It’s budget season in Pennsylvania which inevitably means two things will happen:
- There will be some sort of budget shortfall our elected officials need to work through – right now estimated to be around $3 billion
- Newspapers will suddenly be filled with letters to the editor and columns and op-eds proclaiming “the natural gas industry doesn’t pay their fair share” which tends to be followed by “Pennsylvania is the only state without a severance tax”
I’m already seeing some Groundhog Day familiarity already across the newspaper headlines in this Commonwealth.
I’m going to ask the Well Said readership for some help here: what exactly does the phrase “fair share” even mean? Who determines what is “fair” and how that “fair share” will even be spent?
A couple of weeks ago someone told me the only cases they’ve ever heard that phrased used is when the group calling for a “fair share” would stand to benefit by getting more money. Interesting thought.
The way Pennsylvania’s impact fee works is not by having all of the money go to Harrisburg to be used for budgetary purposes. Instead, every single county in Pennsylvania, whether or not drilling is occurring, gets a payout each year from the activity in the Marcellus & Utica. And if drilling activity is happening in a municipality, they receive an additional payout of funds (hence the “impact” part).
What are these funds being used for? Everything from replacing roofs on courthouse buildings, at no cost to the taxpayers to cleaning up acid mine drainage flowing from old coal mines. While these funds are earmarked to specific types of improvements, the point is the distribution of this money is up to the residents who receive it, rather than going into our black-hole of a state budget.
Later this week I’ll take a look at some local counties to see just how they’re benefiting from the impact fee distribution.
As to the second statement popping up in newspapers, they’re 100% correct – Pennsylvania does not have a severance tax which would be determined on a percentage of the natural gas coming from the ground. Instead, it has an impact fee assessed each time a new well is drilled and for the next 15 years. Here’s a nice breakdown of how these fees are assessed. Also note how this fee increases as the average natural gas price increases.
How much does the impact fee collect?
The 2016 drilling activities were assessed $173 million which amounts to a 9.16% effective natural gas tax. To date, $1.2 billion has been collected from activities in the Marcellus and Utica.
But because the $1.2 billion is called an “impact fee” instead of a “severance tax” it’s not enough? It doesn’t count?
Someone had better tell the hundreds of municipalities and counties across Pennsylvania that they’re spending fake money.