Legislative Inaction on Drilling Tax Costs Pa. $200 Million

A blog post from Christopher Lilienthal, originally published on Third and State.

This afternoon, Pennsylvania will hit a less-than-noble milestone: $200 million lost to legislative inaction on a Marcellus Shale drilling tax.

We’re talking about lost revenue that could have helped prevent cuts to schools, colleges, environmental protection and health services for the state’s most vulnerable.

The Pennsylvania Budget and Policy Center is tracking in real-time how much drilling tax revenue has been lost since October 1, 2009 by not having a tax in place. The ticker will hit $200 million by mid-afternoon on Friday.

Click here view the Drilling Tax Ticker.

Across the country, 98% of natural gas is produced in states that have drilling taxes or fees. In many energy-producing states, that revenue supports critical services like education and health care, as well as environmental protection and the local impacts of drilling.

Pennsylvania is the largest mineral-rich state in the nation without a drilling tax or fee of any kind. All 11 states with more gas production than Pennsylvania have a tax or fee. Unlike those states, Pennsylvania is giving away a one-time resource.

As PBPC Director Sharon Ward put it in a recent press release: “Lawmakers have allowed drillers to avoid a tax that they pay everywhere else, and middle-class families are paying the price. $200 million could have kept more teachers in the classroom, college tuition more affordable and prevented a hike in property taxes.”

Pa. Senate Drilling Fee Moves Forward, with Changes that Further Weaken Bill

A blog post from Michael Wood, originally published on Third and State.

Pennsylvania state Senator Joe Scarnati’s legislation to enact a Marcellus Shale gas drilling fee was amended and voted out of the Senate Environmental Resources and Energy Committee by unanimous votes Tuesday.

Unfortunately, the amendment offered by committee chair, state Senator Mary Jo White (R-Venango), makes an already weak bill a lot weaker.

The revised bill significantly reduces the fee paid by wells from what was proposed by Senator Scarnati (R-Jefferson) and limits the assessments to the first 10 years of well production.

Our initial analysis indicates the bill would set the effective rate of the fee over the 40-year life of a well to about 1%. This is significantly lower than any other drilling tax or fee plans in the General Assembly. Senator Scarnati’s original fee structure carried an effective rate of 3.1%.

The bill lets the drillers off the hook, with a tiny tax that provides no funding for schools, colleges, health care or human services. It provides little to no funding for the state to finance responsible oversight of well drilling, let alone funding for clean air and water.

Meanwhile, the General Assembly is poised to adopt a budget that will make large cuts to education, continue underfunding human services, raise college tuition costs and reduce services for people who are vulnerable.

The revised bill narrowly defines the types of environmental and conservation investments that can be made. Senator White’s amendment specifically prohibits local governments from using fee revenue for environmental programs, trails, parks, open space, flood plain management, conservation districts, and agricultural preservation.

A drilling tax should help to compensate local governments for drilling-related costs, but the revised bill keeps a provision in the original plan permitting funds to be used for property tax reductions in drilling counties, including communities that don’t have a single active well. The revised bill also keeps a provision that holds local governments hostage by requiring them to adopt a standard zoning ordinance in order to access funding.

The good news is that the bill will now move to the floor of the Senate, where it can be improved with further amendments. As Jan Jarrett writes at the PennFuture blog, several Environmental Resources and Energy Committee members, including state Senators Ted Erickson (R-Delaware), Lisa Baker (R-Luzerne), John Yudichak (D-Luzerne) and Andy Dinniman (D-Chester), voted to move the bill forward but had serious concerns about it and promised to introduce amendments on the Senate floor.

“Their concerns covered the amount of revenue that would be raised, the lack of support for Growing Greener, restrictive model ordinance language and the failure to address statewide impacts of drilling,” Jan wrote. “The floor debate should be interesting.”

With little benefit from this fee going to parts of the state outside the Marcellus Shale, it will be particularly interesting to see what position senators in non-drilling communities take. Stay tuned.

