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SEPTEMBER 2, 2010

Dan Onorato's Natural Gas Tax

Gubernatorial Candidate Dan Onorato held a press conference yesterday announcing he supports a tax on natural gas extraction in Pennsylvania (and that he kinda-sorta opposes other tax hikes). But he offered no details about his plan. However, I will attempt to translate his political statements into a policy position using quotes from PA Independent and Politics PA:

"Not a penny of [the severance tax] will go to balance the General Fund. I'm talking about using that to protect the environment, protect infrastructure, and to deal with all the problems that could possibly come from the Marcellus Shale industry," said Mr. Onorato. He said the DEP needs more funding to investigate and oversee the gas industry's activities in the state.

This is clearly different from Gov. Rendell's proposal, which would generate $70 million to balance the state budget for his pork projects. Onorato's plan would dedicate funding to the Department of Environmental Protection for costs (though DEP claims they have enough funding already, see below), another round of Growing Greener, and other "problems" related to drilling.

In fact, if the tax is only to be used for problems related to drilling, Mr. Onorato should insure funding goes only to places where drilling occurs -- preventing his home county, Allegheny, and the Philadelphia region from receiving any of the gas revenue.

Onorato's plan calls for a "competitive” tax rate "comparable" with what other states have levied, but he declined to name an exact rate despite repeated prodding from reporters.

To be competitive with other states, Onorato would only support a tax with a lower rate in hard-to-drill areas, or that delays implementation in the first few years -- as almost every state with a severance tax on shale gas currently does. Onorato would also have to dramatically lower Pennsylvania's overall tax burden, as other states have used their natural resource taxes to do. He could imitate Texas or Wyoming, as some have advocated, and eliminate both the Corporate Income Tax and the Personal Income Tax.

"Tom Corbett thinks taxpayers should foot the bill to clean up and protect the environment. I think the drillers should pay for it."

Now I'm unclear if Onorato is calling for a tax at all. DEP officials say they have enough funding for drilling oversight. In 2009, the DEP raised drilling permit fees from $100 to as high as $5,000 -- generating $12 million this year, a 1,600% increase over last year. And fines pay for environmental remediation; for example, the Clearfield well blowout resulted in $400,000 in fines, while the clean-up and investigation cost only about $50,000.

Also, drillers are spending money to improve roads, even without a tax. Anadarko, for example, has decided to upgrade roadways rather than make continuous repairs. In Bradford County, Chesapeake Energy has already invested $15 million in road repairs with another $15 million in projects planned before the end of the year. And drilling companies have paid over $400 million in other state and local taxes.

Onorato uses environmental and road concerns to justify a natural gas jobs tax. Yet there is no reason to think additional money, above what is already being paid by the industry, is needed for these purposes, and no proposal currently introduced would use the revenue in this manner.

posted at 10:39 AM |  0 comment
Related : Taxation, Natural Gas

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SEPTEMBER 1, 2010

PA Unemployment Fraud Adding to Already-Bankrupt System

As PA Independent reports today, Pennsylvania had $374 million in overpayments for Unemployment Compensation (UC) last year, including $227 million in fraudulent claims, according to the US Department of Labor. These fraudulent payments represent almost 5% of total payments, the 9th highest fraud rate in the country.

Pennsylvania's UC fund has borrowed $3 billion from the federal government (a number that continues to grow). Both candidates for governor -- Dan Onorato and Tom Corbett -- have acknowledged the problems in our UC system and the need for reform. Nearly everyone recognizes this as a major issue, except Gov. Rendell -- he still thinks the only issue facing Pennsylvania is not enough tax revenue.

I'll be on NBC 8 (WGAL) in the Harrisburg area tonight talking about this issue.

 

posted by NATHAN BENEFIELD |  03:30 PM |  0 comment
Related : Unemployment Compensation

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SEPTEMBER 1, 2010

Should Higher Taxes be a "Priority"?

Here is a letter I sent the Patriot News on a natural gas jobs tax:

Your August 31 editorial states that a natural gas tax should be the state legislature's "No. 1 Priority".   This seems to be a solution looking for a problem.  Which of the many issues facing Pennsylvania would a tax on this job-creating industry solve?

While your editorial uses environmental concerns to drum up support, a tax would do nothing to protect the environment.  In fact, the revenue from the proposed tax would not even go toward environmental protection, but rather to the General Fund to finance Gov. Rendell's pork spending.  

Gas drillers are paying for the cost of environmental inspections through license fees and mitigation costs through fines.  Drillers are putting millions into repairing and even improving local roads.  And the revenue drilling already brings-corporate income taxes, leasing fees and royalty payments, and income taxes from local job creation-is overlooked.

