Rep. DiGirolamo Introduces Bipartisan Marcellus Shale Severance Tax Proposal

Rep. Gene DiGirolamo (R-Bucks) Wednesday introduced House Bill 1321 which imposes a severance tax on unconventional natural gas production.

The bill is structured in such a way as to fund many of the Commonwealth’s top priorities without passing the burden onto working families. It calls for a 3.2 percent drilling tax, while also keeping the impact fee created by Act 13 of 2012 to help communities directly affected by drilling.

“The Marcellus Shale development has brought about a number of positives in terms of jobs and lower-cost energy, but there are additional ways in which we can capitalize, and most residents agree that a drilling tax is one way for the industry to provide even more benefits to all corners of the Commonwealth,” Rep. DiGirolamo said. “In addition, I believe the major selling point of my proposal, which has received bipartisan support, is that it keeps in place the impact fee and protects communities when the impact fee revenue starts to drop in the coming years.”

Rep. DiGirolamo said the severance tax is far more sustainable than an impact fee alone. Under the current impact fee, 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.

“Any drilling tax proposal we consider must be sustainable for future years, and by adding to the current impact fee, we can ensure that funding is available for our most critical needs – education, human services and environmental programs,” he added.

Under House Bill 1321, the tax would be set up in a way that in the first year 1 percent of the tax will equal $6 million, and would grow to more than $9 million per percentage point by 2019-20 with continued modest growth in production.

Revenue would be distributed to the following priorities: basic education, 40 percent; pension obligations, 35 percent; human services, 15 percent; and environmental programs, 10 percent.

The lawmaker believes that his proposal is fair and reasonable to the industry, assists impacted communities, makes long-term investments in natural resources and environmental programs, strengthens the safety net for those in need, and allows every citizen to benefit.

Joining Rep. DiGirolamo in sponsoring the bill are Reps. Harry Readshaw (D-Allegheny), Pam DeLissio (D-Montgomery), Robert Freeman (D-Northampton), Curtis Thomas (D-Philadelphia), Tom Murt (R-Montgomery). There are 14 bipartisan co-sponsors of the bill.

Pennsylvania, now the second largest producer of natural gas in the nation, is the only major gas producing state that does not impose a drilling tax.

A sponsor summary of the bill is available.