Even Newt Gingrich Supports a Marcellus Shale Severance Tax in Pennsylvania

Newt GingrichThe Pennsylvania Senate has adjourned for the year without taking up a Marcellus Shale severance tax bill, despite  promising to enact the tax in last summer’s state budget agreement.

Since then, a few high-profile Republicans – including former U.S. House Speaker and leading conservative figure Newt Gingrich – have voiced support for enacting the tax.

Five southeastern Pennsylvania senators – Sens. Ted Erickson of Delaware County, Stewart Greenleaf and Bob Mensch of Montgomery County, and Chuck McIlhinney and Robert Tomlinson of Bucks County – have written to Senate President Joe Scarnati to urge him to work toward passing a severance tax before the year's legislative session ends.

Former Governor Tom Ridge has said Republican gubernatorial candidate Tom Corbett, if elected, could sign a severance tax into law without running afoul of a no-tax pledge he signed.

“I've got to say that, if the dollars were going to a specific cause — enforcement, regulation, support [for] local communities, counties — I personally don't think the public would view that as going back on his pledge,” Ridge told the Allentown Morning Call. “It wouldn't affect them, it would socialize the benefit of these companies' presence.”

And just last week, Newt Gingrich added his voice to the growing chorus calling for an “appropriate” shale tax in Pennsylvania. His quote (brought to you by Capitol Ideas with John Micek):

 

I don’t have any sense in detail about how they should deal with it. They should adopt a policy which maximizes the rate at which we develop the Marcellus shale reserves. Because at American Solutions we have an American energy policy and our position is that, for both national security reasons and for financial reasons, we ought to do everything we can to develop American energy resources.

The new technologies of the last 10 years that enable us to access gas in the Marcellus shale is literally a game-changer in terms of the volume of natural gas available in the United States.

And my view is very simple: If your choice is a building boom in Harrisburg, Pittsburgh and Philadelphia or a building boom in Venezuela, Iran and Saudi Arabia, I think we ought to have an American policy that maximizes American energy, keeping American money to create American jobs and have a building boom in America.

And I would say, within that framework, you ought to have an appropriate tax of some kind because we’ve always had some level of energy tax. But it ought to be designed to maximize the rate of development, not to discourage it.

A Hundred Million Dollars Lost to Legislative Inaction on Severance Tax

( – promoted by John Morgan)

Governor Ed Rendell made headlines across the state today with his announcement that efforts to enact a natural gas severance tax are “clearly dead” for the year. Good news for the natural gas industry; bad news for the people of Pennsylvania.

How bad? The Pennsylvania Budget and Policy Center has been tracking in real-time the amount of severance tax revenue lost since October 1, 2009 by not having a tax in place. This weekend, the Severance Tax Ticker will hit $100 million!

That's $100 million that could have gone to protecting the environment in the Marcellus Shale region of the state and reimbursing local communities for some of the increased drilling-related costs they're incurring – things like road and bridge damage caused by heavy truck traffic and increased emergency response calls. Severance tax revenue could have prevented some of the cuts we've seen to early childhood programs, libraries and domestic violence shelters in the wake of the state's recession-driven revenue crisis.

The Legislature promised as part of last summer's state budget agreement to enact a severance tax by October 1, but state Senate leaders spent the fall session throwing up obstacle after obstacle to getting the job done. In the end, they adjourned without taking up the bill – putting the interests of out-of-state drillers like Exxon Mobil and Shell ahead of the interests of Pennsylvania communities.

Plan Would Mark Significant Compromise on Severance Tax

( – promoted by John Morgan)

In the waning days of the 2009-10 legislative session in Harrisburg, lawmakers are negotiating the contours of a severance tax on natural gas production in the Marcellus Shale.

On Tuesday, Governor Ed Rendell and House Speaker Keith McCall laid out a plan they had proposed to Senate Republican negotiators. It is a significant compromise that would reduce revenue for health care, education, local governments, and environmental cleanup by 40% from the plan the Governor earlier proposed.

