I was worried when I started reading your post that you were going to come out against exploration of the shale. Natural gas is both a "clean fuel," that has to be part of any realistic effort to reduce carbon emissions, and crucial to any sort of energy independence in this country.

Where you ended up, though, is exactly where this debate needs to go. Increasing natural gas capability in the country is a fantastic idea, and efforts should be spent figuring out how to do it without ruining environmental assets. Also, this is the chance to make sure that the enormous amounts of $ which will result from this resource go to help the State.

Options 1 and 2 are fine, but really can be subsets of option 3. The State should work with experts in the field to figure out what the profit margins on this are going to be based on the cost of exploration. That will tell us what the taxable threshold is, and we should pursue taxes up to that threshold.

An asset that can be depleted is usually going to face a hard road in getting proper taxes out of it. It's a classic form of rent-seeking which has become a high art in West Virginia, where many of the Marcellus operators are well-entrenched and indeed originate from there.

Pennsylvania law allows for assessment of mineral values as real property; this practice is nearly extinct, but can be brought back, but the county assessor has to be searching for the gas value, coal value, whatever its (carrot mines, like in Bugs Bunny?).

The problem is that in 2002, the ever-enterprising Supreme Court of PA ruled that gas and oil must be specifically mentioned as an assessable subject of value by state law. Of course, that flies in the face of PA assessment law, which depends on stated exemptions to define taxable subjects. And you thought the court only messed with Philly. :)

The good news is that the state could pass an act defining oil and gas as subjects of taxation; or some plaintiffs in a class-action suit could move to overturn the decision. In any case, once that happens, there is then a "holding tax" based on what's down there.

Next step is the tried and true severance tax; with the proceeds going not to the general fund - or not all - but going to defined areas or people affected by their kitchen sink faucets shooting out flames (the video is a good one).

I don't see any argument that can be made that a holding tax (of "untapped " value) conflicts with a severance tax. Of course, I am not a gas company lawyer.

My next step would be a winner for our Governor and others on his Magical Mystery Tour: a citizens' dividend, paid out by the severance tax (or the holding assessment, but that might run into constitutional issues?) to each and every Pennsylvanian including Philadelphians; a coda to our wish that Pennsylvania truly be a Commonwealth.

http://www.timesleader.com/news/hottopics/shale/Pa_considers_adding_natu...

Joshua Vincent
www.urbantools.org
www.ourcommonwealth.org
Phree Philly

Err . . . I don't have much to add to what is a really eye-opening post. Thanks.

Given my lack of knowledge about Brady's extensive study of the Marcellus Shale project: it just seems amazing that I would today get this press release linking that project with school funding, specifically the move to eliminate the property tax.

FOR IMMEDIATE RELEASE
May 4, 2009

Rohrer Reintroduces School Property Tax Elimination Act
Touting the benefits Pennsylvania has lost by not acting sooner, Rohrer says eliminating the unfair tax would jumpstart Pennsylvania’s economy

HARRISBURG— Hailing it as the single most important step Pennsylvania lawmakers could take to jumpstart the state’s economy, prime sponsor Rep. Sam Rohrer (R-Berks) today unveiled the School Property Tax Elimination Act (SPTEA).

“The SPTEA offers a dramatic comparison to the current federal stimulus plan,” Rohrer said. “Compared to the federal stimulus of $18 billion over three years, the SPTEA would infuse approximately $7 billion annually into the economy, as homeowners are freed from their onerous property tax bills. The magnitude of the plan simply dwarfs any other options, without using government spending or subsidies, and puts billions into the hands of our citizens to pay their bills, invest in the economy or support local businesses.

“No tax should have the power to leave you homeless,” Rohrer continued. “Seniors citizens, retired couples, young families, recently laid-off workers—through no fault of their own, all these people are standing on the precipice of losing their homes, as their pensions have plummeted and incomes have been reduced or even eliminated. For families struggling to make mortgage payments, this plan offers the only true hope of remaining in their homes and securing their home ownership.”

