Low Ranked Pennsylvania Won’t Be Helped With More Taxes
By Leo Knepper
Pennsylvania has a lot of problems. In many rankings of the states, Pennsylvania is in the bottom ten. 24/7 Wall St, a business focused website, ranked Pennsylvania 42nd on its list of Best and Worst Run States. Being that close to the bottom places the Commonwealth squarely among the worst run states in the country. As if to prove that point, the General Assembly and Governor allowed a spending plan to become law without any clear way to make up $1.5 billion in revenue.
It is starting to become clear that the Governor, Senate Republican and Democratic leadership, and House Democratic leadership want to close the gap with higher taxes. The latest plan would have instituted a gross receipts tax on natural gas. House Republicans rightly walked away from this as a solution because it would have resulted in higher heating bills for Pennsylvanians next winter, and every winter going forward. House Republican leadership is not completely on the right track in closing the budget gap. Leadership in that chamber is content to engage in borrowing against future revenues to meet the shortfall.
As we noted in our blog last week, cutting spending has received far less attention than it should have for the sake of taxpayers. One of the more ambitious exceptions to that general rule is HB 1354, which would add work requirements to the welfare code as it relates to receiving medical assistance. It would also require medical assistance recipients who make over $250,000 to make copayments and engage in other cost sharing measures. (If you’re wondering why someone who is making over $250,000 is getting medical assistance, it has to do with automatic qualification for certain medical conditions.)
In our research, we found that nearly 60 percent of Pennsylvania families who were required to engage in job search activities or training for the federal “Temporary Assistance for Needy Families”(TANF) program participated in ZERO hours of qualified activities (see page 17). Although the qualifications for TANF are different than for medical assistance, the similarities of the populations made it a reasonable comparison. If a greater percentage of medical assistance recipients specifically, and welfare recipients in general, were required to engage in work search activities it could have a remarkable effect reducing the number of families needing assistance and a positive impact on Pennsylvania’s finances in the medium to long term.
In 2014, Maine required “able-bodied childless adults” (ABCAs) to work, train, or volunteer on a part-time basis to continue to qualify for food stamps. In two years the number of ABCAs receiving food stamps dropped by 90 percent. First, imagine the saving that taxpayers in Pennsylvania would reap if we instituted the same requirements. Second, imagine how that would benefit the states revenue collection. If all of those people who were currently receiving assistance that could work but weren’t, returned to the workforce it would be a long-term boon for Pennsylvania.
Senator Jake Corman (R-Centre) and other members of Senate Republican leadership have so far not publicly expressed any interest in enacting work requirements for medical assistance. If their position changes, we will let you know.
Last year the CAP PAC made its first major foray into county politics and it just paid dividends for residents of Montgomery County. In his race for Commissioner, Joe Gale ran as an unabashed conservative. Earlier this week Commissioner Gale took a vocal stand for those principles and saved his constituents $3.5 million.
Due to a law passed in 2013, Pennsylvania currently has the highest gasoline taxes in the country. That same law contained a provision allowing counties to enact a $5 registration fee for vehicles. Seeing an easy source of revenue, Gale’s Democratic colleagues were set to extract more money from Montgomery County taxpayers. That plan was derailed when Joe brought media attention to the pending vote. Unlike his Republican predecessor, who would “go along to get along”, Gale went to the public to make sure they were aware of the tax increase.
There is a great deal of similarity between what is happening in Montgomery County, and what typically happens in Harrisburg. Rather than looking at how to save money, elected officials enact a new fee or tax and take the money from their constituents. In this instance, the $5 per vehicle fee would purportedly go to “infrastructure” projects. While infrastructure is arguably one of the few legitimate services government should provide, taxpayers are not getting the most for their money.
As Commissioner Gale points out, and we have been talking about for years, infrastructure and other construction projects are subject to wage controls that force taxpayers to overpay for labor. These wage controls come in two basic types, an artificially calculated “prevailing wage” and project labor agreements (PLA’s). Both of these wage controls benefit organized labor and PLA’s also exclude nonunion contractors from the bidding process.
Eliminating prevailing wage and PLA’s would drastically decrease the cost of public projects and make tax dollars go much further. However, it is politically easier for elected officials to take more money from taxpayers than it is to take on organized labor.
We applaud Gale’s willingness to stand up for taxpayers. His actions tell us that the CAP PAC made a good investment in his candidacy.
Alex Rahn Wanner Associates And Their Clients — As the onion unpeels in Chester County answers are revealed to questions that have long puzzled those in the “my-burden-is-hard-please-don’t-add-to-it” constituency as to why with our crushing government debt incomprehensibly bizarre spending choices are made.
