Testimony before the
HOUSE DEMOCRATIC POLICY COMMITTEE
June 2, 2017
Abington School District Administration Building
970 Highland Avenue
DAVID N. TAYLOR
Pennsylvania Manufacturers’ Association
Thank you, Chairman Sturla and members of the committee for allowing me to join you today. Special thanks to Representative Dean for hosting us here in Abington. I appreciate being included in this important discussion.
I’m David N. Taylor, President of the Pennsylvania Manufacturers’ Association, the century-old Harrisburg-based statewide trade organization representing the people who make things here in the commonwealth. Manufacturing is the engine that drives Pennsylvania’s economy, adding over $82 billion in gross state product each year, directly employing more than a half-million Pennsylvanians on the plant floor, and sustaining millions of additional Pennsylvania jobs through supply chains, distribution networks, and vendors of industrial services. Those high-value, family-sustaining manufacturing jobs have above average wages and benefits, which is why Pennsylvania’s decision-makers should keep in mind the effect policy changes would have on this sector of our economy.
No matter what product is being made, manufacturers are taking raw materials or component parts and going through a multi-state process to yield a finished good. In doing so, they are almost always deploying some kind of chemical process and consuming a large amount of energy. For some manufacturers, energy is their most expensive cost input, which is why manufacturers require available, affordable, and reliable energy.
Additionally, the natural gas byproducts of ethane, butane, propane, and natural gasoline are themselves manufacturing inputs that can yield a very wide spectrum of consumer goods. Attached to your copies of this testimony you will find an infographic on the value chain of ethylene, which is what will be produced by the Shell plant in Beaver County using ethane.
In short, there is an enormous opportunity in front of us if we choose to adopt a pro-production, pro-development agenda in Harrisburg.
But right now I want to focus on the things I think we agree on:
- We all want more money for state government to meet public needs.
- We all want an improved educational experience for our students and young people.
- We all want more and better jobs for our workers, with rising wages and greater earning power.
- We all want a growing population for Pennsylvania and to keep our young people here.
- We all want more affordable energy for consumers, especially poorer citizens whose power bills use up a larger percentage of their income.
- We all want energy independence for the United States and for the U.S. to have more leverage against Vladimir Putin and other foreign powers that work against our national interests, our allies, and our shared values of individual liberty and representative self-government.
The good news is we have a way to make significant progress toward those goals together.
Mr. Chairman, I know you remember our friend Pete DeCoursey, God rest his soul. Pete once said of me, “Dave Taylor doesn’t want his manufacturing members to pay another ten dollars in business taxes.” To which I responded that I would be GRATEFUL for my members to pay additional BILLIONS in taxes IF AND ONLY IF that represented increased profitability on the same scale.
I do not envy you legislators the difficult task of balancing the state budget under current conditions, where you repeatedly face the choice between raising taxes or cutting spending.
I would suggest the way forward is broad-based, sustained economic expansion that brings in higher revenues to the Commonwealth. When more people are working, when businesses are more profitable, when new businesses are coming into existence – all of those positive actions yield increased revenues from existing taxes at their current rates.
So the question then becomes, How do we achieve that? Which brings us to the subject of today’s hearing.
When it comes to competitiveness, the total cost of doing business is the key factor, not whether a state has one particular kind of tax.
While Pennsylvania does not have a severance tax, we do have an impact fee. In other states with a severance tax, it is applied to natural gas, coal, oil, aggregates, ores, timber, and any other resource taken from the earth. Also, states with a severance tax almost always have an abatement period, an initial time during which the tax is not collected so the producer can recoup capital expenses.
I would argue that the impact fee is superior to a severance tax because it is owed as soon as a well is drilled, not until after production begins, an abatement period has concluded, and sales have commenced. Pennsylvania’s impact fee has distributed over a billion dollars to communities across the commonwealth.
But as I mentioned, the more important question is the total cost of doing business. While Texas has a severance tax, Texas has no corporate net income tax and no personal income tax. Texas also has in place a vast modern network of pipelines, an expedited permitting process, meaningful limits on lawsuit abuse, and other pro-growth, pro-production policies.
