Drilling Fee Bills Fail to Address Pressing State Needs
June 27, 2011
The Pennsylvania General Assembly is weighing various proposals to impose an impact fee on natural gas drilling in the Marcellus Shale.
Pennsylvania is the only significant gas-producing state without a drilling tax or fee on natural gas. Virtually every other gas-producing state in the nation has a production-based extraction tax or fee, and many collect property taxes on oil and gas reserves, a practice Pennsylvania stopped in 2002 after a successful lawsuit by the gas industry.
Governor Tom Corbett and legislative leaders have taken a firm position, insisting that no drilling tax revenue go to offset planned budget cuts for public schools, health care, services for the vulnerable, or public universities.[1]
This position is out of sync with most Pennsylvanians. A Quinnipiac poll released in June finds that 69% of voters would support a new tax on drilling companies to balance the state budget.[2]
It is unusual for gas-producing states to prohibit drilling tax revenue from contributing to General Fund services like education or health care. Most states treat this revenue as they do general tax revenue, while also allocating a portion to local governments and/or environmental programs.
Only two of 13 gas-producing states allocate no funds from drilling taxes/fees to general state services.[3] Three states, including Texas, provide no revenue from gas drilling taxes to local governments at all. Instead, local governments — including school districts — recover incurred costs through local property taxes on reserves and equipment, as they do with most industries.
It is also unprecedented for state taxes collected primarily from one part of the state to be spent only in that same part of the state. For example, Pennsylvania’s Gaming revenues are collected from just a few parts of the state and the Bank Shares Tax is collected primarily from businesses in the Philadelphia and Pittsburgh metro areas. In both cases, the revenue is distributed statewide. More broadly, non-Marcellus regions provide most of the state’s current tax revenue even though substantial portions of those taxes are used in the Marcellus region.
For three significant parts of the state budget on which data are available — school funding, Medicaid, and water and sewer infrastructure funding — the Marcellus region of the state benefits as much or in some cases much more than parts of that state that contribute more tax revenue. With the proposed Marcellus drilling fees, however, the 10 counties that contribute 61% of current state taxes would receive 0.1% of funds dedicated for local impact. (Some funds from the proposed drilling fees would go to grant programs that serve the state as a whole. There is no readily available data that make it possible to estimate the geographical distribution of funds from these grant programs.)
As of June 27, Pennsylvania has lost an estimated $192 million in potential drilling tax revenue since October 2009 due to inaction on the part of the General Assembly.[4] That revenue could have been used to reduce the impact of proposed cuts to Medical Assistance, public schools, colleges and human services. Moving forward, the General Assembly should adopt a responsible drilling tax that supports core state services and benefits all Pennsylvania residents.
Footnotes
[1] “Corbett opens up to Marcellus fees,” The Associated Press, March 24, 2011, http://www.pittsburghlive.com/x/pittsburghtrib/news/state/s_728891.html; “Corbett attaches conditions to possible gas-drilling fee,” EnviroPolitics Blog, June 1, 2011, http://enviropoliticsblog.blogspot.com/2011/06/corbett-attaches-conditions-to-possible.html.
[2] Quinnipiac University Polling Institute, “June 14, 2011 - Big Gender Gap Keeps Pennsylvania Gov's Approval Low, Quinnipiac University Poll Finds; Voters Support Natural Gas Drilling 2-1,” http://www.quinnipiac.edu/x1327.xml?ReleaseID=1610v.
[3] See Shared Costs, Shared Responsibility, State Distribution of Severance Tax Revenue, at: http://pennbpc.org/sites/pennbpc.org/files/How%20States%20Distribute%20Severance%20Tax%20Revenues.pdf
[4] See PBPC Drilling Fee Tracker: http://pennbpc.org/severance-tax-ticker
