The West Virginia House of Delegates on Tuesday passed two bills that would provide tax cuts to the natural gas industry in an effort to boost petrochemical and plastics manufacturing.
House Bill 4421 the “Natural Gas Liquids Economic Development Act” would provide tax credits to companies that transport or store natural gas liquids. These by-products of natural gas drilling include propane and ethane, which are feedstocks for chemical and plastics production.
Del. Bill Anderson, a R-Wood County, speaking on HB 4421, said the measure would promote natural gas storage and pipelines in an effort to boost development of downstream manufacturing in the state.
“We must develop manufacturing of these liquids in this state,” he said. “Our alternative is simply this: Are we going to put them in a pipeline and send them to the Gulf Coast and create jobs there? Or are we going to encourage development in this state, a natural gas storage hub?”
State officials, including Gov. Jim Justice, have pushed for the development of a petrochemical industry in West Virginia. In late January, Justice told natural gas producers, currently facing record low prices, he would do “anything” to help the state’s struggling oil and natural gas industry.
Last fall, Justice signed an executive order creating a task force aimed at bringing petrochemical manufacturers to the state.
Some lawmakers worried the proposed tax cuts could shoot a hole in the state’s already precarious budget. The Legislature at the time was debating other measures that could radically change the state’s tax code.
“This is basically just eliminating the property tax that these transporters carry to and from now,” said Del. Isaac Sponaugle, a D-Pendleton County, who spoke in opposition of the bill. He noted cracker plants are multi-billion dollar investments. Shell’s cracker plant in Monaca, Pennsylvania that is currently under construction cost $6 billion, for example.
“These things cost $200, $300, $400 million a year and we’re giving away something for $1 million,” he said. “That’s not going to drive the needle one way or another whether we’re going to get those investments, but that $1 million is gone and you’re wasting it.”
The fiscal note attached to HB 4421 finds the state could lose up to $500,000 in revenue in fiscal year 2022, but if and as the storage and transportation sectors grow, “local property taxes on associated machinery and inventory will likely increase significantly with revenue gains to local governments along with the potential loss in State General revenue associated with the tax credits for local taxes paid.”
Del. Mick Bates, a D-Raleigh County, argued on the floor that the bill would create a tax credit for business expenses that are already deductible, “which is pretty neat if you’re in this industry.” He went on to say other industries, from coal mining to pizza making, don’t get the same opportunity.
HB 4421 passed 85 in favor, 14 against and 1 member not voting.
The lower chamber Tuesday also passed House Bill 4019 the “Downstream Natural Gas Manufacturing Investment Tax Credit Act of 2020.” It seeks to encourage investment in downstream natural gas manufacturing, such as the building of ethane cracker plants, by giving businesses up to an 80 percent tax credit on personal or corporate net income taxes for new investment that creates jobs.
The fiscal note for HB 4019 states the bill would not impact revenue collections currently because the bill would only impact new investment.
Del. Bates argued the future financial implications of creating such a tax cut remained unknown.
“There's really no way to know [if] this is going to be $1 million, or $10 million or $10 billion” he said.
Sean O’Leary, a senior policy analyst with the left-leaning West Virginia Center on Budget and Policy said it isn’t likely either of the proposed tax credits would be the deciding factors in luring especially large manufacturing facilities.
“The availability of the natural gas is the biggest factor, and we have it. Other factors, like site availability, access to infrastructure, and labor costs all are a bigger factor,” he said in an email. “These types of credits tend to reward businesses for doing something they were already going to do.”
Environmental groups oppose expanding West Virginia's petrochemical industry citing air pollution, climate change and public health fears.
HB 4019 passed 87 in favor, 12 against with 1 member not voting.
Both bills now head to the Senate for consideration.
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