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Petrochemical Tax Break Vetoed by Gov. Wolf

Petrochemical companies with Pennsylvania in their sights may be reconsidering their development plans. This comes after Governor Tom Wolf vetoed legislation that would provide a significant financial incentive for developing and doing business in the Commonwealth.

House Bill 1100 would have instituted a tax break for petrochemical companies who build new facilities within the state. HB 1100 is preceded by Act 85, the tax break awarded to Royal Dutch Shell in exchange for the development of the ethane cracker plant in Beaver County. Though materially different, both Act 85 and HB 1100 had similar requirements for companies wishing to do business in exchange for the breaks.

HB 1100 would require an investment of no less than $450 million into the development; the guaranteed creation of no less than 800 construction and permanent jobs, with construction workers being paid the state’s prevailing wage; and, “good faith efforts” on the part of the developer to hire local laborers and contractors. In exchange, the company would receive a 47-cent tax credit per 1,000 cubic feet of natural gas purchased for use, up to 20 percent of their annual tax liability

HB 1100 was passed by both of Pennsylvania’s Republican-controlled legislative chambers but was denied by Gov. Wolf by veto. It was not unexpected that Gov. Wolf vetoed the bill, as he has been outspoken in his intention to do just that.

In a letter regarding his veto, Gov. Wolf expressed that it was not a matter of the industry that the legislation targets, stating that “the petrochemical and natural gas industries play an important part in Pennsylvania’s energy-efficient and energy-sustainable future,” and that he is “fully supportive” of the industry in the state. The governor, instead, takes issue with the compliance mechanisms, or lack thereof, for enforcing that the laborers constructing the facility would, in fact, be paid a prevailing wage. The governor consistently mentioned the current COVID-19 crisis, stating that in lieu of such legislation that would benefit the petrochemical industry, the state needs to “work together in a bipartisan manner to promote job creation… for the benefit of Pennsylvanians who are hurting… [from] the economic fallout of COVID-19”.

There is the possibility that the legislature could override the governor’s veto, which would require a two-thirds roll call vote in both chambers. It was written by Republican legislators and passed in both chambers by veto-proof margins. Given the current focus on the COVID-19 pandemic, and the financial pressures buffeting the oil and gas industry, the legislation could be put on hold until the economic fallout is known, or it could be overridden as an avenue to stimulate economic development when it is badly needed.

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