By Jon Hurdle
PHILADELPHIA (Reuters) - Pennsylvania Governor Ed Rendell's plan to tax natural gas production in one of America's biggest fields faces serious if not fatal opposition from Republicans who differ on the rate of the tax and how to use the revenue.
Rendell wants to tax drillers in the booming Marcellus Shale 5 percent of the value of gas at the wellhead plus 4.7 cents per thousand cubic feet of gas produced, in line with neighboring West Virginia.
Republicans seek a much lower tax rate that Rendell has pledged to veto if it emerges from the legislature.
Lawmakers agreed during budget talks to finalize details of the so-called severance tax by October 1 -- a date with little flexibility because few days are left in the legislative session.
Three days before the target date, the Democratic-controlled state House and the Republican-dominated Senate are far apart on how much the industry should be taxed and how the proceeds should be divided between state and local governments.
A bill that would tax drillers 39 cents for every 1,000 cubic feet of gas extracted was approved by a House committee on Monday and is expected to come before the full House on Tuesday.
The bill would raise about $140 million in the second half of the current fiscal year; $307 million in 2011-12, and $375 million the following year, all more than Rendell's plan would provide.
The revenue would allow communities near gas operations to maintain roads and bridges and to prevent the groundwater contamination that critics say comes with gas drilling.
"We are the only natural gas state that does not have an extraction tax," said House Democratic majority leader Todd Eachus. "Natural gas companies should pay their fair share."
Senate Republicans, meanwhile, want to tax production at 1.5 percent of the sales price, a level that Democrats say would be the lowest in the country and a less-reliable source of income because it is based on market prices.
Pennsylvania, which has struggled to balance its budget, is eager to reap revenue from the industry that is exploiting potentially the most productive U.S. shale gas field. At least 30,000 wells -- or some 20 times the current number -- are expected to be drilled there over the next decade.
Industry leaders and Republican lawmakers argue that the taxes proposed by the Democratic governor and the House would deter investment.
"Any tax would put a damper on the level of competitiveness," said Kathryn Klaber, head of the Marcellus Shale Coalition, an industry group. "The higher the tax, the bigger the damper."
Klaber said the industry would like to see a tax similar to one in Arkansas under which energy companies pay 1.5 percent during a "capital recovery" period of up to four years, after which the rate would rise to 5 percent.
"We are worlds apart on the tax rate," said Sen. Joseph Scarnati, the Republican Lieutenant Governor. "We are not going to tax the industry out of the state and we are not going to tax to fill a budget hole."
(Reporting by Jon Hurdle; Editing by Daniel Trotta and Lisa Shumaker)