The bill is distinctive in that it remains the only plan that has the capacity and the simplicity to present a comprehensive restructuring of the way Pennsylvania funds its schools and addresses issues of spending controls, predictability, debt, and distribution. Instead of relying on local school property taxes, school districts would receive their primary source of funding from an expanded state sales tax. The sales tax rate would remain at 6 percent, but would be expanded to include some currently tax-exempt items. Food, clothing, prescription medications and other essential items and services would not be taxed under Rohrer’s plan. The SPTEA also would use new rent and royalty payments generated through expanded natural gas harvesting activities on state forest lands to fund Pennsylvania schools.

“Partial reduction is not the answer,” Rohrer stated. “Taxes continue to rise unabated, and the governor’s so-called ‘Property Tax Relief Fund’ barely makes a dent in what most taxpayers have to pay. It’s a political response, designed to alleviate the problem and never solve it, and it has distracted from the real issue. The only solution is complete and total elimination.”

Funds from the expanded state sales tax and the revenues from Marcellus Shale natural gas development would be deposited into a newly created Education Operating Fund (EOF). The money in the EOF would be used to implement a four-year phase out of school district property taxes. The phase-out would ensure a smooth transition into the new system without disrupting normal operations of either schools or businesses.

“When we first introduced the idea of school property tax elimination, our proposal ran parallel with Governor Rendell’s proposal to use gambling proceeds to relieve—never solve—the property tax burden,” Rohrer said. “Here we are, seven years later, and homeowners have received just one payment, and a pittance at that, to help with their taxes. Had we enacted the SPTEA back then, we would have already passed through the four-year phase out. Homeowners would not only be free from paying any school property taxes, but the state would have had the time to build up the excess revenue in order to weather this current economic storm.”

The SPTEA addresses the spending side of the equation, tying the school districts’ revenue to the sales tax. Under the current system, as overall property tax revenue decreases because of increasing foreclosures and delinquencies, schools are forced to consider raising their property tax rates, further burdening those who can pay and creating a vicious cycle of foreclosures and delinquencies. Under Rohrer’s plan, the sales tax would continue to create a stable form of revenue. Even in difficult economic climates when the sales tax revenue declines, schools would be forced, along with all Pennsylvanians, to reduce their spending.

Rohrer argued that using the state sales tax to fund education poses significant benefits over the existing property tax system. Specifically, he noted that the sales tax was instituted in 1953 expressly for the purpose of educational funding, and as such remains the best-suited source for the schools because sales tax revenue—and thus school revenue—will grow as the economy improves. In addition, Pennsylvanians will have more control over the amount of taxes they pay, as they can increase or reduce their tax burden based on the purchases they make. Finally, sales tax revenue is sensitive to economic realities, ensuring that when Pennsylvania families are forced to reduce their consumption, schools also will be forced to reign in their spending.

Rohrer’s plan also offers the first real opportunity for voters to have direct control over any future tax increases. Under the SPTEA, any future tax increases would have to be approved by voters through a ballot referendum.

“Under the provisions of Act 1, the voter referendums we have are what I like to call ‘taxpayer protection in name only,’” Rohrer said. “Sure, we have a law that says voters are supposed to have the right to approve or deny any school tax increases. But the Department of Education usually grants the district an exemption and the voters never have a chance to vote on the tax increase. My plan offers real voter empowerment where previous plans offered only false hope.”

“For years, school property tax elimination seemed like a pie-in-the-sky idea to lawmakers in Harrisburg—a noble but impractical goal,” Rohrer said. “But we have a plan to make that dream a reality. Now, it is only a matter of whether state lawmakers choose to listen to their constituents and then act upon their cries in order to make that dream come true for Pennsylvania property taxpayers.”

The SPTEA will be introduced as House Bill 1275. For more information about the proposal, visit Rohrer’s Web site at SamRohrer.com.