UPDATE 1-Penn. gov. plans new oil profits tax to fund transport
(Adds Exxon Mobil comments in paragraphs 7-8)
By Jon Hurdle
HARRISBURG, Pa., Feb 6 (Reuters) - Pennsylvania Gov. Ed Rendell on Tuesday proposed filling a transportation funding gap by imposing a new tax on oil companies and privatizing the state's toll road system, as part of his $27.3 billion general fund budget plan for fiscal 2007-08.
In his annual budget address, Rendell attacked the excess profits of oil companies which he said have risen to $368 billion over the last four years.
He singled out Exxon Mobil (XOM.N), whose 2006 profit of $39.5 billion was almost 50 percent higher than the entire Pennsylvania state budget.
To provide $760 million a year for public transit systems, Rendell proposed a 6.17 percent gross profits tax that would apply to any oil company businesses that operate in the state.
The new tax would be a third lower than the current corporate net income tax, which the state currently levies on oil companies. The current tax raises only $71 million a year in revenue because of what Rendell called a "sophisticated shell game" by the companies.
State Transportation Secretary Allen Biehler said he believed the proposed tax would be unique among U.S. states.
Gantt Walton, a spokesman for Exxon Mobil, said windfall profit taxes drive up gasoline prices, deter investment, and increase imports. "They are bad for the consumer, and reduce domestic supply," he said in response to the Pennsylvania plan.
He said it was too early to say how the company will act on the proposal or how it would react to Pennsylvania's threat of legal action against any company that raises prices in response to the tax.
Representatives for ConocoPhillips (COP.N) and Chevron Corp. (CVX.N) were not immediately available to comment.
"Instead of asking our citizens to pay yet again to fund our transportation needs, it is time for the oil companies to finally pay their fair share of the transportation burden in Pennsylvania," said the Democratic governor, who is beginning his second term.
REPUBLICANS SKEPTICAL
Rep. Sam Smith, leader of the minority Republicans in the state House, said he was skeptical that any tax increase imposed on oil companies would not just be passed on to drivers.
"I will be very interested to see how the governor is going to enact that without it being passed on to consumers," he told reporters.
Rendell said the attorney general will be given the power to prosecute any oil company found to be charging higher prices as a result of the tax.
To fund $965 million a year to fix Pennsylvania's ailing roads and bridges, Rendell said officials have been considering selling the 514-mile Pennsylvania Turnpike system of toll roads to private bidders.
The state has received almost 50 responses from companies that value the turnpike at an average of $10 billion to $12 billion, Rendell said. If it adopts the plan, the state would invest the proceeds, providing annual income to perform urgently needed road and bridge repairs.
Rendell told lawmakers he will submit legislation containing proposals for future turnpike management, to protect its value as a public asset and to maximize its value. Chicago and Indiana have already privatized some roads, he noted.
Overall, Rendell's $27.3 billion general fund budget proposal is 3.6 percent larger than the prior year, with increases in spending on education, welfare and corrections with cuts in other areas.
Including federal funding of $17.5 billion and other sources of revenue, Pennsylvania's total operating budget for the fiscal year beginning July 1 is $59.1 billion.
Rendell attacked reductions in federal funding which he said cost the state at least $700 million in the new budget and have amounted to over $2 billion in additional costs to the state since 2003.
"This is an extraordinarily heavy load for us to bear, and it is the direct result of decisions made in Washington which is trying to balance the federal budget ... by foisting on the state the difficult choice between cutting services to citizens or raising state revenues, while at the same time taking credit for cutting federal taxes," Rendell said.
As expected, the budget included a proposed increase in the state sales tax to 7 percent from 6 percent to allow $900 million in property tax cuts to take effect this summer. The revenue will be added to that from 11 new slots casinos being built around the state but which are not expected to be complete until the end of 2008.
On healthcare, a plan to cover the uninsured and cut medical costs, first announced in January, would cost $255.3 million in state and federal funds. The program, following similar plans in Massachusetts and California, aims to cover 767,000 adults who currently have no health insurance.
