax or fee on natural gas drilling initially was proposed in October 2008 by then-Gov. Ed Rendell. Before this week, the state House had brought a bill to the floor on only two occasions, and the state Senate had never done so.
How quickly things can change.
After lengthy floor debates Tuesday and Wednesday, Republican leadership in both chambers will have to reach an agreement on several outstanding issues, including the fee structure.
The Senate bill passed 29-20 on Tuesday, with one member not voting. Previously, Americans for Tax Reform ruled that the Senate proposal was also a tax.
“This legislation will help communities impacted by drilling, provide for reasonable local zoning parameters and implement strong environmental protections,” said state Sen. Joseph Scarnati, R-Jefferson, the prime sponsor of the Senate bill.
"It fails to reasonably require the natural gas industry to make a realistic and reasonable contribution in fair exchange for the wealth it is extracting from our ground,” said state Sen. Judy Schwank, D-Berks, of the Senate bill.
