The impact fees Pennsylvania receives from shale drilling have jumped up a whopping 21% and will be distributed to all counties across the Commonwealth.
We hear Governor Tom Wolf talk about Pennsylvania adopting a severance tax to ensure natural gas producers are paying their fair share. What he fails to say is, natural gas drillers are already paying their fair share through the existing Act 13 impact fee. Since 2012, when the impact fee was enacted, nearly $1.5 billion has been generated from natural gas development and been distributed to every county in the Commonwealth.
The Pennsylvania Public Utility Commission (PUC) published a press release in June to announcing the impact fees on natural gas producers collected for 2017 totaled $209,557,300. This is a whopping 21% higher than what was collected in 2016. It also reverses a three year decline in impact fee revenues.
The Allegheny Institute for Public Policy published an excellent article yesterday about the 2017 impact fees collected and how they will be used and distributed. Here are a few excerpts (emphasis added):
For those counties hosting an unconventional well, their allocation is determined by the number of wells they host. For example, the county with the most unconventional wells in 2017 was Washington County (1,528) and as a result collected the largest amount of money ($7.09 million) from this section of Act 13. The runner-up is Susquehanna County (1,274 wells), earning $5.91 million. As two of the top counties with wells, Washington has collected more than $38.85 million over the years while Susquehanna has collected more than $35.53 million. Allegheny County, with only 125 eligible wells, a fraction of the total, has received $2.15 million over time. As largely rural counties, Washington’s population is 207,981 and Susquehanna’s is just 40,862. These totals are quite significant and most likely larger than if the state would switch to a severance tax instead and the money was allocated from Harrisburg at the whim of those viewing the shale industry as a cash cow for their own pet projects.
And of course that was the intent of Act 13—to place a fee (tax) on those drilling in the Marcellus and Utica shale formations using the technique of hydraulic fracturing (unconventional wells). The money would then bypass the political machinations of Harrisburg and send the money directly to those counties and communities most impacted by the activity surrounding the drilling and to those state agencies that would also be impacted from the activity. The money distributed even has strings attached as to how it can be spent such as on public infrastructure construction, storm water/sewer systems, emergency preparedness/public safety and environmental programs, among others.
Yet the clamoring for a severance tax continues. But what those favoring a severance tax fail to consider is that not only do drillers pay the impact fee, they also pay the assorted business taxes levied by the commonwealth and pay royalties to leaseholders. According to the Marcellus Shale Coalition president in a recent op-ed, that has amounted to $4.5 billion to date on top of the impact fees total of $1.43 billion. The latest proposal from Harrisburg will leave in place the impact fee and couple it with a severance tax amounting to double taxation on the industry.
A severance tax has the potential to curtail production causing a reduction in these payments as drilling will likely be reduced or shifted to neighboring states that are also above the Marcellus and Utica shale formations. The impact fee has struck a balance between holding drillers accountable for their activities and generating much needed revenues to those counties and municipalities most affected.
The impact fee has been working for Pennsylvania’s communities. Adding a severance tax on top of it would certainly have a negative impact on Pennsylvania’s natural gas industry.