Still, Senate GOP negotiators rejected the compromise and have refused to budge from a plan that generates one-quarter of the dollars that the Governor’s plan would raise.

The compromise plan would phase in the severance tax rate at 3% in the first year, 4% in the second year and the full 5% by year three. It would preserve an exemption for low-producing wells – those producing less than 60 thousand cubic feet (MCF) per day.

The Senate should keep its promise and enact a responsible severance tax. The people of Pennsylvania should be compensated for the loss of this resource, and gas producers should pay their fair share, like the rest of us. The Senate proposal, however, falls short of these basic goals.

Comparing Severance Tax Plans

Below is a chart showing how much revenue would be raised from the  Governor's severance tax plan, the House-passed severance tax bill  (SB1155), the Senate GOP plan and the proposed compromise.

Severance Tax Revenue Comparison

A Significant Tax Break for Industry

Both the compromise severance tax plan and the Senate Republican plan would provide significant tax breaks to the natural gas industry.

By the 2014-15 Fiscal Year, the compromise plan would raise 60% of what the Governor's plan would generate in revenue and 53% of what the House-passed bill would bring in. The Senate GOP plan would generate only 26% of the revenue raised by the Governor's plan and 23% of what the House plan would bring in.

News & Notes September 29, 2010

Things got a bit crazy there last week between preparing for my trip, changing the plans to drive instead of flying, having the lightning strike then spending four days on the road all the while campaigns and events were happening.  There’s tons of stuff to get to so I might do more than one News & Notes today catching up.

While I’m here in New Mexico’s state capitol I might mosey over to the Roundhouse and rustle up some information on this state’s experience with shale gas drilling.  The energy companies have been in some New Mexican areas fracking for gas for several years.  I’ll see what I can dig up.

Meanwhile the Pennsylvania Budget & Policy Center has their latest report on Marcellus Shale severance tax rates and its interesting.  The industry, through its bought and paid for mouths in the legislature, is claiming falsely that SB 1155 calls for a severance tax rate of 7.3% which puts it below that of western states which include property taxes on top of the gas tax to bring an effective rate of 7.9%  The gas drillers haven’t left any of these states for “greener pastures” and New Mexico’s shale gas is a fraction of that in the Marcellus formation.  These are scare tactics designed to let them exploit a non renewable resource belonging to Pennsylvanians.

President Obama was in Albuquerque yesterday before traveling to Wisconsin trying to motivate liberal Democrats to vote.  He and VP Biden, who was at Penn State, are criticizing us for being “whiners.”  The White House is so f*cking tone deaf it is beyond comprehension.  Instead of castigating those it betrayed they should be apologizing and begging for understanding.  I’m simply astounded by their cluelessness.

polls seem to be all the place this fall.  I’m not sure, going forward, how accurate any polling is.  More and more of us are going to cell phone only, especially the youth, and are outside the scope of traditional polling.  I also think these samples are highly sensitive to whomever happened to be contacted and show a divergent electorate.  I think anything can and will happen in November.  For example last week an F&M poll showed Mike Fitzpatrick leading Patrick Murphy by double digits in PA-10, something I found hard to comprehend.  Yesterday another poll puts Murphy ahead by 3.  The only poll which counts will be the one on election day.

Veterans and labor are joining other groups to do canvassing and phone banking at a feverish pace.  While organizations such as Karl Rove’s American Crossroads are pumping $50 million into ads this year the work on the ground remains the focal point of voter contact.  The Citizens United decision is having a serious impact on this race as billionaires are dumping millions into anonymous contributions.  You, the voter have a right to know who is funding these ads.

Manan Trivedi has a very effective ad attacking Jim Gerlach for his giant faux pas attacking his opponent for being out of the district for eight years.  Manan explains why to the voters with this ad:

Commonwealth Court went after Big Pharma Bristol-Myers Squibb for gouging Pennsylvania taxpayers last week.  They caught the company cheating us for drugs for the senior prescription program.  Businesses are constantly crying about all the regulations they are forced to endure but if they weren’t all crooks these wouldn’t be necessary.  Honest people don’t need someone holding them accountable, crooked ones do.  This is but one more example.  I’m fed up with Chamber of Commerces crying and whining about this through their elected representatives.

