Drilling Tax

Pennsylvania's Natural Gas Tax Giveaway Exceeds $500 Million Mark

By Michael Wood, Third and State

The state's Department of Environmental Production (DEP) recently published a biannual report on Marcellus Shale production in Pennsylvania. (Most states require monthly reporting, but that is a different story.) In the data, we can now see how much the state has really given away by refusing to put a robust gas extraction tax in place — and the sum is staggering.

From July 2009 to June 2012, over $8 billion worth of natural gas was extracted from Pennsylvania’s share of the Marcellus Shale. The Commonwealth would have collected more than $500 million had we had West Virginia's natural gas tax in place. Instead, we got $0.

The recent DEP report was incomplete, as the Associated Press highlighted. Production from Chesapeake Energy (likely the state's largest gas producer) wasn't included nor disclosed as being missing in the initial release. Add in the production from Chesapeake over the last six months, and the lost tax revenue figure would be even bigger.

You may remember the Pennsylvania Budget and Policy Center's "drilling tax ticker," which tallied up the lost revenue to the state from not having a meaningful drilling tax in place. Those figures were based on conservative estimates of per-well Marcellus Shale production. We now have real production data (well, all drillers but Chesapeake) to analyze — giving us more accurate estimates.

Gas producers will pay an annual drilling impact fee beginning September 1, 2012, but the proceeds from the fee are expected to be lower than a modest drilling tax would bring in — even at today's low natural gas prices.
Click to enlarge

How could this foregone $500 million over the last three years been used?

  • Rehire 3,000 teachers;
  • Save General Assistance for 68,000 needy Pennsylvanians;
  • Restore funding for parks and environmental protection; or
  • Help the state meet growing pension obligations.

Pennsylvania continues to lose out on this one-time resource and may possibly be turning our natural bounty into a resource curse. These new data give us an idea of how much we are giving away.

Giving Away the Store: A Fact Check on Corbett/Ellis Marcellus Fee Plan

Download a PDF of this fact sheet

By Michael Wood, Research Director, & Sharon Ward, Director

The average Pennsylvania Marcellus Shale gas well is projected to generate $16 million over its life.[1]

The Pennsylvania Budget and Policy Center compared four leading drilling tax and fee proposals before the General Assembly to determine the total tax revenue raised by each over the life of an average well. The effective tax rates for the plans ranged from 1.0% to 4.7%. Governor Corbett’s proposal would collect $160,000 over the 50-year life of an average well. A comparable well in Texas would raise $878,500 – five times more than Governor Corbett’s plan.

Plan Total Fee/Tax Revenue Effective Fee/Tax Rate
Scarnati: SB 1100 $505,000 3.1%
Quinn: HB 1700 $710,000 4.4%
Murt/DiGirolamo: HB 1863 $770,000 4.7%
Corbett/Ellis $160,000 1.0%

Other shale gas-producing states ask much more from drillers.

Don't Want to Give Gas Drillers a Free Pass in PA? Sign Our Letter to State Lawmakers

A blog post by Kate Atkins, originally published at Third and State.

Any doubt about the level of public concern over Marcellus Shale drilling in Pennsylvania should be put to rest by the turnout at a series of citizens hearings over the past six weeks. Hundreds came out to testify about the impacts of drilling in their communities at hearings held by the Citizens Marcellus Shale Commission in Williamsport, Towanda, Philadelphia, suburban Pittsburgh and Harrisburg.

Sign Our PetitionIn the state Legislature, momentum is building among lawmakers to get tougher on Exxon, Andarko, Shell, and the other big natural gas drillers that have been extracting this non-renewable resource tax-free for the past three years. Legislators remember coal: when this industry is gone, we want to have something to show for it.

Every other state with significant mineral wealth is taxing it, and most use that revenue to educate the next generation’s workforce, protect our environment, maintain transportation and information networks, and otherwise build a stronger economy. Because we know this boom won’t last forever, we need to lay the groundwork for a better future for our children and grandchildren.

New York Times on Marcellus Shale: With Growth Comes Problems

A blog post by Sharon Ward, originally published at Third and State.

In a recent article examining the impact of Marcellus Shale drilling in Pennsylvania, The New York Times asked me to put the state's tax policy on gas drilling in perspective. I explained that drilling isn't producing the tax revenue needed to address the significant impacts of drilling or to support shared state priorities. Reporting from Montrose, Pa., reporter Kit Seelye writes:

The [Marcellus Shale] gas boom is transforming small towns like this one (population 4,400 and growing) and revitalizing the economy of this once-forgotten stretch of rural northeastern Pennsylvania. The few hotels here have expanded, restaurants are packed and housing rentals have more than doubled ...

But the boom — brought on by an advanced drilling technique called hydraulic fracturing, known as fracking — has brought problems too. While the gas companies have created numerous high-paying drilling jobs, many residents lack the skills for them. Some people’s drinking water has been contaminated. Narrow country roads are crumbling under the weight of heavy trucks. With housing scarce and expensive, more residents are becoming homeless. Local services and infrastructure are strained.

“Very little tax revenue goes to local governments to help them share in the benefits of the economic development,” said Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, an independent policy research organization.

A Mainstream Plan for Taxing Natural Gas Drilling in Pennsylvania

A blog post by Sharon Ward, originally published at Third and State.

On Tuesday, I joined state Representatives Tom Murt and Gene DiGirolamo at a press conference announcing their bill to enact a natural gas drilling tax that would support shared statewide priorities like education and human services, as well as local impacts and environmental protection.

Almost 98% of natural gas produced in the United States is subject to a drilling tax or conservation fee. This legislation would finally put Pennsylvania into the mainstream of energy-producing states. It would address the impacts of drilling but go beyond that to support economic growth and more opportunities for Pennsylvanians.

You can listen to a two-minute podcast of my remarks from the press conference below and click here to read more about the Murt-DiGirolamo plan (including a link to the lawmakers' co-sponsorship memo).

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.


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