Severence taxes are needed for local & regional infrastructure, etc.

From an Article by David Beard, Morgantown Dominion Post, June 9, 2019

SOUTHPOINTE, Pa. — West Virginia legislators and lobbyists are vigorously debating raising the severance tax on oil and gas extraction.

Proponents argue that the gas developers make millions and can afford the pay their fair share to maintain the state’s infrastructure and support such things as PEIA. They don’t want a repeat of the old-time coal industry’s take-the-money-and-run behavior.

Opponents argue that neighboring Pennsylvania and Ohio have significantly lower taxes and industry wil simply pick up its rigs and take them across the borders; West Virginia already lags behind both in rig counts and production, despite an abundant supply of gas.

But the severance tax debate isn’t unique to West Virginia. In Pennsylvania, Democrat Gov. Tom Wolf is leading a severance tax-hike movement, termed his Restore Pennsylvania Program. His chief opponent is the Republican-led House of Representatives.

Gas industry leaders learned something about the struggle from Pennsylvania’s Republican Speaker of the House Mike Turzai during a session of the Appalachian Storage Hub Conference at Southpointe.

Pennsylvania has no severance tax now. It has an impact fee that’s generated more than $2 billion, Turzai said. “It has transformed southwestern Pennsylvania.” It’s helped counties grow that haven’t seen population or economic growth for decades.

The proposal passed the Senate once, he said, but died in the House. He doesn’t understand why Wolf is still pushing it. “Why are we talking about this ‘Restore PA.?’ I thought we had put this aside.”

Wolf has brought his plan back under HB 1585 [with some GOP support from the southeast part of the state] and SB 725, both introduced on Wednesday. Wolf’s new “commonsense severance tax” would be volumetric and tiered according to sales price, ranging from 9.1 cents per unit to 15.7 cents,

The revenue would fund the issue of $4.5 billion worth of bonds to pay for various projects: broadband access, flood control, disaster response, storm water and transportation infrastructure, blight restoration and more.

Wolf promoted his plan in a press release: “We have a real opportunity to make impactful infrastructure investments in Pennsylvania. Restore Pennsylvania is the only plan presented that can actually address the needs in every community.

He continued, “We have an opportunity to provide all of our students’ internet access, an opportunity to help our municipalities truly address the crippling effects of blight, an opportunity to help families devastated by flooding when the federal government turns its back on them, and so much more. We need to seize this opportunity for all Pennsylvanians.”

Turzai thinks it’s a bad idea. “My notion is it is completely irresponsible.” For one, it would depend on borrowed money, he said.

And it would be self-defeating because the businesses it taxes to pay the loans would lose incentive to do business in Pennsylvania – an argument similar to the anti-tax-hike arguments in West Virginia.

Also, while he believes in public-private partnerships, he said, he doesn’t see a point in using borrowed money to subsidize broadband providers such as AT&T and Verizon to do what they could afford to do on their own.

Countering Wolf, Turzai had his own Energize PA initiative, consisting of eight bills. They include a tax credit to attract manufacturers using methane to power production; creating 20 Keystone Energy Enhancement Zones where businesses will be eligible for state and local tax exemptions and credits for 10 years; expanding the state’s gas-fuel pipeline program to make low-cost gas energy available to residents, manufacturers and pad-ready industry and business sites; and streamline permitting for brownfield cleanup and environmental permits.

On that last point, Energize PA proposes to put the state Department of Environmental Protection’s permitting process under a separate independent commission. PA-DEP would retain its enforcement powers.

“We think that would actually put law enforcement where it should be,” he said. The new commission would consist of gubernatorial appointees approved by the Senate.

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Marcellus Shale Coalition Opposes New Severance Tax

By the Editor, PA Business Central, June 10, 2019

The Marcellus Shale Coalition (MSC), representing the local natural gas development industry, expressed opposition to Governor Tom Wolf’s proposed natural gas severance tax at a recent meeting of representatives from MSC, the Williamsport/Lycoming Chamber of Commerce and other regional leaders. But, Pennsylvania is the only major gas-producing state in the United States that does not have a severance tax in effect.

