Notes on the state of things

Notes on the state of things

It appears a few media players finally are catching up to the Allegheny Institute in reporting that it’s a bad, bad (did we say bad?) idea to implement a severance tax on Pennsylvania’s shale gas industry.

We’ve been arguing for years that slapping another tax on the industry – it long has paid an “impact fee” – could lead to taxing it into oblivion.

And now, with shale gas prices depressed and not expected to rebound anytime soon (because of a glut of supply) and shale gas companies deeply retrenching, the severance tax (some call it an “extraction tax”) clearly would be nonsense.

As both the Pittsburgh City Paper and the Pennsylvania Capital-Star have noted in recent reporting and commentary, another tax on the industry now would be, in effect, brainless.

As John Micek, editor in chief of the Cap-Star, succinctly noted this week, the downturn “is reinforcement for the arguments that severance tax opponents have been making for a decade-plus.”

“Namely, that the industry is butterfly-wing fragile and that an extraction levy would almost certainly be a job-killer when gas prices are already at remarkable lows.”

Game. Set. Match.

Of course, this does not necessarily mean that Gov. Tom Wolf won’t yet again seek a severance tax when he delivers his budget address next month.

For as Micek also writes:

“The shale tax is Wolf’s white whale.” And Micek says he’d “be willing to bet dimes to doughnuts that (Wolf will) put in another plug for his legacy-burnishing $450 million infrastructure program, Restore PA.”

That program, if adopted — and that seems far-fetched — would use shale tax proceeds, in part, to pay off bonds for all that infrastructure work.

Sadly, brainlessness in public policy knows no bounds.

Speaking of public policy brainlessness, a Pittsburgh City Council program supposedly designed to promote more competition for city contracts with less bureaucratic red tape would come at an unacceptable cost – a loss of oversight and transparency.

As the Post-Gazette notes, “Previously, city departments had to issue requests for proposals (RFPs) or qualifications if paying professional contractors $30,000 or more. The department could choose someone other than the low bidder but (City) Council had to approve the choice.”

But under the new plan, adopted last month, “about 70 firms would be prequalified to bid on some 34 categories of work,” the P-G continues. “The firms would not have to go through a full-blown request-for-proposal process to bid on projects and city departments could accept a bid without having to get (the council’s) approval.

“Those contracts could be for as much as $750,000; small firms would be capped at $750,000 a year while large firms could get as much as $2.5 million.”

Holy smokes! That’s one whale of a lot of money for bypassing traditional RFPs and City Council approval.

As the P-G further editorialized:

“Opening the process to more competition and cutting away at government bureaucracy are laudable goals but not at the expense of transparency in how tax dollars are spent. This change unwisely removes council oversight.”

Great Austrian school economist F.A. Hayek once noted how “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

As with economics, as with governance.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).