According to legend, the Pennsylvania Capitol building was built through the largesse of three industries at the turn of the 20th century – coal, steel and rail. The story goes something like this: in the late 1800s Pennsylvania was a global economic titan, producing more steel than any other nation. There was money and influence in the halls of power; our congressional delegation was almost 10% of the house and we had some of the world’s richest men in our borders.
Yet in 1901 the state legislature met in a building that looked, according to the man who had it built, “ugly.” This simply would not due. So – again, according to legend – the legislature sent a delegation to the power brokers in those three industries and gave them one of two choices: pony up the $13 Million (over $300 Million today) for the new building or we’ll levy a tax on you that we’ll never repeal. No tax was levied, so we must assume that they capitulated.
The resulting building was worth it, frankly. But the lesson is more valuable still; those industries were reaping tremendous benefits from the Commonwealth and it made sense for them to shoulder and expanded burden for a distinct public purpose.
The oil and gas industry, both in the Commonwealth and nationally, would be wise to follow suit.
Let’s start with the $4 Billion in benefits the oil industry is taking from the public coffers. There is no valid public policy argument to treat the oil industry differently than other industries when it comes to tax policy and job creation subsidies; if as a matter of policy we establish tax benefits for meeting certain conditions, for example, and the oil industry companies meet those conditions there is no valid policy reason to single them out. The fact is many of these policies were created to motivate corporate behavior in just such a fashion – they succeeded.
But the oil industry missed an opportunity when the issue was placed before congress. After all, they cannot argue, effectively, existential need for the public dollars – they are on pace to make record profits again. They can claim – validly – a fiduciary duty to their shareholders. But companies buy goodwill all the time, and if ever there was an industry that needed to buy some good will, it is the oil industry.
Imagine the reaction nationally had the oil executive marched into the Senate’s firing squad and disarmed their opponents by saying, in effect, “we feel our customer’s pain, so for the next two years we will not take the $4B.” The impact would have been priceless, and in effect it would have preserved the subsidies for out years – something that is at risk in the current climate.
The gas companies in Pennsylvania have the same opportunity. The fact is Governor Corbett is taking a beating because he is keeping true to his word. Every day the polling on whether we should enact a severance tax moves in the wrong direction for the gas industry and the governor, as more and more people ask the simple question: if its taxed every where else it is produced in quantities, why not here?
The longer that question stays in the wind the more likely it becomes the momentum for an electoral wave – one that would likely wash in significant numbers of Democrats over the next three years, even possibly at the executive level.
If that happens those new members will partner with the surviving GOP members to do what they should have done under Governor Rendell – pass a severance tax.
Only now they will have a powerful public mandate and they will be of a mind to be punitive, as the new members will see the Corbett years as ones where the gas industry got away with far too much. The resulting tax structure – ironically – might just dampen development and it will certainly cut far deeper into profits than a more moderate compromise measure, passed by a GOP controlled legislature and signed by a reluctant Governor, would.
In that light, the smart play is to work out a deal with the Governor now – one that pegs the revenue to the issues that plague the industry, such as water quality, environment remediation, and infrastructure. Imagine the press conference – Tom Ridge, Governor Corbett, Sam Smith and Joe Scarnati announcing a deal that has industry and environmental support. Every body in that picture wins (and those not pictured – Democrats – lose).
It would give the gas industry all the help it needs to get fully integrated into our economy and it would remove the most common complaint about the industry from the average citizen. It’s good policy, its good politics, and its good business.
Just like the deal that built our gorgeous Capit0l Building. Or so the legend goes…
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