And this seemingly drunken spending happens just as often when Republican voters give political power to those who campaign against such things.
Republicans controlled all branches of Pennsylvania government between 2011 and 2015. Why does Planned Parenthood still get money? Where is the desperately needed pension reform? Why do rich horse owners get millions from taxpayers?
Well, as noted the answers are being revealed.
Chester County remains a Republican stronghold and most of its voters can still be said to fall into the social conservative AND fiscal conservative categories. Val DiGiorgio, the man running the county GOP, however, as noted earlier, appears to have a close relationship with those running extreme-liberal Democrat stronghold Montgomery County.
Residents of Area 1, ask yourself does Rahn’s interests lie in making you happy or his clients? It’s a fair question. Residents of Chester County, ask yourself if Val DiGiorgio is more likely to address your concerns or those of Philadelphia or Comcast? And who is more likely to have their phone call taken seriously by a legislator, you or DiGiorgio?
Now everybody, ask yourselves why the-powers-that-be always push for bonds and tax hikes to resolve fiscal problems rather than commonsense spending efficiency that might mean less income to the government-connected but more income for you?
By Sen. Scott Wagner: Chesapeake Energy Bankruptcy Predicted With Wolf Tax:
Last Friday, Dec. 4, PennLive.com published a story titled “Severance Tax ‘100 percent guaranteed’ to be in next PA budget, Wolf policy secretary says”.
I have a prediction that Governor Wolf and his policy secretary, John Hanger, might find interesting.
I consider myself to be a fairly qualified and experienced investor – I regularly go on Yahoo Finance and check out financials and news of public companies.
Here is my prediction: I predict that Chesapeake Energy (NYSE Symbol – CHK) will file for bankruptcy protection within the next 12 months.
Here is my reasoning:
#1 Natural gas prices are at historic lows – natural gas companies are not able to cover their fixed costs and cover debt payments at the current price – to simplify this – if gas is selling for $2 per gallon and your fixed costs are $3 per gallon the company is losing $1 per gallon, and as a result the company will burn through massive amounts of cash quickly – in business when you run out of cash – you have a HUGE problem.
I researched Chesapeake’s most recent financials – just in the quarter ending September 30, 2015 – their third quarter revenue was $2.893 billion – after paying ALL expenses they lost $4.695 billion – that means just in the third quarter alone Chesapeake would have burned through $1,802 billion of cash. They cannot continue at this rate. Chesapeake will run out of cash.
#2 Natural gas pricing is not going up for quite some time because the natural gas supply is far GREATER than demand – in addition, there are almost 1100 gas wells in PA that have been drilled, and are capped, and are not producing gas. Almost all of the 1100 wells do not have pipe lines in place to carry the gas to the main transmission line so there is still a lot of infrastructure that needs to be installed. This infrastructure costs money. Gas companies do not have the cash to install these pipe lines at the current low natural gas prices.
#3 Another large issue is that oil and natural gas companies routinely hedge their prices to protect for a price collapse – this is a type of insurance – typically these hedges only go out for two years. In simple terms, many of the natural gas companies had hedges in place when prices were a lot higher that paid them double or triple the current market rate for their gas supply. When prices are as low as they currently are, hedging is not an option.
#4 Chesapeake Energy had a class action lawsuit filed against them last week by Pennsylvania landowners because they are deducting from royalty payments the cost to transport the gas from the wellhead to the main transmission line.
Many landowners receive zero royalty payments after Chesapeake deducts the transport costs, and some land owners have received invoices to back bill for prior years transportation costs.
The class action lawsuit will be settled for cash that Chesapeake is running out of.
#5 If you are familiar with stock market investing there is term called margin. This term means that you can buy a stock for cash and the brokerage house will lend you money to buy more stock – this is called buying stock on margin. SEC rules do not allow a stock to be purchased on margin if it is under $5 per share. Last Thursday at the close of the New York Stock Exchange, Chesapeake stock closed under $5 per share. This means that any investor who used margin or borrowed money to purchase Chesapeake stock had a margin call which is a demand to sell the stock immediately so the loan is repaid. When a stock drops under $5 per share large investors flee. Investors will shy away from Chesapeake because their future does not look good.
This morning as I am writing this ( 10:10 a.m. Dec. 7) Chesapeake stock is trading at $4.17 per share, down almost $.40 since the open of the stock market.
Chesapeake is one of several companies in Pennsylvania that are choking financially because natural gas prices are so low – there may very well be more companies than just Chesapeake Energy that will be forced to file for bankruptcy protection.
