Boroughs Assn. Prefer Natural Gas Severance Tax

The PA State Association of Boroughs is puzzled by the Governor and legislative leaders decision to mandate the leasing more state forest land to multi-million dollar gas companies for a low lease dollar amount while allowing these same foreign companies to get out of paying their fair share in taxes via a severance tax thereby providing critical funding for the protection of state and local government infrastructure needs.
Earlier this month, one of these multi-million dollar companies Fortuna Energy, Inc. offered to pay $5,500 an acre and a 20 percent royalty to a coalition of landowners in Susquehanna County. On behalf of local government interest, PSAB cannot understand why the state is willing to lease state forest land for a fraction of what Fortuna is offering?
At a press conference held today at the capitol by a coalition of legislators who want to protect the state forest lands, Rep. David Levdansky, Majority Chairman of the House Finance Committee, said “We should not be raping the state forest, taking away DCNR’s authority, eliminating the Oil and Gas Lease Fund, while simultaneously allowing the big, rich natural gas companies get off without paying their fair share to deal with impacts to the environment and in local communities.”
The Boroughs agree and support legislators who are advocating that a more practical approach to creating sustaining revenue to deal with the impacts of natural gas drilling is to impose a severance tax on natural gas. Local officials are also speaking up and asking that the severance tax remain on the table during continued budget discussions.
“Under the agreed upon budget by the Governor and legislative leaders, DCNR would be forced to lease more state forest land to natural gas companies in order to fill a budget hole,” said Ed Troxell, Director of PSAB Government Affairs. “Boroughs have continued to ask for support of PSAB’s plan to provide an adequate funding mechanism which will provide sustaining revenues for communities to deal with impacts from natural gas drilling.” A severance tax imposed on natural gas companies makes the most sense.
Troxell further stated that, “local government officials and the taxpayers who elected them to serve are in jeopardy as rumors afloat that the Governor and legislative leaders are trying to keep any and all revenue from natural gas for themselves.”
“We understand the state government’s need to balance a state budget, local governments need to do the same,” said association President Robert “Doc” Orr. “Damage done by drillers will not simply disappear until the industry becomes a mature one. Conversely, it is during exploration and expansion that communities will face the most impacts.” A severance tax will continue to provide revenue to both state and local governments for the foreseeable future.
PSAB understands every budget has winners and losers, but this time around the citizens of the Commonwealth are the biggest losers while the natural gas companies are the winners.
We The People will pay increases in taxes to local governments and the state in order to have vital services provided, while some of these foreign gas companies avoid paying their fair share of taxes. Our volunteer firemen who spend thousands of hours fundraising to provide emergency services to their local communities are the losers as they will see 20 percent of the funds generated from small games of chance go to the state budget, all while these multi-million dollar gas companies avoid paying a severance tax.
Make no mistake natural gas companies continue to thrive even during the economic downturn. For example, Seneca Resources Corporation recently announced that one Marcellus Shale horizontal well located in Tioga County has tested at an average rate of 5.8 million cubic feet per day over a period of six days and has exceeded their expectations.
In a press release issued by the company, David F. Smith, President and Chief Executive Officer, added, “With this well test and our continued progress in the EOG joint-venture, I am confident that we will meet or exceed our expectations of 20 to 30 Mmcfd of production in the Marcellus shale play by the end of our 2010 fiscal year. We have a great acreage position and a talented team that is proving we can execute the program for rapid growth in this region.”
Using the method of taxing natural gas under House Bill 1489, 5.8 million cubic feet per day (Mmcfd) would net a significant amount of money for state and local government needs. Assuming a very low price for natural gas of $2.035 MMBtu, the yearly severance tax revenue from this one well would be $316,728.75. Seneca’s yearly gross revenue from this one well is almost $4 million. This is only from ONE well for ONE year! This is what the taxpayers are missing out on!
The association says it wants to continue to be part of the discussions on how to hold their citizens harmless in any plans for the state to levy revenues from natural gas drilling.
The association has put forth a distribution plan which will provide additional revenue to both host and non-host municipalities in counties where natural gas is being extracted. It is essential that any revenues given to local governments must include a portion to go to NON-HOST municipalities as non-host communities face the same impacts as host communities.
In Bradford County, a well is being drilled in Athens Township, but all of the water trucks and equipment trucks travel through Athens Borough. Athens Borough is too small to be a host municipality but will feel the same impact as Athens Township.
Local governments will use the revenue to maintain infrastructure, parks and recreation, industrial and commercial development, preservation and reclamation of the surface waters, municipal waste and sewage systems, police and emergency services and other purposes related to the consequences of severing natural gas in the municipality.