Pat Toomey on the Debt Ceiling

Like many other people today (I hope), I contacted Pat Toomey's office to basically tell him to stop messing around and raise the debt ceiling already (without trying to kill Social Security/Medicare in the process). Here is the fulltext of "his" response. I put "his" in quotes because I think it could have been generated by a Republican Party Automated Robot. The RepubliCan 2000, if you will. But at least he responded more quickly than Tom Marino.

Dear Mr. ____,

Thank you for contacting me about the debt limit. I appreciate hearing from you.

As you know, the debt limit is an important issue before Congress right now. The current limit, which was last raised in February 2010, is $14.3 trillion. Although $14.3 trillion sounds like an awfully big figure to most Americans, we have reached the limit quickly due to the record high deficits that this Administration has been running.

While Congress debates an increase in the debt limit, I believe it is important to look at what got us here. Total federal spending has doubled since 2000. In addition, recent deficits have grossly exceeded those that we were running only a few years ago. In 2007, for instance, our deficit was only 1.2 percent of Gross Domestic Product (GDP). This year, it will be over 9 percent of GDP. The debt already has doubled in only four years, and it is expected to triple in 11 years. The consequences of such fiscal mismanagement will be devastating to our economy and job growth, not to mention to future generations who will be saddled with debt and a government they can no longer afford.

It is clear that Washington has a serious spending problem, and both sides of the aisle are not without blame. But that said, the American people want us to finally make the tough choices necessary to get our fiscal house in order, and the debt limit debate presents a good opportunity, if not the only opportunity this Congress, to do it. I therefore value your input on this important issue.

In my view, I recognize that the debt limit will ultimately need to be raised and I have supported legislation to do so. For instance, I have cosponsored the Cut, Cap, and Balance Act, which the House of Representatives passed with bipartisan support on July 19, 2011. This bill, as you may know, would raise the debt ceiling by the amount the President requested in exchange for putting our nation on a path to a balanced budget. Unfortunately, on July 22, 2011, the Senate voted to defeat a motion to proceed to the House-passed version of the Cut, Cap, and Balance Act (H.R. 2560). As someone who voted in favor of H.R. 2560, I am disappointed that the Senate refused to further consider legislation that would both address the debt limit issue and put our nation on sound fiscal footing.

In addition, you may be interested to know that I have introduced legislation that would protect Social Security beneficiaries, active duty military, and the full faith and credit of the United States should the President and Congress fail to raise the debt ceiling in a timely manner. It is my hope that this legislation is not necessary, but I also believe that Congress should not simply raise the debt ceiling without taking meaningful action on tackling the overspending here in Washington.

Thank you again for your correspondence. Please do not hesitate to contact me in the future if I can be of assistance.

Sincerely,
Pat Toomey
U.S. Senator, Pennsylvania

WGRC Interview Wrap-Up

This morning, CSCC was pleased to be invited to appear on WGRC's "The Matter at Hand" radio talk show with host Larry Weidman. As chair of CSCC, I was a guest on the show along with a policy analyst from the conservative Commonwealth Foundation in Harrisburg. Audio of the show is available here, and I thought I would try and publish some of the information that CSCC prepared for the show but I didn't have time to cover.

Fact Check on Commonwealth Foundation Talking Points
Commonwealth Foundation: “This is a mobile industry that can pick up and leave.” This general argument—that higher taxes will drive companies away--sounds good at first glance, but it doesn’t actually make sense. The gas is physically located underneath the ground, and the gas companies want it. If they want our gas, they can’t go anywhere else. This is not a situation where a big store like Walmart is trying to decide whether to open a location here, or across the state border. Natural gas production is based on the physical location and size of reserves, and the price of gas which is set at a national market level. Furthermore, 29 other states have severance taxes, including our neighbor West Virginia (5.79%). In fact, West Virginia has always produced more gas than us, despite the fact they have a severance tax and we don’t. Of the five gas-producing states in the Rocky Mountains, Wyoming had the highest tax rate over the last 30 years, and it also saw the fastest growth in gas production. [Source: http://pennbpc.org/sites/pennbpc.org/files/Reality_Check_on_Emerging_Giant_Report_1.pdf]