Pennsylvania’s manufacturers need energy to power our facilities. Pennsylvania’s manufacturers want Marcellus Shale feedstocks of ethane, butane, propane, and natural gasoline for petrochemical manufacturing. We have these resources in Pennsylvania but because of an outmoded pipeline system that is pointed toward the Gulf of Mexico, we can’t get the volumes we need from one part of Pennsylvania to another.
Just back in December, Braskem USA chose Texas over southeastern Pennsylvania for a $500 million capital investment because of a lack of pipeline capacity to access those natural gas byproducts AND a lack of confidence in DEP’s willingness to approve a new pipeline within a reasonable time period. We missed out not only on a half-billion dollars of production capacity but all of the economic dynamism that would have come from it in the years ahead. In fact, new capital investment in American energy production is proceeding at a very rapid rate, with tens of billions of dollars going in to the Gulf Coast states. But that investment is not coming to Pennsylvania at anything approaching that rate, which brings me to my next point.
Sometime last year, I was on a PCN call-in show and one caller said of Pennsylvania’s natural gas, (I’m paraphrasing) “It’s here, the energy companies have to come here to get it, and I don’t care when it comes out of the ground.” To which I responded that I did care when it came out of the ground because I would prefer that it would happen in my lifetime. Because until humans bring it up out of the earth, it has no utility to us. By harvesting that resource, we create wealth. We create opportunity for further creation of wealth by deploying it for electricity, home heating, and power for factories.
At PMA, we are not shy about what we want: we want every last rivet of infrastructure, every last BTU of energy, and every dollar of investment and economic growth for this industry here in Pennsylvania. Because if we can maximize domestic energy production and connect it to our industrial, commercial, and residential consumers, it can be Pennsylvania jobs all the way down. Jobs on the well-pad, jobs at the steel mills making the plate that goes to the pipe-making facility to be made into pipeline, jobs for the operating engineers and steamfitters and boilermakers who assemble and service those pipelines, jobs at the manufacturing plants, jobs at the refineries, even potentially jobs at the shipyard making the vessels that would carry Pennsylvania energy products and manufactured goods to new markets overseas.
I mentioned Vladimir Putin earlier, who I think we can all agree is a KGB thug, oligarch, and would-be Tsar who murders his opponents, snuffs out free speech and independent media, and has dangerously interfered in America’s political processes. Putin’s regime runs on the foreign capital brought in from energy commodities, particularly natural gas. The Russian state utility GAZPROM gives Putin disproportionate influence in central and western Europe because of the dependence those nations have on Russian energy. If Putin is unhappy, he can turn off the spigot and let them freeze in the dark.
By selling American liquefied natural gas (LNG) to Europe, we can de-fund Putin AND loosen his political grip on those nations. Air Products in Allentown is a global leader in LNG and has a manufacturing plant in Wilkes-Barre that makes the gear used in liquefication. Or I should say it DID because the news came just this week that the Wilkes-Barre plant is going to be closed.
Imagine if state policymakers had committed to a pro-production energy agenda starting in 2008 when the Marcellus Shale was discovered, accelerating permits for pipelines, building an inventory of available sites for development, focusing on an energy hub on the Delaware River to include LNG. But we haven’t done that. We didn’t do that. And as we saw with Braskem and we now see with the Luzerne County plant, the opportunity for truly dynamic, transformational growth may be slipping away.
If we want to bring manufacturing jobs back from China, Pennsylvania needs to bring to bear the maximum advantage of domestic energy and petrochemical manufacturing inputs. That’s why obsessing about a new, additional tax on energy production is so self-defeating. New businesses, higher earnings, new jobs, and rising wages will bring in the money state government needs at existing rates IF we optimize policy for economic growth and prove to investors that we want them to come here.
If the goal is to suppress or prevent the growth of the energy industry, then demanding higher taxes now is a good way to do that. If the goal is to balance the state budget, fund our schools, lower heating bills, and provide more and better jobs for the working people of Pennsylvania, then we need to have a different conversation.
Please know that the business community wants to be part of that conversation with you. As I said at the outset, I believe we share many – even most – of the same goals. Pennsylvania is my home, the land of my ancestors going back to before the Revolution. A hundred years ago, Pennsylvania coal, steel, and rail ruled the world. Energy production is our chance to bring that back.
Thank you for listening, and I will do my best to answer your questions.