(The following article by Larry King and Amy Worden was posted on the Philadelphia Inquirer website on February 7.)
PHILADELPHIA — Gov. Rendell’s plans for fixing the state’s transportation-funding crisis – by leasing the Pennsylvania Turnpike and taxing oil-company profits – are a sweeping bow to political reality.
There is simply no stomach in Harrisburg for repairing roads, bridges and transit budgets by directly taxing the public.
And even if Rendell’s innovative plan to sock the oil companies on behalf of mass transit is successful, the immediate future for SEPTA looks grim.
SEPTA faces a $120 million to $140 million operating shortfall in the fiscal year beginning July 1. Rendell’s proposal, even if approved, would not kick in until March 2008, again raising the specter of huge fare increases and service cuts.
“We still have a big problem,” said Joe Casey, SEPTA’s chief financial officer. “I don’t know what the governor’s plan is for the coming fiscal year, but that is a concern.”
SEPTA officials have warned that riders could be looking at fare hikes exceeding 40 percent and draconian service cuts unless the state comes through with more cash by summer.
“It’s a great incentive to work that much faster with the General Assembly” for a solution, said state Transportation Secretary Allen D. Biehler.
A Rendell-appointed commission reported in November that an annual $1.7 billion over current funding is needed to stabilize and improve Pennsylvania’s transportation network. Of that total, about $965 million is for roads and bridges, while mass transit needs a $760 million infusion.
Rendell has not quarreled with those conclusions. But he did reject most of the commission’s suggestions for raising the money, such as a 13.5-cent hike in the gas tax and increasing the transfer tax imposed on real-estate sales.
“It would make our gas tax… the highest in the nation,” Rendell said. “This would clearly be unacceptable.”
Instead, Rendell vowed to press on with plans to lease the turnpike and use the interest to pay for roads and bridges.
Proposals from nearly 50 interested parties – with bids averaging between $10 billion to $12 billion – have been received.
Even more unusual is Rendell’s plan to tax oil companies for the benefit of mass transit.
“For the first time, we propose to tax those who make gasoline, rather than those who buy it,” he said.
Currently, Pennsylvania collects a 9.9 percent corporate net-income tax on oil-company profits. All but seven companies avoid paying it by shifting their profits to other, out-of-state endeavors, said Steve Kniley, spokesman for the state Department of Revenue.
“It is nothing more than a sophisticated shell game,” the governor said.
Rendell proposed a new, 6.17 percent tax based on combined profits companywide, and then prorated on the percentage of business done in Pennsylvania.
State transportation officials, as well as oil company representatives, said they knew of no other state with such a tax.
And Big Oil was not pleased.
Exxon Mobil Corp., which took a drubbing in Rendell’s speech, has paid $60 billion in domestic taxes in the last five years, exceeding its earnings by $20 billion, company spokesman Gantt Walton said.
“We pay a lot of taxes,” Walton said. “This notion that oil companies are not taxed at a high rate is just not true.”
Legislative leaders were generally supportive of Rendell’s transportation initiative, if noncommittal on the specifics.
Senate majority leader Dominic E. Pileggi (R., Chester) said he would explore the oil-company tax if it can be done “without the tax showing up at the pump.”
But Senate minority leader Robert J. Mellow (D., Lackawanna) dismissed it as “a tax-shifting. The oil companies will pass the cost on to the public.”
Rendell said his proposed legislation would enable the state attorney general to ensure that the increased taxes are not passed on to customers at the gas pump. A spokesman for Attorney General Tom Corbett declined to comment on how that might be done.
Rep. Joseph F. Markosek (D., Allegheny), chairman of the House Transportation Committee, said Rendell’s address was the first time he had heard of the oil-company tax plan. He questioned the wisdom of leasing the turnpike before exploring less drastic options.
“Things sound good at first glance, but sometimes they don’t turn out that well,” Markosek said. “All of these things are subject to being discussed. We could have a quilt-work of solutions before this is finished.”