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Republicans skeptical of Wolf's minimum wage, shale tax plan

Marc Levy, Associated Press

HARRISBURG, Pa. (AP) -- Republican state lawmakers questioned Democratic Gov. Tom Wolf's assumptions for revenue from a minimum wage increase to $12 an hour and a new tax on Marcellus Shale natural gas production on Tuesday, the first day of budget hearings.

The start of House and Senate hearings featured the state's nonpartisan Independent Fiscal Office and the Department of Revenue and kicked off three weeks of hearings in which lawmakers will scrutinize Wolf's $32.3 billion budget plan.

The plan has won praise from Republicans for its modest spending increase and efforts to save money. But the Republicans also have criticized its reliance on $1 billion in tax increases to help fill Pennsylvania's stubborn post-recession deficit.

Wolf has vowed to balance the budget without resorting to certain measures approved in recent years by Republican lawmakers, including cutting benefits to the poor or vulnerable, cutting aid to public schools or postponing large payments owed to counties, insurers and school districts.

During several hours of budget hearings in both chambers Tuesday, Republicans sounded skeptical that Wolf's proposed minimum wage increase to $12 an hour would bring in an extra $95 million a year in income taxes and that a Marcellus Shale tax would yield nearly $300 million.

Wolf's Marcellus Shale tax projections were based on expectations prices will be $2.50 per 1,000 cubic feet this year. Spot prices at major Marcellus Shale-area hubs were around $2.50 last week, according to the most recent federal data, although Rep. Jeff Pyle, R-Armstrong, said the wellhead price was $1.18 per 1,000 cubic feet, or MCF, for drillers in his area.

"I know quite a few drillers back home that would love to see an MCF more than double over the next two to three years, but they're not terribly optimistic that's going to happen," Pyle said.

The Marcellus Shale Coalition, an industry trade group, said it expected the price at major Marcellus Shale wellheads will decline in the coming weeks or months.

Wolf's 6.5 percent severance tax proposal would not allow companies to deduct post-production costs, other than a drilling impact fee the state imposes. That would make it the only state severance tax law in the nation not to allow such deductions, said Matthew Knittel, the director of the Independent Fiscal Office.

For nearly a decade, Republican lawmakers have fought off Democrats' efforts to impose a severance tax on the booming Marcellus Shale industry, the nation's most prolific natural gas reservoir. That makes Pennsylvania the only major gas-producing state not to tax the product. In 2012, lawmakers instead imposed the drilling fee on Marcellus Shale wells, much of which benefits drilling communities.

The Independent Fiscal Office estimated the impact fee would yield $175 million from last year for an effective tax rate of 5 percent, after companies deduct more than half the sale price for post-production costs.

On the question of the minimum wage, Pyle said a minimum wage increase would not necessarily "magically" deposit money in people's pockets without also harming tax collections on corporate profits.

Wolf is proposing hiking the hourly minimum from $7.25 to $12, which would make it the nation's highest. A 2015 analysis by the Independent Fiscal Office concluded that a minimum wage increase to $10.10 an hour would boost economic activity and the state's tax collections.

However, Knittel said it's difficult to pin down a figure because it's difficult to know where the extra income is coming from: corporate profits or higher prices for goods and services.