If companies were forced to pay another tax, where would that money come from?  Certainly not from a pot of money hidden under a corporate CEO's mattress, but from future investment in Pennsylvania, wages for workers, or even companies' spending on safety measures.

The notion that an industry should be taxed simply because it can be taxed is more than just faulty logic. It's bad policy.

posted by NATHAN BENEFIELD |  10:40 AM |  0 comment
Related : Environment & Energy, Taxation, Natural Gas

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AUGUST 31, 2010

PPL's Distribution Rate Increase and Electric Choice

Earlier this year, we put out an electricity guide for citizens and businesses explaining why electricty rates were increasing, and how Pennsylvanians can to shop for the best deal.

In 2011, PPL territory rates will most likely increase again, but it is not related to the deregulated market.

There are three parts to electricity delivery: generation, transmission, and distribution. When you shop for a supplier, they provide you with generation and transmission. Distribution, which is essentially the upkeep of power lines, is still regulated by government, and provided by one of Pennsylvania's 11 distribution utilities.

Anyone within the PPL region must use PPL as their distributor, and PPL must appliy to the Public Utility Commission (PUC) for a distribution rate increase.

PPL is awaiting final approval by an administrative law judge and the PUC to increase its rates for an estimated revenue of $77.5 million, less than its original $114.7 million proposal, in order to recapture nearly three years ($727 million) worth of distribution investments.

If approved, a judge will decide how much of an increase will fall on residential customers, but the monthly increase is expected to be minimal, from $8.44 to $8.75.

While the distribution charge is the same, flat rate regardless of your generator, it is still a good reminder for residents to shop around and make sure they're getting the best electricity rates available.

posted by KATRINA CURRIE |  03:20 PM |  0 comment
Related : Environment & Energy, Electricity

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AUGUST 31, 2010

Coal Faces an Onslaught of New Regulations

Debate over new regulations by the EPA puts the Pennsylvania coal industry at a crossroads. Last week, experts met in Philadelphia to discuss a new ruling known as the Clean Air Interstate Rule. The measure requires 31 states, from Massachusetts to Texas, to reduce sulfur dioxide emissions from 2005 levels by 71% and nitrogen oxide emissions by 52% by 2014.

The impact on the coal industry would be significant, forcing many small and older coal-fired generation plants to close. Doug Biden, President of the Electric Power Generation Association, noted about 65% of Pennsylvania's coal-fired electricity capacity already meets or exceeds the standards set forth by the EPA; however, older and smaller plants do not.

While the Philadelphia Inquirer touts the new ruling as a way to save billions on health care costs brought on by asthma and other lung problems, there are also significant disadvantages. The new regulations are expected to cost plants in Pennsylvania a total of $2.8 billion dollars, an insurmountable amount for some of the state's oldest plants. And companies contend the actual cost of regulations will be much higher.

It's likely that over time, the industry would have closed older plants and continued upgrades. For example, PPL recently spent $1.4 billion for pollution controls on its 1961 plant in York County and Montour plant built in 1972. Sulphur dioxide emissions at Montour fell 88% - from 128,000 tons in 2007 to 15,000 tons in 2009.

But forcing large emission reductions immediately will not only result in lost jobs, as plants close, but higher electricity prices -- hurting all businesses. Jeff Holmstead, a former EPA official who authored the original interstate rule, said it was not clear whether utilities will be able meet the new standards while still providing affordable and reliable electric power.

See my commentary today on the inconsistency of punishing traditional energy while offering corporate welfare for alternative energy.

posted by ELIZABETH STELLE |  01:30 PM |  0 comment
Related : Environment & Energy, Energy Policy, Cap & Trade, Electricity

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AUGUST 31, 2010

The Imagined Effect of the Stimulus

Louis Woodhill writes on Real Clear Markets how the CBO's estimated impact of the stimulus is a fantasy.

In fact, the CBO readily admits it is simply plugging new spending numbers into the same model it used before the stimulus was enacted (HT Center for Fiscal Accountability):

CBO director Doug Elmendorf laid out the CBO's methodology pretty clearly, describing his office's frequent, legally-required stimulus reports as "repeating the same exercises we [already] did rather than an independent check on it." CBO tweaks its models on the input side, he says—adjusting, for example, how much money the government has spent. But the results the CBO reports—like the job creation figures—are simply a function of the inputs it records, not real-world counts.

To simplify, lets say the CBO model predicts that for every $1 million spent, 4 jobs are created or saved (the model itself is more complex than this, but yields a similar result).

