State Net Capitol Journal – September 16, 2013; Budget & Taxes: Fracking Fizzles In Pennsylvania

State Net Capitol Journal – September 16, 2013; Budget & Taxes: Fracking Fizzles In Pennsylvania

Budget & Taxes

FRACKING FIZZLES IN PA: A little over two years ago Pennsylvania Gov. Tom Corbett (R) famously pledged to make his state "the Texas of the natural-gas boom." But that boom, fueled by the extraction of natural gas from shale, or fracking, has gone bust.

In 2010, the year Corbett was elected, Pennsylvania had about 110 active fracking locations mostly on its Marcellus Shale formation, according to oilfield services company Baker Hughes. The company says the state now has just 50 fracking wells. And the state's energy production job market has gone flat. Mark Price, an economist at the Keystone Research Center, said employment in the Marcellus Shale, which increased by 10,000 jobs in 2011, grew by only 1,000 jobs last year.

The end of Pennsylvania's energy boom is largely a product of fracking's success. All the fracking in the state and elsewhere placed so much natural gas on the open market that the price plummeted to a 10-year low of $2 per million Btu last year before rebounding to its current level of $3.30.

"The market collapsed — it's a classic case of supply and demand," said Dave Yoxtheimer, a hydrogeologist with the Penn State Marcellus Center for Outreach and Research.

He also said the bulk of new drilling is targeting oil instead of natural gas and being done in places like North Dakota's thriving Bakken field rather than Pennsylvania.

The fracking bust not only has major economic implications for Pennsylvania but also potential political ones for Corbett who is up for re-election next year. (ASSOCIATED PRESS, PHILADELPHIA INQUIRER)

HI STRUGGLES TO LURE CONFERENCE BOOKINGS: Few states have as successful a tourism industry as Hawaii; it's a $14 billion-a-year industry there. Yet that success has made it very difficult for the state to establish itself as a venue of choice for conferences involving public officials because of the potential for such events to be viewed back home as taxpayer funded junkets.

Cedric Cook, former chairman of Detroit's public pension fund, learned that the hard way. He said he lost his IT job with the city last month — and presumably his seat on the retirement board as well — in part because he and three other trustees of the city's $650-million underfunded pension system spent $22,000 on a six-day conference for public pension fund officials at a beach resort in Honolulu in May.

Hawaii Gov. Neil Abercrombie (D) considers the view that his state is only a tourist destination "patently unfair."

"Hawaii's beautiful scenery and weather may blind some to the fact that we are home to a thriving, sophisticated and contemporary government and business community," he said at the very conference Cook attended.

But the comments of John J. Pitney Jr., a professor of American politics at Claremont-McKenna College, typify the resistance to the idea of lawmakers holding conferences in the Aloha State.

"Are legislators really going there to sweat the fine points of public policy?" he asked. "It's hard to think that they are saying to themselves, 'I'm heading to Hawaii so I can get some real work done!' If the point were to focus the lawmakers on serious policy deliberation, these events would occur in places such as Rancho Cucamonga [California], where there aren't quite as many distractions."

But public criticism hasn't stopped some California lawmakers from accepting trips to Hawaii each year from interest groups seeking their support for legislation. Seventeen senators and representatives did so last fall, receiving as much as $2,800 in accommodations at the oceanfront Kea Lani resort on Maui. (STATELINE, DETROIT NEWS, STATE NET)

CA CITY ADOPTS PLAN TO SEIZE 'UNDERWATER' MORTGAGES: Last week, the city council of Richmond in California's San Francisco Bay area voted 4 to 3 to adopt a plan crafted by Mortgage Resolution Partners that will allow the city to acquire mortgages with negative equity in an effort to revive the city's struggling housing market. The city will now be able to use eminent domain to seize mortgages for more than 620 delinquent and "underwater" properties if their loan holders refuse to sell them to the city at the properties' current appraised values, allowing the city to refinance them and reduce their principal.

Richmond is the first city in the nation to approve such a plan. MRP failed to get other local governments — including San Bernardino County in Southern California and North Las Vegas, Nevada — to approve similar plans due to resistance from the mortgage industry and local real estate businesses. But in Richmond, MRP's effort was aided by the city's poor economic condition and its Wall Street-bashing Green Party Mayor Gayle McLaughlin.

Richmond's residents have been "badly harmed by this housing crisis," McLaughlin said at a contentious city council meeting last week. "Too many have already lost their homes."

Opponents countered that invoking eminent domain could put Richmond at risk of expensive lawsuits.

"A 1 percent chance of bankruptcy from this program is a deal-breaker for me," said Councilman Jim Rogers.

Others warned the plan could prompt a clampdown on mortgage lending or push up mortgage interest rates in the city of about 104,000 residents. The Federal Housing Finance Agency recently said it would press Fannie Mae and Freddie Mac to limit or stop doing business in locations where such plans are approved.

Meanwhile, investors holding many of the mortgages targeted by Richmond's plan have sued to block it in U.S. District Court, saying it requires them to swallow losses. (REUTERS)

BUDGETS IN BRIEF: The NEW JERSEY Assembly has agreed to the changes Gov. Chris Christie (R) recommended in his conditional veto of the New Jersey Economic Opportunity Act of 2013 (AB 3680), sending the sweeping overhaul of the state's main tax incentive programs to the Senate. Among other things, the governor wanted language stricken from the bill requiring businesses that receive credits to pay prevailing wages for construction and maintenance workers (WALL STREET JOURNAL, STATE NET). • CALIFORNIA Gov. Jerry Brown (D) has endorsed a bill that would raise the state's minimum wage to $10 an hour by January 2016. The governor and labor leaders said the increase is needed, given that the last one, which raised the minimum wage 50 cents to $8 an hour, came five years ago (LOS ANGELES TIMES).

- Compiled by KOREY CLARK

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