Proposed tax break for Shell gas 'cracker' plant draws debate
HARRISBURG - A new proposal by Gov. Tom Corbett to give a long-term $1.7 billion state tax break for a planned Marcellus Shale gas petrochemical refinery in southwestern Pennsylvania is a late-emerging issue in the state budget debate.
The tax credit proposal for a $4 billion Shell Oil Co. plant came to light just as Corbett started negotiations last week with Republican legislative leaders over the final shape of the $27 billion state budget for fiscal 2012-13.
Lawmakers are pressing for more details about the proposal while at least two policy groups have criticized it as a corporate giveaway during a time when state aid to schools and human services is being cut.
Shell signed a land-option agreement in March to build a "cracker" plant in Beaver County to convert ethane, a by-product of natural gas production, into chemicals to make a range of plastic products. This announcement came after Shell considered sites in Pennsylvania, Ohio and West Virginia that are in the Marcellus Shale formation.
Corbett said the Shell plant, if built, would be the largest industrial investment in the southwest region in a generation. A study by the American Chemistry Council, an industry trade group, estimates the plant would be the catalyst for thousands of new jobs in the chemical industry. The administration wants to offer a Pennsylvania Resource Manufacturing Tax Credit starting in 2017 to promote the use of ethane, said state Revenue Secretary Dan Meuser who is involved in the Shell negotiations.
The tax credit would be capped at $66 million a year and go initially to the Shell cracker plant. The cracker plant won't be eligible for the tax credit until it produces a threshold of 85,000 barrels of ethane daily, said Meuser.
Under the proposal, Shell could eventually apply to the state Department of Community and Economic Development to sell parts of the tax credit to Pennsylvania companies buying its ethane for use in their manufacturing processes. State officials anticipate that two dozen manufacturers producing products ranging from tires to diapers will locate near the plant and its ethane supplies and, thus, be eligible to share in the tax credit.
The credit will reduce the amount of the state corporate taxes that a company would pay.
One goal of the tax credit is to ensure that Pennsylvania-produced natural gas is used at the Shell cracker plant rather than gas shipped in from other states, Meuser said.
On a larger scale, the goal is to develop a petrochemical industry in Pennsylvania.
"These (spin-off) companies alone are probably worth the investment," Meuser said.
Shell plans to locate in a state Keystone Opportunity Zone so it would also get long-term breaks on local taxes as well.
The Shell cracker plant will likely spur economic development by attracting firms looking for cheaper costs for ethane supplies, said Teri Ooms, executive director of the Institute for Public Policy and Economic Development based at Wilkes University in Wilkes-Barre.
An environmental group criticized the governor for giving a tax break to a big corporation while he is cutting state aid to public schools.
"The governor is choosing winners and losers and he has cast his lot with the choosing to help a multi-billion corporation over the education of future generations of Pennsylvanians," said George Jugovic Jr., president of PennFuture.
The tax credit is a bad deal for taxpayers, said the Pennsylvania Budget and Policy Center, a Harrisburg think tank. The center pointed out that Shell's parent firm, Royal Dutch Shell, had a $20 billion profit in 2010."The question for lawmakers should be why is Pennsylvania providing any subsidy to this project at all," said PBPC director Sharon Ward.
The tax credit proposal was presented to lawmakers relatively late in the budget adoption process where the focus is on restoring state spending cuts in education and human services that Corbett proposed in February.
"We are open to discussions on anything that would bring jobs to Pennsylvania," said Stephen Miskin, spokesman for House Majority Leader Mike Turzai, R-28, Pittsburgh.
Senate Democratic leaders have asked more details.
"It is critical the Legislature and the citizens of Pennsylvania have time to examine, consider and possibly amend a plan that could have costs and implications well into the next generation," said Senate Minority Leader Jay Costa, D-43, Pittsburgh.
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