So what is my point? It’s this: Governor Wolf ran his campaign for Governor telling everyone that he was going to get $1 billion dollars in severance taxes from the natural gas companies. With current natural gas prices a severance tax would yield $100 million dollars at best.
There is currently an impact fee – tax in place – so the severance tax would cost the gas companies more money, which they do not have.
The reality is that the gas companies will pass any taxes on to consumers – which means YOUR gas bill will go up if there is a severance tax imposed.
Don’t believe me?
Read York Daily Record’s latest article, “Columbia Gas Gets Smaller Rate Hike Than Sought” which talks about the gas company passing on the costs.
And by the way, this morning the price for a barrel of oil dropped under $40 – it is currently at $38.71 at 10:20 a.m..
Oil companies are facing the same challenges as the natural gas industry because the price of oil is at historic lows.
We all remember positively the Spirit of ’76, when Americans declared Independence! But we also need to remember the Spirit of 1791, when Pennsylvanians fought against oppressive taxation in the Whiskey Rebellion. The farmers of Western Pennsylvania who had a thriving sideline business did not welcome additional taxation and were willing to put up a fuss about it. Ultimately no shots were fired and the excise tax was ended.
As we brace to fend off an attack of new energy taxes, we’re re-living a tradition that is alive and well of trying to protect productive Pennsylvania industry and jobs.
Pennsylvania’s current tax battle is bigger and more serious than the Whiskey Rebellion, but it has certain similarities. As was the case in 1791, the fighting issue today is taxation of a thriving domestic industry — oil and gas production. Fueled by rich natural gas deposits in the Marcellus shale, energy production has been a major source of economic growth and job creation in Pennsylvania for the past 10 years. We’re now the second largest natural gas producing state in the country, second only to Texas. And the nation is now the world’s number one producer of oil and gas. The historic role of natural resources in our state is now poised to return Pennsylvania to economic greatness. But not if it is stifled with burdensome new taxes.
Oil and gas producers already pay one of the highest effective corporate taxes rates, higher than most industries. And the commonwealth’s energy tax battle of 2015 is not limited to the state. We’re facing tax attacks at both the state and federal levels.
Our new governor is intent on imposing a state severance tax on all natural gas drilled in Pennsylvania. The most obvious outcome of that tax would be to make Pennsylvania natural gas uncompetitive with neighboring states like Ohio and West Virginia. It’s true these states have severance taxes, but the total taxes paid by Pennsylvania producers is already higher than the tax bite in competing states. To reach the billion dollars the governor wants the energy tax to produce, it would hit rates far beyond those of other producing states.
As the global glut in natural gas production drives down prices, it’s hard to imagine a more counterproductive proposal than Gov. Tom Wolf’s. However, President Barack Obama’s plan for a massive tax increase on domestic oil and gas producers nationwide gives Gov. Wolf’s proposal a run for his money. The size of these tax hikes would inevitably lead to a surge in consumer energy prices.
Additionally, the president’s plan disguises his energy tax hike as “tax reform.” By that he means stripping away legitimate tax deductions from oil and gas producers while leaving them in place for all other industries. That is the quintessential opposite of tax reform.
Right now we need to stage our own version of the early Pennsylvanians’ Whiskey Rebellion and enlist our state and congressional representatives in turning back these tax attacks on an industry that means economic strength and jobs.
Earl Baker is a former state senator and Chester County commissioner.
For Pennsylvania’s unthinkers who punched button for Tom Wolf last November, be told: Our new governor wants to tax funerals.
That’s right, he wants to expand the sales tax to previously exempt items including caskets, burial vaults, services provided by funeral homes and grave stones.
This would raise the cost of the average funeral, which is $6,500, by $429.
Wasn’t Gov. Corbett’s historic gas tax enough to solve our money problems? It would have been if the goal wasn’t to create a feudal system were we serfs are expected to support lifestyles of wealth and leisure for the lords and ladies in the political class.
Has there been any talk of cutting public spending? LOL.
How about a tax on public pensions? That’s a tax we can support.
And what are corporations but entities created by a legal process? Good lawyers and accountants can minimize net income by creating marketing and administrative expenses that would other otherwise not be considered. These invariably benefit the lifestyles of those running the corporation.
So good for Wolf.
But we kind of wonder about his priorities. Pennsylvania has the highest gas tax in the nation — thank you Tom Corbett. It has an extremely burdensome property tax, which puts disproportionate pain on the elderly and unemployed, which to Wolf’s credit he says he wants to address. It also has a sales tax, which, while on the low end does not account for the reality that the most populated part of the state is a half-hour ride from tax-free Delaware.