School District Study Was An Attempt to Justify A Severance Tax

Ken Cuomo
Superintendent, Elk Lake School District..

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A school district study from Penn State presents a flawed view of school district finances in Pennsylvania in a blatant attempt to justify a severance tax.

The following is my response to the article “Fracking has led to a ‘bust’ for Pennsylvania school district finances.” What the article seems to imply is that the natural gas industry has not had any positive impact on the State’s school systems, in particular, the rural districts where the industry is predominately at work. Therefore, an extraction tax would be the silver bullet to fix the State’s current inequitable funding formula and therefore fix school district finances.

The article stated “Although we found a modest increase in state and federal revenues wherever fracking occurred, these increases were not large enough to counterbalance the average negative effects.” This is a flawed statement because the “research” referenced is questionable at best. Basically the research states that school districts would have more money if drilling never occurred.

From 2007‐ 08 through January 2020 the Elk Lake School District has gained $2,457,519.56 in revenue from royalties used as part of the General Fund to fund the increases in the State pension system, cyber charter school tuition and the rising cost of medical insurance. Without this revenue, the District would have had to take significantly reductions to the school system.

From October 2014 – Current the estimated savings as a result of using natural gas rather than oil to heat the buildings is approximately 1.5 million dollars. As a rural school district this would not have been possible if it was not for the local fracking of natural gas and the cooperation between the school district, Cabot Oil and Gas and Leatherstocking.

According to a study to track the reduction in the CO2 emissions footprint, the initial estimate of our Greenhouse Gas (GHG) emissions shows a reduction of 1,480 tons of CO2. This is equivalent to the CO2 sequestered by 2,951 acres of evergreen trees or the CO2 emissions from 2,646 passenger vehicles.

Outside of the royalty payments, the District and Susquehanna County Career and Technology Center has received thousands of dollars to fund scholarships, programs, projects, equipment and instructional resources from oil and gas companies, pipeline companies and other businesses benefitting from the natural gas industry that we would never have been able to fund on our own. One company donated $50,000 of pipe to the welding shop. The CDL school at SCCTC represents over $400,000 of investment by the industry.

The research cited seems so partisan that it would be well worth looking into who funded this school district study. The following questionable or flawed statements were made:

  • “In other words, we estimate that districts experiencing unconventional drilling had lower incomes and property wealth than we would expect them to have if they had not experienced unconventional drilling.” Page 9
  • “This average treatment effect on the treated was largest on the value of property, suggesting that properties in districts with unconventional drilling sites are either rapidly losing market value or being systematically under-assessed by the state of Pennsylvania. “ Page 9
  • “Locally, some residents were able to benefit from leasing revenues, but those revenues don’t fall under “earned income” and as a consequence don’t contribute towards school revenues.” Page 11

Last I knew, Pennsylvania residents are subject to Pennsylvania personal income tax on income from all sources. Only nonresidents of Pennsylvania allocate royalty income, since only their Pennsylvania source income (portion allocable to Pennsylvania) is subject to Pennsylvania personal income tax. In addition, on the local level school taxes are calculated by earned income.

The research referenced also stated the following:

For example, other research has suggested that shale gas development may depress high school and college attainment of young people in resource extractive areas (Rickman, Wang, and Winters 2017) and still further research has failed to find appreciable impacts of unconventional oil and gas development on reversing the loss of human capital from rural non‐amenity counties (Mayer, Malin, and Olson‐Hazboun 2018).

Did the researcher’s check the unemployment rates in the counties where natural gas drilling takes place compared to other areas of the State?

I wonder if the writers of the article ever spent time in Susquehanna or Bradford County talking to life‐long residents who understand and have experienced the effects on a daily basis. Shouldn’t the greatest benefits stay in the areas of the greatest impact? Maybe that is the problem, too much money staying in the rural areas and not enough going south of Route 80.

  • PA impact fees have surpassed $1.7 Billion. 2018 was $250 million plus. More details on each reported year are found here.
  • One-third of the money goes to state agencies responsible for overseeing the oil and gas industry, as well as investment in conservation, infrastructure and recreation grants that have benefitted all 67 counties.
  • PA has some of the highest permit fees in the country and DEP is trying to raise those fees. The cost to operate in pa versus other states is much higher. Regulations, labor, taxation, permitting, all comes into play here. Other states, even with a severance, have mechanism in place to lessen the burdens of these costs.
  • Cabot Oil and Gas has invested millions into schools across the commonwealth through the states EITC program and other forms of donation (cash, equipment, in‐kind services). The gas companies can’t be eligible for EITC unless they pay state taxes, something people often overlook. In Susquehanna County alone Cabot Oil and Gas has invested $60 million into roads and infrastructure saving the State considerable money.

In conclusion, I’m not sure whether or not the writers of the article and authors of the school district study ever thought of where the impact would truly be felt by adding an extraction tax on the natural gas companies.

Any tax imposed on a business will be passed on to someone to offset this expense. Either natural gas prices will increase for the consumer or the tax will be passed on to the rural landowners in the form of “post production fees” which reduces the amount of the royalty check that a landowner may receive.

A major concern is that if implemented, an extraction tax will permit the State to receive additional revenue on the backs and out of the wallets of the rural landowners to ultimately benefit the urban school systems where the largest voting population exists.

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5 thoughts on “School District Study Was An Attempt to Justify A Severance Tax

  1. Cabot invested 60 million in roads they used and abused
    and our roads are still the worst I’ve seen in 30 years.

    And why is the poverty rate still around 40% in your fracked district since the gas invasion with all the supposed wealth in our county?

    • As authors of the study critiqued by superintendent Cuomo, we would like to briefly respond. The full study was vetted through a scientific double-blind peer review process and has been published as an online-first article in the journal Society & Natural Resources, one of the top international journals in natural resource sociology. The study uses a research design that meets the evidence standards for the design of quasi-experiments issued by the Institute of Educational Sciences. Our results report the difference, on average, in a outcomes for rural districts that experienced unconventional drilling, relative to otherwise similar rural districts that did not experience unconventional drilling (including those lying south of I-80). The study was not externally funded. We would be happy to make copies of the full study (with full details about data and methodology) available to the superintendent or anyone else interested. This is part of a broader line of research that the second author has been involved in for over the past decade which has involved a combination of extensive on-the-ground fieldwork in communities and school districts as well as analysis of survey and publicly available data, and has resulted in over 20 publications and numerous public presentations. The superintendent states that “Last I knew, Pennsylvania residents are subject to Pennsylvania personal income tax on income from all sources.” This is in error as leasing royalty income is not subject to income tax. We refer the superintendent and other interested parties to the following brief released by Penn State Extension: https://extension.psu.edu/marcellus-shale-development-and-pa-school-districts. Last, to be clear, we don’t advocate necessarily for a severance tax. Rather, our research poses the broader question regarding the relative distribution of risks and benefits associated with unconventional gas development and how we can empirically assess the outcomes of gas development for schools and communities. In this regard, we find it interesting that the Superintendent’s school district includes the town of Dimock, which unfortunately gained considerable visibility in the early years of the unconventional gas boom as a consequence of significant groundwater contamination associated with the gas industry. Kai Schafft and Matthew Kelly, Penn State University

      • This should read “leasing royalty income is not subject to earned income tax.” Thanks. (KS and MK)

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