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Refinery Tax Credit to Get Lawmakers' Scrutiny

Wed, 06/20/2012 - 5:57am
MARC LEVY,Associated Press

HARRISBURG, Pa. (AP) — Gov. Tom Corbett's proposed tax break of up to $1.7 billion to lure an integrated petrochemical industry to Pennsylvania will get scrutiny in the coming days by state lawmakers eager to ensure that taxpayers get a return on their money and question whether that amount of money is really necessary.

Corbett, a Republican viewed as an ally of the state's booming natural gas industry, has touted the tax credit as essential to establishing the largest new investment in decades in a state that has been wracked by the loss of major manufacturers.

Details of the tax credit started to become public in recent days as Corbett began to press the Republican-controlled Legislature to approve it before the end of June. With less than two weeks until they leave Harrisburg for the summer, lawmakers are still trying to get a better grasp on the details of what would be the state's biggest financial incentive package ever.

They are uneasy over the appearance of a giveaway to the industry — Corbett is proposing a second straight year of cuts in aid to education and the poor — and some suggest that they'll want to look closely at tying the tax credit to the number of people hired.

"The House Republicans have thoughts, we have thoughts, the governor's office has thoughts," Senate President Pro Tempore Joe Scarnati, R-Jefferson, said Tuesday. "So this is quite a process to put out a product that is defendable and yet does what it needs to do. It's quite a process we're going through."

Asked Monday how many jobs he thought would need to result from such a tax credit, House Speaker Sam Smith said, "A lot."

"I haven't put a number on it," Smith, R-Jefferson, said after being pressed for a number. "I haven't gone that far."

The tax credit is part of Pennsylvania's taxpayer-paid incentives package to encourage a subsidiary of Netherlands-based oil and gas giant Royal Dutch Shell PLC to build a multibillion-dollar petrochemical refinery at a site in southwestern Pennsylvania, and to try to get a chemical manufacturing industry to come with it.

Shell's so-called ethane cracker would convert natural gas liquids from the bountiful Marcellus Shale formation to ethylene, which chemical manufacturers can then use to produce chemicals that go into everything from plastics to tires to antifreeze.

Shell views the tax credit as a way to help ensure that ethane is abundant and affordable for the life of the refinery, which it says could extend for three or more decades. The worry is that natural gas producers would be more inclined to pipe the ethane from the Marcellus Shale field to Gulf Coast refineries, Shell said in a June 12 letter to lawmakers.

The proposed tax credit — a maximum of $66 million a year for 25 years beginning in 2017 — is calibrated at that level to be offset by new tax collections the industry would generate from the economic activity and jobs it adds to the state, a top administration official said Tuesday.

At a nickel per gallon of ethane purchased and used in manufacturing ethylene in Pennsylvania, the tax credit would be proportional to the industry's activity and the resulting collections of new taxes on things like sales and income, said state Revenue Secretary Daniel Meuser.

The site of the Shell plant, in Monaca, also would be located in a tax-free zone created for it, although Corbett administration officials won't say what they believe the value of that would be to Shell.

Meuser said he believes 17,000 jobs will result from a full-fledged manufacturing industry around the Shell refinery.

Shell has estimated that the core plant could employ more than 400 people. In addition to that, the American Chemistry Council estimated last year that a manufacturing industry around the plant could employ an additional 2,400 people, plus 8,200 more indirectly through the ongoing purchase of supplies and raw materials and 7,000 supported by the spending from the pockets of the state's new employees.

The state Department of Labor and Industry is working on its own analysis of the job numbers.

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