Pennsylvania Lawmakers Propose Shale Tax to Pay Down Pension Debt


Pennsylvania lawmakers this week released two dueling shale tax proposals. One of those proposals calls for an 8 percent extraction tax, with a significant portion of the revenue going towards the state-level pension systems.

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Setting the bar on the high end, Democratic state Sens. Art Haywood, Vincent Hughes and Larry Farnese focused on putting money back in the state’s education coffers with their plan for an 8 percent shale tax. Texas – the only state to produce more shale gas than Pennsylvania – has an extraction tax of 7.5 percent.

At a press conference held at Philadelphia School District headquarters, Haywood called 8 percent “affordable.”

“Some people are going to say that it’s extreme,” said Haywood. “Eight percent is not as extreme as zero, which is what we have now.”

With that plan, the state would raise more than a billion dollars in revenue in the first year, Haywood said. Off the top, $100 million would go to environmental concerns, with the rest of that revenue split 60 percent for education and 40 percent to defray pension costs.

If the lawmaker’s projections are to be trusted, the tax would net over $360 million for the pension systems in its first year.

Pennsylvania’s state-level pension debt amounts to around $47 billion, according to the state’s budget office.


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Newspaper: Pennsylvania Pension Funding and Shale Tax Shouldn’t Be Linked

Pennsylvania flag

Last week, a Pennsylvania lawmaker proposed levying a shale tax of 3.5 percent on the state’s frackers. The revenues – estimated to be $400 million annually – would then go to paying down the Public School Employees’ Retirement System’s (PSERS) unfunded liabilities.

One Pennsylvania newspaper agrees that paying down pension liabilities should be a top priority. But it disagrees that a shale tax is the way to do it.

From the Pittsburgh Tribune Review editorial board:

The GOP-controlled state Legislature must make Pennsylvania’s biggest financial woe — $50-billion-plus in unfunded pension liabilities — its top 2015 priority. And it must do so without linking pension reform to Democrat Gov.-elect Tom Wolf’s proposed natural gas severance tax.

Incoming Senate Majority Leader Jake Corman, R-Centre, during a Pennsylvania Manufacturers Association forum at the Pennsylvania Society gathering in New York earlier this month, said he’s willing to consider the severance tax if Wolf will negotiate on pensions. Going beyond compromise, that sets up GOP lawmakers to capitulate to Wolf’s taxing agenda.

Allegheny Institute scholar Frank Gamrat reminds that the extraction tax would have to compensate for the state-mandated elimination of the impact fee, a levy that has brought counties and municipalities nearly $130 million over the last three years. And for the tax to yield the Wolf-estimated $1 billion-plus at current gas prices, “production would have to rise by more than 50 percent.” It’s a quite iffy proposition given current market trends.

A too-high severance tax “could have adverse consequences for Pennsylvania,” says Gamrat. GOP leaders must take heed when he urges that the Legislature not spend “a great deal of (its) time and political capital” on a severance tax and focus instead on “pension reform” to address “the principal cause of the commonwealth’s budget problem.”

The Public School Employees’ Retirement System was 63.8 percent funded as of June 30, 2014.