GOVERNOR'S VETO

Pursuant to Article V, § 6 of the Constitution of Virginia, I veto Senate Bill 1387 because it will increase gas severance taxes at a time when local revenues from gas severance taxes are doubling without a tax increase, and because this tax increase will be passed to consumers in the form of higher heating bills at a time when many citizens are struggling to pay their home heating bills.

Senate Bill 1387 would increase the severance tax on Virginia-produced natural gas from 3 percent to 4 percent -- a 33 percent tax increase. This tax increase is not necessary because local revenues from gas production taxes are expected to double -- from $5.7 million last year to $12 million this year -- without a tax increase. Thus, the additional revenues the affected localities say they need already have materialized, and they can address their local needs without raising taxes. Additionally, the tax on coal production is only 2 percent, so it would be unfair to discriminate against gas producers with a 4 percent tax.

This tax increase would be passed on to consumers in the form of higher heating bills. Heating bills doubled this year for many consumers in Virginia, including many frail elderly citizens on fixed incomes. With gas prices at an all-time high due to low supplies, and with tax revenues already at an all-time high, now is not the time to punish poor senior citizens and other consumers with higher heating costs.

If anything, Virginia should lower gas taxes to remain competitive in gas production. Pennsylvania has no gas severance tax. West Virginia recently enacted a five-year tax holiday for new methane wells to encourage more production. Tennessee imposes a 3 percent tax, and Kentucky is considering reduction or elimination of its 4.5 percent gas severance tax. Given higher consumer demand for natural gas and a low supply, Virginia should make itself more attractive for the capital investment to drill new wells, not less. Indeed, a 33 percent tax increase could force some small Virginia producers out of business because they tend to rely upon long-term, fixed-price contracts as collateral for loans and lines of credit and they cannot pass higher tax costs to their customers.

Finally, while the stated purpose of this tax increase is clean water, that goal can be accomplished with the windfalls already being realized through higher tax collections on gas production. In any event, it may be unfair to raise taxes on the gas production industry when, according to objective studies by Virginia Tech and the Department of Mines, Minerals and Energy, gas production activities have not been responsible for water pollution in Virginia.

Therefore, I am returning Senate Bill 1387 without my signature.