Commonwealth Foundation: “…Pennsylvania’s high corporate tax rate….”: Over 70% of wells in PA are owned by companies registered as LLC’s which means they primarily pay the personal income tax rate of 3.07% not the corporate rate of 9.99%. In fact the 3 biggest companies, Atlas, Chesapeake and Range Resources are ALL LLC’s. In 2008, only 120 drilling companies paid corporate net income tax while 818 companies paid personal income tax. This is a statewide issue, not just for the gas industry: overall, only about 20% of corporate tax filers paid any corporate income tax in 2010. [Source: http://www.pennbpc.org/gas-drillers-escape-taxes]

Commonwealth Foundation: “the $1.1 Billion in taxes paid by the industry….”: First of all, this is a horribly-inflated number from Governor Corbett’s Department of Revenue. This is not an independently-calculated number. It includes every possible thing they could think of related to drilling, not just the taxes paid by those who would pay a severance tax. It includes the income taxes paid by their employees, it includes sales tax collected from their customers, and it includes taxes paid by pipeline operators and sand suppliers that would be paying taxes anyway even if the industry weren’t here. The point is that drillers themselves pay few taxes in PA. [Source: http://www.pennbpc.org/department-revenue-analysis-goes-well-beyond-taxes-paid-drillers]

Second of all, just because someone pays one tax doesn’t normally mean they get a free pass on other taxes. If I go buy a CD and pay sales tax on it, does that mean I get out of paying my gasoline taxes? So the fact that they pay “some” taxes isn’t an argument against a severance tax.

Finally, $1 billion sounds like a huge impressive number, sure. But let’s say, hypothetically, that I paid $1000 in state income tax last year. Can you tell me if I paid my fair share or not? No, you would have to know what my income was, what that’s a percentage of. So what is $1 billion compared to the total income of the industry over that time period? That number is unknown.

Commonwealth Foundation: “A severance tax hurts Pennsylvania citizens directly, because a lease splits tax obligations between drilling companies and landowners.” This is an intentionally vague statement that I believe is intended to scare people into thinking we want to “hurt” landowners by advocating for a severance tax. For better or worse, there is no “standard” lease in Pennsylvania. You cannot make any blanket statements about what a lease does or does not do: it depends completely on the lease agreement signed between a landowner and a gas company. At very worst, the landowner would see their royalty payments reduced by a proportionate share of the drilling tax. If the tax were 5%, then their royalties would be cut by 5%. If you are willing to sign a lease, with the expectation that you might get $1 million in royalty payments, are you not going to sign if you will only get $950,000? Most leases already often allow things like treatment and production costs and transportation costs to be deducted, all of which take a MUCH bigger bite out of royalty checks.

Commonwealth Foundation: “The state oversight for drilling is entirely funded through natural gas permits.” We can find no evidence to support the claim that it’s “entirely” funded. A natural gas well permit costs something like $3600, and that money goes toward the cost of inspections. However, the DEP is responsible for many other activities (air quality monitoring, erosion control, groundwater protection) that are not funded at all by drilling permits. Even simpler than that, though, there’s the fact that the number of inspectors aren’t keeping up with the number of wells being drilled. If you have more wells, and the same number of inspectors, that means you have less oversight.

Whenever anyone brings up the issue of regulation, those who oppose a severance tax act as if we are insulting the DEP or saying they are bad at their jobs. We are not saying that. They are doing their best, but to handle an industry that has grown exponentially, they need additional staff, they need additional support and resources and the severance tax would ensure they have those resources.