Governor Wolf’s proposed severance tax on the natural gas industry would fund the Restore PA initiative, which is a plan to address critical infrastructure needs across the state. The plan includes initiatives to mitigate flooding, expand broadband, address blight and build green infrastructure, among other benefits to the state.

MSC President David Spigelmyer said at the meeting, “Governor Wolf’s proposal to triple-tax Pennsylvania’s energy industry will hurt our ability to compete for investment capital, cost Pennsylvania jobs and harm consumers through higher energy costs. We are committed to working with elected officials on solutions to leverage our natural resource abundance for continued job growth, environmental progress and a brighter future for the entire Commonwealth.”

Williamsport/Lycoming Chamber of Commerce president Jason Fink added, “Development of the Marcellus Shale has spurred investment in Lycoming County and the surrounding region, bringing in hundreds of new businesses and generating thousands of good-paying jobs for our residents. The Governor’s proposal to add a tax on top of the existing Impact Tax would stifle the kind of investment interest that has been transformational for Lycoming County.”

New book coming 12/26/17

From an Article by Marie Cusick, NPR StateImpact Pennsylvania, August 10, 2017

The severance tax recently approved by the PA state Senate is unlikely to have a major impact on drilling activity or government revenues, according to a researcher from an environmental economic think tank.

A natural gas severance tax has been a hot-button issue in Harrisburg for nearly a decade, but the plan recently approved by the PA state Senate is unlikely to have a major impact– either in terms of government revenue, or drilling company investment decisions, according to a researcher from the nonpartisan environmental economic think tank, Resources for the Future.

The severance tax is now in the GOP-controlled House where its future is uncertain. Republican legislative leaders have argued over the years it would harm the state’s economy. Yet passing the tax has been a major focus of Governor Tom Wolf, a Democrat.

The tax rate approved by the Senate last month would change, based on the average annual price of natural gas– ranging from 1.5 cents per thousand cubic feet to 3.5 cents. It’s expected to raise $100 million this year to help plug a $2.2 billion budget hole. It would be added on top of the roughly $200 million in impact fees gas companies already pay, which are based on the number of wells they drill.

StateImpact Pennsylvania talked about the new tax measure with Daniel Raimi, a senior research associate at Resources for the Future and author of the forthcoming book, The Fracking Debate:

Q: There is so much rhetoric around what a severance tax could mean for Pennsylvania. Can you explain your recent research? What’s your take?

A: Over the last several years my colleague Richard Newell and I have looked really closely at oil and gas revenues that flow to states and local governments. We’ve looked at the top 16 oil and gas producing states in the U.S. What we find is the average state collects about seven percent of the value of oil and gas revenues. Either through severance taxes, or something like a severance tax, or through property taxes collected by local governments.

Pennsylvania’s lack of a property tax is unusual. That lowers costs for drillers.

For example, if there’s $1 million of oil and gas that comes out of the ground each year, that is taxed as property. It helps fund school districts, townships, county governments, and cities. In some states property taxes make up a larger share of government revenue than severance taxes.

Pennsylvania’s impact fee structure makes up for some of that shortfall by collecting revenue from oil and gas producers and allocating a large portion of it back to the local level. That means the state government doesn’t collect as much from oil and gas production as other states do.

Q: One of the big questions around the impact fee* is whether Pennsylvania is leaving money on the table. Are we?

A: That is a hard question to answer precisely. In short, the severance tax that’s been passed by the Senate is unlikely to have a large effect on either Pennsylvania government revenues, or investment decisions by oil and gas companies. It’s a small severance tax.

Other factors, such as oil and gas prices, access to infrastructure, like pipelines, and access to labor—those are all more important. If it were a severance tax of five, six, or seven percent, then maybe we’d be looking at large impacts, both in terms of the revenue for the government, and potentially deterring oil and gas investment. This severance tax would add something like 0.7 percent to the total revenue generated by natural gas production in Pennsylvania. That’s not enough to have a huge impact.

