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Republican gubernatorial nominee Scott Wagner says Pennsylvanians will bear the financial burden of Democratic Gov. Tom Wolf’s plan for a severance tax on natural gas production in the Commonwealth.
In a May 21 email sent to supporters, the York County-based state senator wrote that Wolf’s plan to impose a tax on natural gas extracted, or "severed," in Pennsylvania "would be financed by Pennsylvania’s working class."
But would the severance tax — expected to raise $108 million in the first year — actually be financed by Pennsylvanians?
A severance tax is paid by drillers who pass the production expense on to retailers of the commodity, in this case utility companies, who would then likely offset the added expense by charging higher rates to end-of-the-line consumers. The tax has a variable rate based on the price of natural gas and the volume produced by a given well.
Terry Engender, a professor with Penn State’s Department of Geosciences, added, "The reality is that any cost put on the industry will be passed on to consumers. That’s a fact of life."
In this case, it’s a question of where those consumers are located. And that’s not unusual.
According to The Fiscal Times, "Virtually all energy states benefit from passing their cost of government to consumers outside their borders. Texas avoids an income tax in large part by charging a 7.5 percent severance tax on natural gas and a 4.6 percent severance tax on crude oil. North Dakota now gets 40 percent of state revenues from severance taxes."
Beth Melena, Wolf campaign spokeswoman, said in an email, "Pennsylvanians are currently paying to improve roads and schools in Oklahoma and Texas while getting nothing in return."
At a press conference earlier this year, Wolf argued that in-state consumers wouldn’t see their utility bills spike because of a severance tax. He pointed to an Independent Fiscal Office (IFO) report in making the claim that 80 percent of natural gas produced in Pennsylvania is used by customers in other states and that, as a result, "80 percent of the revenue raised by a reasonable severance tax would be paid by customers outside of Pennsylvania."
We reached out to the IFO to see if this interpretation is accurate. Mark Ryan, deputy director for the nonpartisan state agency, said, generally speaking, it is.
"I don’t think we’ve explicitly said that, but that could be considered a fair interpretation," Ryan said.
Ryan said that based on federal data, the IFO estimates Pennsylvania natural gas consumption is about 20 percent of total production in the Commonwealth. The Energy Information Administration (EIA) said because of Marcellus Shale production here, Pennsylvania can meet its own demand. Pennsylvania is one of the largest natural gas-producing states in the country.
"The remaining 80 percent — one could assert it’s being exported, and that’s just a rough measure," he added.
Those percentages, however, can and do change, shifting the amount of gas remaining in the commonwealth and that which is exported.
Meanwhile, Wagner’s camp is doubling down on its claim.
"It’s clear Gov. Wolf doesn’t understand simple economics," said Wagner spokesman Andrew Romeo in an email. "If Pennsylvania’s gas industry is taxed further, that tax will be passed on to consumers in Pennsylvania. The governor can try to spin it all he wants, but the Pennsylvania Chamber of Business and Industry and the Marcellus Shale Coalition both have disagreed with his assessment of what would happen to utility bills in Pennsylvania."
Wagner said Wolf’s severance tax "would be financed by Pennsylvania’s working class." And with Pennsylvanians consuming roughly 20 percent of the gas produced here, the severance tax likely will cause utility bills in Pennsylvania to grow.
But according to the IFO, more of the expense would be absorbed by consumers in other states where Pennsylvania natural gas is shipped.
Additionally, there are many factors that would impact the ratio — everything from market forces to commodity prices to the tax amount levied to the availability of pipeline infrastructure across Pennsylvania to move gas to other markets.
Without that nuance, Wagner’s claim leads a reasonable reader to conclude that the entirety of the burden would be borne by residents of the Commonwealth.
Given that, we rate the claim Mostly False.
Email, Andrew Romeo, spokesman, Scott Wagner for Governor campaign, May 25, 2018
Email, Beth Melena, spokesperson, Tom Wolf for Governor, May 23, May 24 and May 25, 2018
Email, Erica Clayton Wright, spokesperson, Marcellus Shale Coalition, May 23, 2018
Email and phone interviews, Mark Ryan, spokesperson, Independent Fiscal Office, May 24, 2018
Phone interview, Terry Engender, professor, Penn State’s Department of Geosciences, May 23, 2018
News article, "Trump tax cuts trickle down to Pa. utility customers," Philly.com, May 17, 2018
News article, "The Trump tax cuts just became an issue in the Pa. Governors race," PennLive, May 23, 2018
News article, "Why the State and Local Tax Deduction Actually Makes the System Fairer," The Fiscal Times, Nov. 8, 2017
Average Price of Natural Gas Per 1,000 Cubic Feet," Public Policy Institute of New York State, Inc.
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