The Commonwealth Foundation also said, “Pennsylvania has very strict environmental laws.” That may be true, but laws do not magically enforce themselves. If we had the strictest criminal laws in PA, could we fire all of the police and judges? The departments that are supposed to be monitoring the industry and protecting us need resources to operate at increased capacity, and they are facing a larger workload than ever before, directly as a result of the natural gas industry. It is having an impact that permits and other current taxes do not “cover.”

Commonwealth Foundation: “The industry has paid $200 million for road repair... one landowner had his road repaired by the gas company on Easter morning.” First, $200 million is a large impressive number, but how does it compare to the actual cost of road repair? The fact is that local governments can require drillers to post bonds of up to $12,000 per road mile to help pay for damage. But this amount hasn’t been adjusted in 30 years, and township supervisors have been quoted as saying that it can cost over $100,000 per road mile to replace some of these roadways. Second of all, it is great to hear anecdotes about gas companies fixing particular roads, even “on Easter morning.” However, there are many other local officials who say the roads are being destroyed by the water truck trips and the bonds the drillers must take out are insufficient for real repair. They weren’t designed for such heavy traffic. The people living in these communities--and anyone living near a road that the trucks use to get in and out of Pennsylvania—have to deal with increased traffic congestion, and more traffic means more accidents, plain and simple. Also, the trucks don’t magically appear and disappear when they get to the end of those bonded roads near the well sites. We’ve got more heavy trucks on the state and interstate roads as well.

More importantly, isolated stories do not reassure us that that all gas companies are always going to do the right thing, or that they’ll be around to do the right thing when it counts, even if they wanted to. Compare our situation now with the coal industry. Coal mining activity peaked in Pennsylvania in 1918 and some communities are still paying the costs of companies that are long gone. Millions have been spent to address abandoned mine problems, and there are problems with polluted streams and unreclaimed mine land that would cost billions of dollars to fix. Having a severance tax is about supporting the long-term interests of Pennsylvania residents. The drillers’ goal is to quickly make as much money as possible. Fine, that is just the nature of their business. But as soon as the gas is gone, the drillers will be gone, too. Our business (citizens and lawmakers) should be to see that the people of Pennsylvania are not stuck with footing a huge bill as the industry heads out the exit doors.

Final thought:
The Corbett administration, some of our lawmakers, and the Commonwealth Foundation are out-of-step with both the people of Pennsylvania AND even with the industry itself. The Director of Corporate Communications for Chesapeake Energy Corporation, the largest drilling company in our state, has been quoted as saying, "We gladly pay a severance tax in every state where we’re active, except New York and Pennsylvania." Gladly. Why shouldn't they? They are used to paying this tax in 29 other states. A public poll released one week ago by Quinnipiac University found that 69% of Pennsylvania voters, including 69% of Republicans polled, support this tax. Our lawmakers need to step up, and institute a real severance tax (not the 1% tax in the current version of the Scarnati bill) that creates a fair playing field and pays for the impacts of this industry.

WGRC Radio Interview Tomorrow

Also, we wanted to let everyone know that CSCC was invited to appear on WGRC's "The Matter at Hand" radio talk show tomorrow, June 21, at 11:00 a.m. I will be talking about the Tax Fracking Now! petition, and someone from the conservative Commonwealth Foundation will be appearing as well. We hope you can tune in (91.3FM in Lewisburg, or live streaming via the web at wgrc.com).

"TFN!" Petition: Final Tally & Delivery Report

714! In just two weeks, we collected a total of 714 signatures from Pennsylvania citizens (plus a few out-of-staters) demanding that our elected representatives enact a severance tax on the natural gas industry in PA. That includes approximately 500 signatures in our local state house district and state senate district.

We can't thank everyone enough--for signing, for volunteering your time, and for helping us to spread the word. We met a lot of new faces in downtown Lewisburg, people who "read about it in the paper and just had to make a special trip." This was truly a 'bipartisan' effort, too--the message we heard over and over was that, regardless of your age or political party, it just doesn't make any sense not to tax an industry that will have such a large impact on our state, our air & water, and our roads. We also heard a lot of outrage over the fact that the school budgets were being slashed while the state refuses to tax gas companies.

