Senators Yudichak, Erickson Introduce Bipartisan Marcellus Shale Severance Tax Proposal

Sen. John T. Yudichak (D-Luzerne) announced today he has introduced legislation that would implement a severance tax on the extraction of natural gas in Pennsylvania.
Joining Sen. Yudichak at the news conference were Sen. Ted Erickson (R-Delaware) and Sen. John Blake (D-Lackawanna). co-sponsors of Senate Bill 905.
During a Capitol news conference, Sen. Yudichak said it is time for a fair and responsible severance tax on natural gas.
“My goal is to initiate a fair and responsible severance tax in Pennsylvania. This proposal will generate significant revenue for local governments, our clean water infrastructure, and the Growing Greener program,” Sen. Yudichak said. “At the same time, such a moderate tax would allow the industry to continue expanding and creating jobs, as well as generate the economic development activity that Pennsylvania so desperately needs.”
Under Sen. Yudichak’s plan (Senate Bill 905), the severance tax would be gradually implemented based on the gas production of each well:
• A severance tax of 2 percent of the gross value of the natural gas severed at the wellhead; this tax rate would be in place for the first three years of well production;
• When the well has been in production for more than three years, the tax rate would increase to 5 percent;
• The tax rate would readjust back to 2 percent if a well’s rate of production fell below 150 MCF of natural gas per day and above 60 MCF per day;
• Wells that produce less than 60 MCF of natural gas per day are exempt from the tax.
If implemented, the severance tax would go into effect on July 1, 2011.
According to Yudichak, revenue from the severance tax would be distributed to three program areas:
• 33 percent of the revenue generated to the Commonwealth Financing Authority for water supply, wastewater treatment, stormwater and flood control projects;
• 33 percent to the Environmental Stewardship Fund (Growing Greener); and
• 34 percent to local governments in those areas of Pennsylvania that are experiencing the direct effects of natural gas drilling.
“I think it is important to note that investments in our clean water infrastructure also create jobs,” Yudichak said. “Also, in areas where there is drilling activity, local governments are faced with a number of difficult issues. Revenue from a severance tax will benefit those communities.”
“I am pleased to stand with my colleague, Sen. Yudichak, to support this much needed legislation,” Sen. Erickson said. “The fact that this bill has bipartisan support shows the need for this tax goes beyond partisan politics. I believe this bill invests the tax revenues in a responsible way for the protection of our environment and the communities directly affected by the expanding natural gas industry.”
It is estimated the tax could generate more than $126 million in the first year and more than $406 million by 2016. These estimates are based on current prices, the number of wells, additional wells expected to be permitted in 2011 and expected production levels.