Wednesday, May 18, 2011

Pennsylvania moving slowly toward a tax on natural gas

It's now more a question of when and in what form rather than whether Pennsylvania will begin to extract payment from its burgeoning natural gas industry.

Democrats (and some Republicans) have been pushing for a tax to help offset the state's budget shortfall, to help towns whose roads and infrastructure are under pressure from drilling operations, and to build a fund to pay for the remediation of environmental damage. That damage, critics say, inevitably will result from the installation and operation of natural gas wells and from hydrofracturing (fracking)--the high-pressure blasting of sand and toxic chemicals into shale rock deep below the surface.

Republican State Representative Kate Harper has introduced HB 1406, which calls for a 1.5 percent tax on natural gas for the first five years of production and 5 percent thereafter. The five-year time frame would include wells already drilled.

The revenue would be split with 36 percent going to environmental programs, including Growing Greener, the Hazardous Sites Cleanup Fund, the Fish and Boat Commission and other agencies; 32 percent to counties and municipalities impacted by natural gas drilling with part going to the state Emergency Management Agency; and 32 percent to an education account with two-thirds for basic education and the other third for community colleges and higher education.

Republican Gov. Tom Corbett says he will not sign a bill imposing a gas severance tax (like Harper's) but recently has indicated that he might consider a "local impact fee."

As if on cue, Senate President Joseph Scarnati of Warren County on May 16 introduced SB 1100, a local impact fee bill would would impose a base fee of $10,000, adjusted for increases in volume and the price of gas. It would generate an estimated $45 million retroactively for 2010, $76.2 million for 2011 and a total of $675 million over five years.

About 60 percent of the revenue would go to counties and municipalities with wells, with some also going to municipalities without wells that are in counties where drilling is taking place. Another portion would go to conservation districts statewide and a third part for statewide environmental and infrastructure projects including environmental cleanup, water and sewer infrastructure, impacted state highway improvement and hazardous sites cleanup.

The Pennsylvania Budget and Policy Center has published a comparative analysis of the leading gas tax and impact fee bills that includes Harper's, Scarnati's and House Bill 33 (Greg Vitali) and Senate Bill 905 (Yudichak/Erickson).   

Governor Corbett does not want any discussion of a natural gas tax or fee to interfere with passage of his state budget which proposes significant (some would say drastic) reductions in state aid to higher education and social welfare programs. A potential stream of revenue from gas drillers could help defray some of those cuts.

Keep an eye on the final budget negotiations over the next month. It should be interesting.

Have an opinion or observation on the natural gas tax debate in Pennsylvania? Please feel free to share it with our readers. Use the comment box below. If one isn't visible, click on the tiny 'comments' line to activate it

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