Here is just a sample of the comments made:

• "Long overdue!"
• "Let's keep & protect Pennsylvania as we know it."
• "I want my kids to be able to enjoy all of PA's natural resources."
• "I'm not in favor of fracking, but if it is going to be allowed, we should tax the companies who are profiting from it."
• "This is the very least you can do."
• "For once, can we engage in a little long-range thinking?"

CSCC has now delivered the petition to 2 out of its 3 intended targets. We wanted to give you a short update on how those meetings went.

PA Sen. Gene Yaw (R-23)

On Tuesday June 7, we met with Curtis Fay, legislative assistant to Senator Yaw, at the UC Government Center in Lewisburg for approximately 40 minutes. (The Daily Item was there and covered the story here.) The good news was that Sen. Yaw claims to be in favor of what he calls an "impact fee" of some sort and "not opposed" to a severance tax. The bad news is that he would like to see a bill (like one he introduced himself) where almost all of the revenue stays at the local government level which would not allow funds to be used for statewide environmental protection or infrastructure. He refers to Harrisburg as a "black hole" where money would disappear. We did our best to emphasize the point with Mr. Fay that we're not opposed to some of the money going to help local governments, but the money should be divided up with at least a third going towards environmental protection as many other states have done.

PA House Rep. Fred Keller (R-85)

On Friday June 10, we met with Rep. Keller himself in his Mifflinburg office for approximately 90 minutes. The good news (besides the fact that he gave us that much time) is that he said he "agrees with the general principle that those who profit from the common good owe it to compensate those who are hurt, damaged or abused in the process." The bad news is that he basically would not commit to anything beyond that. He said he didn't agree with a moratorium, that we needed better regulation enforcement, and that he would "consider all options before supporting anything."

Governor Tom Corbett (R)

On May 31, we called the governor's office to schedule an appointment, and were told that he only accepted written or faxed requests. On June 1, we faxed a meeting request. On Wednesday June 15, we emailed because we'd received no reply. On Thursday June 16, we received a message saying, "Your request has been forwarded to the Governor's Office of Scheduling and Advancement for their review and consideration. You should expect to receive a response from a staff member in that office in the near future." We will keep trying until we get through!

UPDATE: "Tax Fracking Now" Petition Hits 464

464! In just over a week, 464 citizens have signed our petition to enact a "fracking" severance tax on the natural gas drilling companies. We know how urgent it is to let our representatives hear that message, so we will be collecting signatures for just one more weekend. Then, we'll deliver those signatures to our state legislators and the governor so that they hear the message loud and clear.

If you haven't signed already, please do it now! Or if you know someone who needs to sign, please let them know! Our online petition is here:

http://signon.org/sign/tax-fracking-now-1

Or, we'll also be collecting signatures in person one more time, this Saturday in front of the Lewisburg Post Office from 10am-12pm. Last Saturday was a great success--we had several people who read about the petition in the paper and made a special trip just to sign! Special thanks also to wonderful volunteers who took sheets home to their businesses, or went door-to-door in their communities this week.

We can't thank everyone enough for the support--we're almost done and ready to make your voice heard!

CSCC Announces "Tax Fracking Now!" Petition

CSCC needs your help.

Almost all gas-producing states impose a severance tax of some kind on natural gas drilling to help pay for oversight and cleanup, because once the resource is gone, it's gone--and hydrofracturing can leave behind serious damage just as the coal industry did. A "frack tax" will make sure that Pennsylvania has the resources to respond to these challenges.

So CSCC has created a petition in support of levying this tax on the gas drilling companies. This is not a typical online petition. We, the CSCC Steering Committee, will collect as many signatures as we can--both online and in-person in Lewisburg--and then personally deliver copies to State Rep. Keller, State Senator Yaw, and Governor Corbett in Harrisburg.

