Penn gov seeks natural gas tax to help plug deficit

By Jon Hurdle

PHILADELPHIA, Jan 26 (BestGrowthStock) — Pennsylvania should plug
a projected $500 million deficit in the new fiscal year by
taxing natural gas extraction, ending discounts for businesses
that pay taxes on time, and abolishing the tax-free status on
smokeless tobacco, Governor Ed Rendell said on Tuesday.

Two weeks before presenting his fiscal 2011 budget, the
Democratic governor warned business leaders that the state
faces spending cuts that are even deeper than those in the
current year’s budget because of falling tax revenues.

“Next year we are going to have to have further cuts and
they are going to be really painful,” Rendell said.

Rendell, who is in his last year as governor, said the
proposed “severance” tax on the current boom in natural gas
drilling in the massive Marcellus Shale formation would raise
$100 million to $120 million a year.

He said the recent $31 billion purchase of XTO Energy by
Exxon Mobil (XOM.N: ) and the higher-than-expected price paid by
other energy companies at a recent auction of state land for
gas drilling indicated the industry is able to afford the
planned tax.

Rendell said he felt “foolish” after dropping the proposed
tax in the current year’s budget talks, on the basis that the
industry was in its infancy, and that the natural gas price was

He acknowledged concerns about water contamination from
natural gas drilling but said the Marcellus has the potential
to generate tens of thousands of jobs and is too valuable an
opportunity to allow environmental worries to impede

“We can’t let the occasional mishap stop what is an
extraordinary boom for the Pennsylvania economy,” he said
during a question-and-answer session hosted by Philadelphia
public radio station WHYY.

The proposed new taxes would raise revenues totaling $250
million, allowing the state to “eke” its way through the coming
fiscal year, Rendell said.

But he repeated a warning that Pennsylvania faces deficits
of $2 billion and $5 billion in the following two fiscal years
after the expected expiration of federal stimulus money.

In view of the coming financial challenges, Rendell said
lawmakers should reconsider a 0.5 percentage point rise in the
personal income tax rate that he had proposed for fiscal 2010
but withdrew in the face of bipartisan opposition.

Rendell previously said he hoped to limit overall spending
growth to 4 percent in 2011 from the $27.8 billion package that
was agreed for the current year, and noted that there are some
areas such as corrections over which the state has no control.

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(Editing by Leslie Adler)

Penn gov seeks natural gas tax to help plug deficit