That is, $800 billion = 2 million jobs or $600 billion = 1.5 million jobs.

Prior to the stimulus being enacted, the CBO estimates were based on how much money was expected to have been spent. The updates plug how much money was actually spent into the model.

Some will defend the model as sound, but it does not represent a measurement of the actual impact of the stimulus.

posted by NATHAN BENEFIELD |  11:03 AM |  0 comment
Related : Stimulus

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AUGUST 30, 2010

Understanding PSERS' Gains

Pennsylvania's pension fund for school employees, PSERS, reported significant gains in the past year -- a 14% return on investment. This is higher than the national average, and nearly double the 8% expectation that all estimated costs are based on.

But that isn't the whole story:

There is a difference in pension funds between "Market Value" and "Actuarial Value." The Market Value is the current value of investments, which increased 14%, or $6 billion. The Actuarial Value is based on the five-year average of the market value, and will decline this year.

PSERS hasn't posted the full report online yet, but the 2009 Actuarial Valuation indicates the plan was 79% funded. The 2010 funded level will be lower.

Second, 14% is a great return, and will marginally reduce taxpayers' future contributions. Unfortunately, lawmakers decided to put less into the fund than we should have been investing. That money could also have earned 14% return, but instead, policymakers deferred costs to future generations.

posted by NATHAN BENEFIELD |  05:21 PM |  0 comment
Related : Public Employee Pensions and Benefits

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AUGUST 30, 2010

Pennsylvanians Have Good Reasons to Oppose Higher Fuel Taxes

Grove City College economist Tracy Miller explains why Pennsylvania drivers are resistant to a higher gasoline tax. In contrast to prior periods when the tax was viewed as a user fee, today's highway funds (federal and state) are diverted to mass transit, as well as recreational and pork projects, rather than fixing bridges:

Recent strong opposition to increases in fuel taxes does not mean that Americans are less willing than before to pay taxes in order to have better roads. What it does reflect is voters’ opposition to money paid in fuel taxes being used for purposes other than highway spending. In recent years, almost 20 percent of money paid into the Federal Highway Trust Fund (FHTF) has been spent on mass transit. In addition, FHTF money is being spent on recreational trails, historic preservation, and scenic easements. Besides the FHTF money allocated for non-highway purposes, a growing share is used for earmarks that reflect the political priorities of members of Congress rather than the priorities of highway users who pay gasoline taxes.

Why should federal fuel taxes, which are paid by rural and urban drivers alike, be used to pay for public transportation, which primarily benefits residents of large metropolitan areas? In Pennsylvania, 90 percent of transit-operating grants is paid to the Southeast Pennsylvania Transportation Authority and the Port Authority of Allegheny County (PAAC). But only 50 percent of the state's population lives in the Philadelphia and Pittsburgh areas served by these transit agencies. In these two metropolitan areas, less than five percent of local trips are on public transportation while almost all the rest are by automobile.

posted by NATHAN BENEFIELD |  11:59 AM |  0 comment
Related : Transportation

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AUGUST 30, 2010

Municipalities Gain Authority to Regulate Drilling

Previously, local municipalities could not impose restrictions on gas drilling separate from those required by the state. However, several Pennsylvania court decisions have begun to give local officials additional regulatory authority.

In two previous cases, the courts ruled local officials could set rules over where drilling occurred, but in the most recent case, Penneco Oil Co. Inc. v. the County of Fayette, the court granted power beyond zoning ordinances.

Now municipalities can impose greater restrictions on drilling companies, like requiring well sites be surrounded by fencing and scrubs. Or they can create special exemptions to prohibit drilling.

These rulings have major implications for Pennsylvania drillers. When a drilling company is considering an area, they factor in total costs as primary considerations for selecting a location. Predictability is key -- unlike the state DEP, which has a detailed guideline for drilling approval, every municipality in the state can now have different local restrictions, permitting fees, and requirements.

The local regulations are typically more about convenience and aesthetics than safety. The state already thoroughly regulates drilling, ensuring environmental and human health protection. DEP prohibits a well from being within 200 feet of a residence or any structure. And, unlike abandoned wells of the past, all wells in Pennsylvania are registered, holding companies accountable to plug wells after completion and restore vegetation to the well site within nine months after plugging it.

As lawmakers debate a natural gas jobs tax, by the promised deadline of October 1, lawmakers should consider the impacts of another layer of regulation on the costs of drilling in Pennsylvania.

posted by KATRINA CURRIE |  11:01 AM |  0 comment
Related : Environment & Energy, Natural Gas