Thursday, August 6, 2009

Pennsylvania HB 1489 fair for gas industry, landowners – and taxpayers

State Rep. Camille “Bud” George, D-Clearfield County, is majority chairman
of the state House’s Environmental Resources and Energy Committee.

Published: August 05, 2009 02:02 pm in the Tribune Democrat, Johnstown

The gas industry didn’t say how much it paid for a recent study that concludes that a severance tax on drillers in Pennsylvania’s Marcellus shale deposit would reduce drilling in the state by more than 30 percent and cause an $880 million reduction in state and local taxes over the next decade.

You get what you pay for, but the industry seemingly paid for a song that its choir already was singing.

In a March 23 memo seeking sponsors for his bill that would lease 390,000 acres of state forestland to drillers, an Indiana County Republican suggested that a state tax would be “a clear disincentive for the natural gas industry to expand its operations.”

Any impartial observer would find it hard to find the disincentive when Pennsylvania has the gas, and just about every other gas-rich state has a severance tax. Using the study’s reasoning, wouldn’t the Republican’s proposal to charge drillers a minimum of $2,000 an acre and a minimum 16 percent royalty to drill in our state forests also be a disincentive?

Again, you get what you pay for.

When the CEO of one drilling company received $112.5 million last year – more than the severance tax would collect on the entire industry in the entire first year of such a tax – it’s clear that the gas industry can afford to waste good money after bad.

The industry contracted Penn State’s College of Earth & Mineral Sciences’ Department of Energy and Mineral Engineering for the study.

However, the industry must be a bit peeved shelling out for a study while another Penn State department is publishing conflicting information.

Penn State’s College of Agricultural Sciences’ Agricultural Research and Cooperative Extension sees it differently. In its guide, “Marcellus Shale: What Local Government Officials Need to Know,” it states:

* Due to Pennsylvania’s local tax structure, the revenue impacts of Marcellus shale on Pennsylvania local governments and taxpayers will likely be relatively small compared to the cost and service impacts.

* Natural gas exploration and drilling by itself will provide relatively little new tax revenues to local jurisdictions in Pennsylvania since natural gas is not subject to local taxation in the commonwealth.

* Greater employment owing to natural gas activity will of course increase local earned income taxes, but because earned income taxes generally go to the jurisdiction where taxpayers live rather than where they work, the specific jurisdictions facing higher service costs due to the Marcellus may not be those who receive higher earned-income tax revenues.

“In other words, according to the guide, “local jurisdictions with natural gas wells very likely will face higher demands for services and thus higher costs, and yet receive little new revenues to pay for those services.

“The result could be higher local taxes (paid for by everyone, not just those directly benefiting from lease or royalty revenues) or cuts in other services.”

Other studies also don’t jibe with the gas-industry conclusions.

Nonprofit researchers found that Montana stimulated less, not more, energy development “and left more than a half a billion in revenue on the table” when it lowered its extraction taxes.

Wyoming, which increased its mineral tax, saw a boon in drilling and revenues.

A University of Wyoming study determined that production of oil and gas is driven mainly by reserves, not by prices, production tax rates, or production tax incentives.

The Natural Resource Severance Tax Act, my House Bill 1489, creates a fair contract with the gas industry for its Marcellus shale ventures utilizing natural resources belonging to the people of Pennsylvania and a fuel requiring state resources – its water and infrastructure – for its extraction.

The legislation would ensure revenues are returned to the communities sustaining the gas drilling and that Pennsylvania taxpayers are not left bereft by gas industry officials stating, “We gladly pay a severance tax in every state where we’re active, except New York and Pennsylvania.”


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