Looking back at 2015, if this severance tax had been in place it would have raised about $90 million for the state. That’s a lot of money for me and you, but in Pennsylvania that year total tax revenues were $35 billion. So, this type of severance tax would add about a quarter of a percent to state revenues.

Q: You’re using the Henry Hub natural gas spot price (in Louisiana) in your analysis. But don’t Pennsylvania gas producers often receive less?

A: That’s right. That’s a great question. Natural gas prices for producers in Pennsylvania have been lower than they are in other states. That’s primarily because of limited pipeline capacity to take the gas away to other markets.

But the severance tax proposal would use the price in Louisiana, which is surprising to me.

Q: One of the things the industry points out is that even though Texas, for example, has a severance tax, it doesn’t have Pennsylvania’s high corporate income tax rate.

A: It’s hard to compare tax policies across states. In the analysis we did, we wanted to include corporate income taxes, but we couldn’t because they are so different between different states.

In Texas, there is no corporate income tax. However, there is a gross receipts tax companies pay. That does impose a notable additional tax burden.

I think there is something to the idea that Pennsylvania’s high corporate tax rate does add costs for businesses. However, if tax rates were the only thing that mattered, we’d see companies moving more quickly to states like Ohio, where there is no corporate tax rate, but there is a gross receipts tax. These factors matter, but generally their impacts are small.

The three most important factors are the quality of the resource, the prevailing prices, and access to infrastructure—that is, pipelines.

*Note: Pennsylvania’s Independent Fiscal Office tracks the impact fee collections and calculates an annual effective tax rate. It has ranged from a high of 5.6 percent in 2011, to a low of 2.3 percent in 2014.

Pennsylvania now has a comprehensive Impact Fee law to regulate, to some degree, the drilling and fracking for oil and/or natural gas. This 174-page bill, HB1950, was debated and approved by both the House and Senate of the Pennsylvania General Assembly, and was sent to Governor Tom Corbett for signature. It was signed into law on February 13th. This new Pennsylvania law makes problematic the rights of municipalities to exercise authority over gas development in their jurisdiction.

The Pittsburgh Post-Gazette in their recent editorial said this:

There’s a lot wrong with the new state law regulating the Marcellus Shale gas drilling industry, but lawmakers got one thing right: putting oversight in the hands of Pennsylvania‘s Public Utility Commission. Its jurisdiction includes electricity, natural gas, telecommunications, water and truck and rail safety. It seems logical to add the growing deep-well drilling activities to the PUC’s purview.

Under the law passed last week, the PUC will be responsible for keeping track of the number of wells, making sure they meet regulatory standards, collecting the fees associated with their operation and deciding when municipal ordinances don’t comply with state standards. The most controversial task on that list will be determining which local rules are consistent with state regulation.

And, according to Dorothy Bassett “[The bill] includes verbiage that says that when a patient comes in, sick due to exposure to chemicals, doctors have to request in writing info on [the chemicals patients might have been] exposed to and then have to keep it confidential.  The industry doesn’t have to reveal compounds that have formed when all these chemicals and materials from underground come together, nor do they have to report exposure to heavy metals, radioactive substances, etc., from below.”

Further comment comes from Maura Stephens of TruthOut, “Given the problems with airborne and waterborne carcinogenic and neurotoxic substances from this industry’s open pits of toxic wastes, compressor stations, and the like, this means that entire communities will still be exposed to chemicals that one or more people have had to see a doctor for, and that the doctors will have to keep it quiet while the communities are at risk.”

Pennsylvania Governor Tom Corbett

The Pennsylvania Legislature passed a bill today to institute an impact fee on Marcellus gas wells and limit the ability of municipalities to restrict gas drilling.  The House passed the bill by a vote of 101-90, mostly along party lines.  The Wall Street Journal reports:

Gov. Tom Corbett, who pushed for the legislation, praised its passage by the Republican-led House on Wednesday after a debate that stretched over two days as Democrats often angrily opposed the bill.

