Rendell talks severance tax in Towanda

TOWANDA -

Pennsylvania Gov. Edward G. Rendell made a stop Tuesday at the Bradford County Courthouse in Towanda as a large crowd of onlookers watched him make a pitch for a severance tax on natural gas extraction.

"These companies can pay their fair share and they should," he said. His remarks drew a big round of applause and some hollering from some people in the audience.

The governor spoke before sitting down beside Bradford County Commissioner Mark Smith and signing Senate Bill 1042, the state's fiscal code. According to the governor's office, the bill allows for transfers into the General Fund to balance the state's fiscal year 2010-11 budget; it also contains language that affirms the Commonwealth's intent to enact a severance tax by Oct. 1. The governor's office said it would take effect by Jan. 1, 2011, and details, including rates and structure, will be worked out over the summer.

In Mechanicsburg, Cumberland County, Rendell on Tuesday signed a $28 billion General Fund budget that holds down spending, the governor's office also noted.

"I came here today because 25 percent of the Marcellus Shale wells that have been drilled so far in Pennsylvania have been drilled right here in Bradford County," he said. "No county has seen the upside and no county has seen the downside more than you have."

Rendell illustrated the extent of the gas play activity in Bradford County, noting all the wells that have been drilled and the number of jobs that have been filled.

According to the governor's office, there are 1,300 more jobs in Bradford County in mining and other parts of the economy than there were a year ago. The office also noted that, to date this year, 1,164 natural gas wells have been drilled in Pennsylvania. Of that total, 564 have been drilled to access gas deposits in the Marcellus Shale, with 143 of those wells being drilled in Bradford County - the most of any county in the state this year. In addition, the governor's office said that the state Department of Environmental Protection (DEP) has issued nearly 2,900 drilling permits this year, of which 1,172 were for Marcellus development. By comparison, 1,984 Marcellus permits were issued in all of 2009.

"The rich natural gas deposits in the Shale represent a tremendous opportunity in the form of new jobs and new investments for our Commonwealth," he said.

However, he also noted, "the burgeoning natural gas industry is also creating a lot of new responsibilities and a lot of headaches for our local communities," he said.

He acknowledged the comments of commissioner Smith as well as PennDOT District Executive Sandra Tosca. Tosca talked about the impact on the infrastructure. For example, she noted that PennDOT has seen Bradford County's secondary roads, which had typically carried 20 trucks or less a day, now carrying 700 trucks a day.

Smith said emergency service needs are on the rise. "Across Bradford County volunteer fire companies are facing more frequent calls and more complex situations. The volume of calls at our 911 center is on track to increase, this year alone, by well over 30 percent," he said.

Rendell said, "we can't ignore the downsides. We have to strike the proper balance."

As the governor spoke about impacts on the environment, some people began clapping. He cited several incidents. For example, he spoke of a recent one in Tioga County. According to a news release on the DEP Web site, the department of agriculture announced on July 1 that it has quarantined cattle from a Tioga County farm after a number of cows came into contact with drilling wastewater from a nearby natural gas operation. Agriculture Secretary Russell Redding said uncertainty over the quantity of wastewater the cattle may have consumed warranted the quarantine in order to protect the public from eating potentially contaminated beef, the release noted. Subsequent tests of the wastewater found that it contained chloride, iron, sulfate, barium, magnesium, manganese, potassium, sodium, strontium and calcium, the DEP noted.

And he spoke of an incident in Clearfield County. According to a DEP news release, the well began leaking Thursday evening, June 3, when employees at the site lost control of it while preparing to extract gas after fracking the shale. As a result, natural gas and flowback frac fluid was released uncontrollably onto the ground and 75 feet into the air. The well was capped at around noon on June 4.

"And I think everyone in this courthouse has heard or read about the incidents in Dimock Township," he added.

"So, it's obvious we need to ensure the resources are available to inspect, monitor, and enforce against companies that don't meet environmental standards," he said.

He spoke of some positive initiatives, but said, "more needs to be done. We need the revenues to make sure that we do it right."

Rendell, who said industry is "clamoring" for the right to explore in Pennsylvania and has interest from industry "giants" like Exxon Mobil, said that he proposed earlier this year that Pennsylvania enact a severance tax modeled after the one in West Virginia - a 5 percent fee on sales, plus an additional 4.7 cents for each thousand cubic feet of gas produced, he said.

The argument, he said,that such a tax would be a disincentive to drilling is not true, and this has been proven in West Virginia.

Rendell also said the severance tax is not a partisan issue. Acknowledging Republican state Rep. Tina Pickett, who attended the event, Rendell said, "And Tina, you'll be glad to hear that no less a person than (former) Alaskan Gov. Sarah Palin knew what she was doing back in October of 2007 when she increased Alaska's severance tax from 22.5 percent to 25 percent..."

There were also some shouts of "no way" from the audience as Rendell said he heard talk about exempting companies for the first three years of well production, which he said is a "lousy idea." He asked the audience if they were against it, and there was some hollering of assent and clapping from some of the people.

"It's not good for us," he said. "They found (in a recent study by the Pennsylvania Budget and Policy Center) in a typical Marcellus Shale well, if you exempt the first three years of production to recover development costs, that would eliminate the severance tax on 42 percent - almost half - of the natural gas that that well would produce over its lifetime."

Around the end of his remarks, Rendell said the natural gas industry has had its breathing space and room to grow.

"This industry is literally exploding. It's a gold rush, but we have to make sure we monitor it well..."

When asked for comment, Pickett said, "...I do want to make sure that if such a thing (a severance tax) should take place, that we have a lion's share back in all of our local districts throughout Pennsylvania and at the same time we're making sure that we are writing it in such a way, if we should be doing it, that jobs will be continuing on a growth pattern in Pennsylvania."

Bradford County Republican Chairman Eric Matthews said, "The severance tax being the issue here, they haven't pointed out a good reason for a tax.

"The administration keeps talking about a severance tax just like the rest of the states that have it. Let's compare apples to apples. These other states ... quite often it's a shift in the tax or a replacement of a tax, it's not a new tax."

Joan Gustin, chair of the Bradford County Democratic Party, couldn't be reached for comment.