On my drive west through Pennsylvania Saturday I heard a radio ad by Pat Toomey touting his experience as a small business owner.  Toomey’s family owned and operated several restaurants in the Lehigh Valley, presumably with the funds he earned on Wall Street.  Pat co-owned the business but never managed or operated it, his brothers did that work.  Pat Toomey was in Hong Kong then working for an Enron investor who was caught defrauding shareholders:

I’ve nailed down what Toomey did during that year: His campaign confirms to me that he did research on capital market formation in southeast Asia for a company owned by the billionaire Chan brothers, one of whom, Ronnie Chan, was a former Enron director who settled a massive $168 million lawsuit brought against the company by shareholders.

Toomey’s boss has been fighting democratic progress in China and is tied to China’s refusal to float their currency.  That policy is costing millions of American jobs.

Tall Tales About Deep Wells: Setting the Record Straight About a Pennsylvania Severance Tax

(Important information, please click through to the linked articles. – promoted by John Morgan)

As Pennsylvania lawmakers debate the structure of a severance tax on natural gas extracted from the Marcellus Shale formation, the Pennsylvania Budget and Policy Center has been busy educating lawmakers and the public on how to shape a tax that is fair to all Pennsylvanians.

A key part of that effort is a series of brief reports we're calling “Tall Tales About Deep Wells.” You can check out the first two parts in the series here and check back often as we continue to set the record straight about the impact of a severance tax.

In our latest report, we take a close look at the tax plan put forth by the Marcellus Shale Coalition, a group representing the natural gas industry. The industry plan invokes the tax model in place in Arkansas, but in fact it is far more generous than Arkansas's severance tax, with a lower effective rate and outright exemptions in the later years of production. The industry plan would significantly reduce revenue collected from the tax, which is intended to compensate Pennsylvanians for the removal of a valuable non-renewable resource. It's a bad deal for Pennsylvanians.

Our other report takes apart the myth that severance taxes impede industry growth by taking a look at neighboring West Virginia, which has a severance tax and is experiencing significant new drilling activity, investment, and industry job growth.

Check out the reports on our web site. They're brief, easy to read and will open your eyes to what's happening with the severance tax in Pennsylvania.

Shaping a Marcellus Shale Tax that is Fair to Pennsylvanians

State lawmakers will return to Harrisburg in a few weeks and one of the major policy issues on their fall agenda is the passage of a severance tax on natural gas extracted from the Marcellus Shale formation.

In a new report, the Pennsylvania Budget and Policy Center (PBPC) makes several recommendations to ensure that lawmakers enact a severance tax that fairly compensates residents for the removal of this nonrenewable resource. The recommendations include:

        
  • Setting a reasonable tax rate that is comparable to West Virginia's rate in order to remove any incentive or disincentive for drilling in one state or the other;
  •     

  • Limiting unnecessary loopholes and deductions, including a tax break for the recovery of capital investments and an exemption for low-producing wells; and
  •     

  • Creating a sensible plan for sharing revenue between the state, local governments and environmental programs.

The report also recommends that lawmakers reverse a 2002 court decision that has prevented local governments and school districts from assessing property taxes on oil and gas interests. Finally, the center urges lawmakers and state officials to ensure that there is transparency in collecting and reporting drilling production.

Every state with mineral wealth, except Pennsylvania, imposes a severance tax to compensate residents for the removal of nonrenewable resources. The tax is an important source of state revenue to support services such as education, health care, environmental protection, early childhood education, and support for people with disabilities. It also provides revenue to local governments in many states to help pay for the social and public costs of increased drilling.

Check out the Pennsylvania Budget and Policy Center's report today! It's brief, easy to read and lays out the important policy considerations before lawmakers as they shape a Marcellus Shale severance tax.

You can also access other reports and resources at PBPC's Severance Tax Resource Page.