House Democrats argued the bill sets drilling fees too low compared with other states, goes too far in limiting the ability of local governments to zone for gas development and is too weak on environmental protections.

The gas industry’s investment in Pennsylvania politicians is paying dividends now.   From a June 2011 post on Protecting Our Waters blog:

Philadelphia Daily News reporter Will Bunch, in  “How a Natural-gas Tycoon Tapped into Corbett,” has helped reveal the tragic impact of massive gas industry campaign contributions on Pennsylvania politics (for the big picture see MarcellusMoney.org, meticulously researched up to the minute by Common Cause).   Chesapeake Energy CEO Aubrey McClendon has been bankrolling Pennsylvania’s current gas-loving governor as far back as 2004.

According to to MarcellusMoney.org, the natural gas industry gave $7,175,234 to Pennsylvania candidates and Political Action Committees (PACs) from 2000 through the end of 2010.  $3,442,212 was donated to elected officials in office as of June 2011.  Corbett raised $1,083,315 of that total in 2009-2010 from 216 donations.

Pennsylvania, Ohio and West Virginia are actively courting a steam cracker plant.   It looks like a competition between WV and PA to see which state can make the most concessions at the expense of the citizens of the state.  The impact of the US Supreme Court’s landmark Citizens United  decision which opened the door for corporate spending on political campaigns is apparent in the enthusiasm shown toward the gas industry by elected representatives in the face of severe environmental issues, and reticence on the part of  lawmakers to enact legislation protective of the citizens in shale states.

Pennsylvania Governor Tom Corbett

On Monday Governor Tom Corbett announced his proposal for new laws for the Marcellus shale industry in Pennsylvania. The complete text of the 4-page outline form proposal can be viewed here.

The proposal has already come under fire from some enviro/public health groups for being weak.  The Delaware RiverKeeper Network believes that the costs of fracking on water quality, public health and communities is too high at this time.  That group advocates for a moratorium according to a story at CBS Philly.com.

A key element of the proposal is an impact fee on gas wells starting at $40,000 per well the first year, $30,000 the second year, $20,000 the third year and $10,000 for years 4 through year 10.  That fee structure creates a ceiling of $160,000 per well.   The majority of the impact fees (75%) would be distributed at a local level.  The greatest portion of the remaining 25% would go to Penn DOT.   A small percentage is earmarked for public health work.  The proposal recommends that roughly 1% of the total impact fees go to Dept. of Health for collecting and disseminating information, preparing and conducting health care and citizen provider outreach andeducation, investigating health complaints and other activities associated with shale development (Cap at $2 million).

The proposal contains a section entitled “World Class Standards for Drilling”. Those provisions are itemized below:

• Increase well bonding from $2,000 up to $10,000
• Increase blanket bonds from $25,000 up to $250,000
• Triple well setback distance from 100 feet to 300 feet for streams, rivers, ponds andother water bodies
• Increase well setback distance from private water wells from 200 feet to 500 feet andto 1,000 feet for public drinking water systems
• Expand a gas operator’s “presumed liability” for impairing water quality from 1,000feet to 2,500 feet from a gas well, and extend the duration of presumed liability from6 months after well completion to 12 months
• Enable DEP to take action against bad actors in a more efficient manner
• Uniform and consistent statewide standards

In addition the proposal suggests that a well permit be conditioned based upon its impact on public resources like parks, wildlife areas, natural landmarks, special plant and species habitat and other resources.

Towards securing energy independence the proposal recommends development of green corridors in Pennsylvania for natural gas-fueled vehicles with convienent refueling stations.

I recommend the well-written The River Reporter story on this announcement for more details, or simply review the short proposal for complete information.   It is encouraging to see the Pennsylvania leadership recognizing that regulation is desperately needed.  Time will tell whether or not the the decision to allow the industry to work in a regulated environment will be a good decision or a risky gamble that fails in terminally polluted water supplies.  But for now, certainly, a regulated industry is far better than an unregulated industry.  Capitalism has its strengths and weaknesses;  one of the principle functions of government is to protect its citizens from the excesses of the greed of capitalism.