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.”

West Virginia Shale Development Falls Short of Economic Promise

By Sean O’Leary, WV Center on Budget & Policy, February 7, 2019

The nearly six-fold increase in West Virginia’s natural gas production in the last decade, due largely to shale development, or fracking, has fallen short of expectations for economic growth, job creation, and tax revenue generation, according to a new report released by the Institute for Energy Economics and Financial Analysis (IEEFA) and the West Virginia Center on Budget and Policy. Read report.

The report, Falling Short: Shale Development in West Virginia fails to deliver on economic promises, finds that the shale industry has underperformed economically due to the falling price of natural gas, which has cut into the industry’s profits and under-delivered state tax revenues. It has also missed expectations of creating jobs, reducing poverty, and spurring wider economic growth.

The paradox of a region rich in natural resources that fails to develop economically is known as the “resource curse.” The report asks how West Virginia, which historically exhibits signs of a “resource curse” in the coal industry, can avoid a similar fate with natural gas.

The report recommends increasing the severance tax rate from 5 to 10 percent on all minerals, or at least natural gas, natural gas liquids, and oil that are mostly coming from shale development. Proceeds would finance a Future Fund to diversify economic development and promote state initiatives that rely less on resource extraction and the vagaries of energy markets.

Key findings include:

>> The economic development gains of the shale industry have underperformed initial projections partly due to exaggerated early claims made by the industry and industry-funded studies.

>> Planners failed to anticipate the significant and sustained collapse in natural gas prices resulting from large increases in production.

>> Severance tax revenues grew through Fiscal Year 2015 and then fell off. Fiscal Year 2018 natural gas severance tax revenues were only 15% higher than FY 2008 revenues, adjusted for inflation.

The growth in employment from 2008 to 2017 has been in natural gas pipeline construction, largely temporary jobs while jobs in drilling and related activities have actually declined—about 40% of pipeline construction jobs are held by out-of-state workers.

Natural gas production is concentrated in six of the state’s 55 counties which produce 80% of West Virginia’s natural gas.

Early studies failed to anticipate the collapse of coal mining, driven in large part by the glut of inexpensive shale gas.

“Today, the natural gas industry is again promising significant economic benefits from what it sees as the next big opportunity: Appalachian petrochemical development,” said IEEFA energy analyst Cathy Kunkel, adding, “We find that such claims are likely to be overstated.”

West Virginia has a long history of economic boom-and-bust tied to coal extraction. Despite its vast natural resource wealth, the state has consistently ranked among the poorest in the nation.

“We are looking at how West Virginia can avoid repeating the same mistakes it has with the coal industry and use its natural gas and other resources to contribute to lasting in-state wealth,” said Ted Boettner, Executive Director of the West Virginia Center on Budget & Policy.

See the report here:
http://ieefa.org/wp-content/uploads/2019/02/West-Virginia-Shale-Development-Falls-Short_February-2019.pdf

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.

Delegate Tim Manchin (D-Marion) was co-chair of the WV Select Committee on Marcellus Shale. In December, the Governor scrapped the Committee’s “Marcellus shale framework bill” in order to serve the last minute whims of the oil and gas industry.  A Marcellus bill with major modifications was passed.

According to newspaper reports, Delegate Manchin is now thinking of a bargain with the industry, as for example, an increase in the natural gas severence tax in exchange for a state law that mineral and land owners be required to participate in “pooling” so large tracts of contiguous land would be available to the drilling companies.

The WV severence tax is now at 5% on produced natural gas. Manchin suggested an increase to 5.5 or 6%, with the additional tax income being used for the state’s highways and other infrastructure. Manchin said the state could match that additional money to grow the infrastructure fund and convince the public that forced pooling is a good idea.

If the State moves to approve forced pooling, gas companies would be allowed to combine properties where owners refuse to lease their mineral rights with adjoining properties when leases have been obtained. The companies could then remove gas from all the properties in that unit, even if some property owners refused lease agreements. Gas companies would not be permitted to build roads or pipelines on properties taken to complete a unit, and they also would not be allowed to drill wells on those sites.

Manchin said that the Marcellus shale bill passed last month by West Virginia lawmakers was “a good bill – a bill worth voting for,” but said the bill should have required drillers to report how many of their employees are West Virginia residents. Many others have found faults with the bill that was passed.