by Phil Yacuboski
After campaigning on the issue in 2014, Governor Tom Wolf appears poised to push the state legislature to pass a severance tax on natural gas. While some argue it’s needed, others argue it will hurt a growing industry in Pennsylvania.
“Since day one of my term as governor, I have fought to enact a reasonable severance tax that would give Pennsylvanians their fair share of the energy boom that is powered by resources that belong to all of us,” Governor Wolf told reporters in a news conference in Harrisburg in late April, where he was flanked by both Democratic and Republican lawmakers.
According to the governor’s office, Pennsylvania is the only state in the nation producing natural gas, that does not have a severance tax. Governor Wolf said argues states like Oklahoma and Texas are using that money to rebuild roads and schools.
His office estimates tax would generate nearly $250 million in the next fiscal year.
A leading industry trade group, however, said Pennsylvania already has a severance tax in the form of an ‘impact fee,’ enacted by the state legislature in 2012.
“It’s a tax on top of a tax in a state that already has the highest corporate income tax rate in the country,” said David Spigelmyer, president of the Marcellus Shale Coalition, an industry trade group based in western Pennsylvania.
According to Pennsylvania’s Independent Fiscal Office, natural gas production was up 9.8 percent from the previous year when numbers were released in March of 2018. In 2017, Pennsylvania collected $219.4 million dollars from the impact fee otherwise known as Act 13. It’s placed on natural gas wells. The highest amount is collected in the first year the well operates; the number drops on a sliding scale during the life of the well.
Money from the impact fee is sent to local governments for infrastructure, emergency services and other programs. The funds are determined by how many wells are located in their jurisdictions. In essence, it stays local.
In 2017, Bradford County was awarded nearly $4.3 million dollars. The money was used to lower taxes, restore the roof of the county courthouse and to build a new 911 center. In neighboring Susquehanna County, they collected more than $3.25 million; the money was used for road construction and to buy heavy equipment. In 2016, Cummings Township, Lycoming County saw more than $922,000, the highest amount of any local municipality in the state.
There are currently more than 8,500 active gas wells in Pennsylvania, according to the Commonwealth.
“They’ve got debt problems,” said Spigelmyer of the state government. “They’ve got pension debt that is rising and they want tax revenue to try and close that wound. We are going to fight. It’s not going to come at the expense of jobs and our industry.”
Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry said the state has collected more in impact fees than four other states, even though those states had higher natural gas production.
“They try and dismiss that,” Barr said. “We should be trying to encourage the industry to stay rather than trying to figure out how many new taxes we can put on them.”
Barr said he’s concerned the tax may drive jobs out of the state. In 2016, the Pennsylvania Department of Labor and Industry estimated the natural gas industry employed more than 52,000 people.
“When you look at the hurdles, whether it’s the regulatory framework or the topographical framework because of the landscape, certainly that’s our concern,” said Barr. “We have a lot of companies that benefit from this.”
The severance tax issue has sponsors on both sides of the aisle, including Sen. John Yudichak, (D-14), who is the minority chair of the Senate Environmental Resources and Energy Committee.
“It’s a lost opportunity,” he said, adding that he’s a big supporter of the natural gas industry. “Many of the end users of Pennsylvania’s natural gas are from other states, so it wouldn’t be a heavy tax burden and wouldn’t be punitive to the companies doing business here. We want them to create opportunity here.”
He said the tax rate would be around four percent and acknowledged that because it’s an election year it might be ‘difficult’ to get through the House.
“I think it’s fair, it’s responsible and it will allow us to invest,” he said. “This could be a way to build out the natural gas infrastructure in Pennsylvania because much of the state doesn’t have access to the resource.”
The legislation doesn’t earmark the money for anything specific and would go to the general fund.
Sen. Yudichak, who represents portions of Luzerne and Carbon County, said he understands the other taxes the industry pays, but argued it wouldn’t compound the issue.
“This is about being competitive with other states,” he said.
The volume of natural gas being extracted in Pennsylvania is growing, however what those units are worth much depends on the market price, according to Tom Murphy, director, Penn State Marcellus Shale Outreach Center, which conducts science based research on the issues surrounding Marcellus shale.
“At some point, large volumes of gas could be worth more or less than other times,” he said, adding that demand is increasing. “But there’s more and more gas finding its way to market, so just because more gas sold doesn’t mean more money is made. There is more volume.”
He declined to comment on the severance tax matter, explaining the group doesn’t comment on political issues.