A bipartisan Marcellus Shale drilling tax proposal was announced Tuesday by a bipartisan group of state lawmakers, led by Reps. Gene DiGirolamo (R-Bucks) and Tom Murt (R-Montgomery).
“For years, we have been hearing about the large natural gas deposits throughout much of the Commonwealth, and how Pennsylvania’s natural assets have the potential to help fund some of the most critical needs for our residents,” Rep. DiGirolamo said. “Although an impact fee was adopted a couple of years ago to help communities impacted by the development caused by drilling, there is still so much more potential.”
Representatives DiGirolamo and Murt are working with a bipartisan team of their colleagues – Reps. Harry Readshaw (D-Allegheny) and Pam DeLissio (D-Philadelphia) – to develop legislation that would implement a severance tax on drilling in the Marcellus Shale as a way to supplement funding for a number of important programs in Pennsylvania. The Commonwealth is the only major gas producing state that does not impose a drilling tax.
The proposed legislation calls for a 4.9 percent severance tax to replace the impact fee that was enacted in 2011 and would be lower than the rate already imposed in neighboring West Virginia. Under the current impact fee structure, each well is assessed a fee which declines over time for the first 15 years of operation. All unconventional wells drilled each year, no matter how much natural gas is produced, pay the same fee.
For what is thought to be a typical unconventional well, the total impact fees paid over 15 years amount to less than 2 percent of the value of the natural gas sold from the well.
The $400 million in impact fee revenue for the first two years has made an incredible difference in mitigating many impacts, they noted, but it is time to allow the rest of the Commonwealth to reap the benefits of drilling.
“Every year, the budget battle becomes a tug of war for disability funds with no certainty until sometime around midnight each June 30,” Rep. Murt said. “This is not acceptable to the families who rely on human services to survive, and it’s not acceptable to us.”
Due to the higher rate and Pennsylvania’s rapidly increasing natural gas production, a severance tax would generate additional funds above the existing impact fee. As production grows, this difference grows larger, and as the severance tax grows, these programs would receive more funding than they would under the impact fee.
Under the legislation, 40 percent of the revenue would be directed to local governments in the drilling areas to help with the cost of replacement and repair of deteriorated bridges, water and sewer infrastructure and environmental initiatives.
The remaining 60 percent of the drilling tax revenue would provide enhanced funding to the following programs that invest in education, the environment, human capital and economic development.
“If this legislation is enacted, the waiting list for services will shrink and the pressure on our overburdened counties will be reduced,” Rep. Murt said. “Most importantly, we will end the annual budget ritual of wondering if the state will fund these critical programs.”
“Any good drilling tax proposal should be fair and reasonable, assist host communities with their needs and impacts, make long-term investments in our natural resources and environmental programs, invest in our economy and human capital, strengthen our safety net and ensure that every citizen of the Commonwealth will benefit from the development of the Marcellus Shale and other deep gas reserves,” Rep. DiGirolamo said. “We believe this meets all of these criteria, and we look forward to introducing the legislation in the near future.