The petition says:
"We call on Pennsylvania's legislature and governor to enact a severance tax on gas extracted from the Marcellus Shale to help pay for effective regulatory oversight of hydrofracturing operations, proper cleanup of any environmental damage, and repair of roads and other infrastructure affected by drilling operations. This tax should be paid by the natural gas drilling companies, and portions of these funds must go to local and county governments and to environmental protection and remediation."

Will you sign this petition? Click here:
http://signon.org/sign/tax-fracking-now-1?source=c.em.mt&r_by=159814

As of today, the PA Budget & Policy Center estimates that Pennsylvania has lost $186 million by not enacting a severance tax. Please help us spread the word! Feel free to forward, post or tweet this link to anyone in Pennsylvania who is concerned about the effects of drilling.

Tax on Natural Gas - Who Pays the Taxes?

Who pays the taxes on natural gas production in PA? Mostly, the answer seems to be: the landowners and not the gas companies. Unless something is done.

As reported in a recent CSCC email, several state legislators (mostly from the GOP) have touted the idea of taxing the gross value of gas at the wellhead "to pay for the economic impact of the shale drilling." Their proposal is an alternative suggestion to a severance tax that would be paid by the gas companies (as it is in 38 other states). Their idea has even been advertised in headlines such as "GOP legislators back bill to tax gas drilling." However, it is important for people to realize that this kind of tax would be on the landowners, not the gas companies. State Sen. Chuck McIlhenny (R-10) has said, "It comes out of the royalties."

Our own state senator (Gene Yaw) has discussed a similar tax. His argument is that gas companies would just pass on the cost of a severance tax by paying smaller royalties anyway, but the math just doesn't add up, does it? Let's just imagine that right now, companies were paying landowners a royalty equal to 20% of their (after-tax) profits. For every $1000 of profit, the gas companies would pay the landowner $200. Now what would happen if we instituted a 10% severance tax? (The current State House proposal is actually more like 7.3%.) Gas companies would pay $100 to the state and... $180 to the landowners. So yes, the landowner has gotten 18% of (pre-tax) profits instead of 20%, and lost $20. But the state now has $100, and the gas company has paid $280 instead of $200. They can't possibly "pass on the [full] cost of a severance tax to the landowner" so that argument just doesn't make sense. Does it make sense to anyone else?

What about corporate income taxes? The PA Budget and Policy Center (PBPC) has published an excellent summary titled, "Fact Check on Marcellus Shale and Severance Taxes." It points out that over 70% of wells are owned by companies that incorporate as partnerships or limited liability companies (LLCs), so they pay the 3.07% personal income tax rate on profits, rather than the 9.99% corporate net income tax rate. Most other states impose both corporate taxes and severance taxes.

What about property taxes? The same article by the PBPC says that "companies don’t pay property taxes on gas reserves." I asked Michael Wood, Research Director of the PBPC for more information about this. He writes:

Property taxes for surface properties are paid by the owner. So if a farmer leases land to a driller, the surface area is taxed, and paid for by the farmer. If a drilling company owns a building, they pay the property taxes on the building and the land it sits on.

When you get to the gas reserves, it is a different story. These haven't been taxable since 2002, but when they were, the tax was paid by the drilling companies. The property taxes on reserves are based on the production that has come out of the reserve over the past 5 or so years...depends on how the "assessment" is done. So, if there were a property tax on reserves in PA (which only requires a law from the Legislature authorizing such taxation), the drillers would pay it.

If the lease with the landowner allows the driller to deduct certain costs (transportation of the gas to market, processing to get the gas in sellable condition, and taxes), a portion of the tax would be "passed on" to the landowners in the form of lower royalty payments. That entirely depends on how the leases are drawn up. Drillers like to include those clauses in their leases, as it cuts their royalty payments. We don't have a good figure on what percentage of leases in effect have such provisions, but it is likely most of them.