House Subcommittee Examines Severance Tax On Marcellus Shale Natural Gas

The state House Appropriations Subcommittee on Fiscal Policy heard testimony Friday on imposing a severance tax on natural gas that is extracted in the Marcellus shale formation, according to the subcommittee's chairman, Rep. Greg Vitali (D-Delaware).

 

"The critical issue examined today is what would be the appropriate fee level and how should the funds be allocated," Rep. Vitali said.

 

The Marcellus shale is a sedimentary rock formation, rich with natural gas that stretches underneath approximately two-thirds of Pennsylvania and into its neighboring states. Of the amount of natural gas available in the region, only a portion of it can be retrieved and utilized. But that number is still twice the amount of natural gas that is used in the Unites States in a year.

 

Gov. Rendell proposes a 5 percent tax on the value of the natural gas extracted, a 4.7 cent tax on every 1,000 cubic feet of natural gas extracted, and that revenue generated from the tax would be diverted to the General Fund in order to offset any revenue shortfalls in the state's budget.

 

Points of view from other presenters were varied among those testifying. Local government representatives discussed the need to bring those dollars back to the host municipality.

 

"It is essential that local revenue be considered alongside any proposal to grant revenue to the state, because impacts are being felt in the local communities, and if the companies do not contribute to the tax base, local property owners are left with the bill," said Doug Hill, executive director, County Commissioners Association of Pennsylvania.

 

Ed Troxell, government relations director of the Pennsylvania State Associations of Boroughs, agreed.

"As some will discuss taxes or fees on the gas industry, Pennsylvania's boroughs want to point to the recent past and the impacts of another quest for an energy-bearing commodity, coal," he said. "We trust Pennsylvania's coal era should help teach us how to avoid the mistakes of that past."

 

Environmentalists believe the tax should go to conservation efforts that repair environmental damage that can occur.

 

According to Thomas Au, conservation chairman of the Sierra Club, "Gas drilling causes unavoidable and damaging environmental effects. A severance tax would compensate the Commonwealth for repairing the long-term damage to our environment."

 

Andy Loza, executive director, the Pennsylvania Land Trust Association, said the industry already pays a tax on similar work in other states.

 

"The natural gas boom will impose heavy costs on our communities and environment," he said. "It is only fair that the industry pay a severance tax — like it does in other gas producing states — to help offset the impacts of drilling and piping gas around the Commonwealth."

 

The business community has concerns regarding the impact a severance tax would have on bringing businesses in and on landowners where drilling would take place.

 

"Our concern is with the impact of the severance tax on the oil and gas industry and on landowners," said Steve Rhoads, president of the Pennsylvania Oil and Gas Association. "We also need to discuss the proposed tax in the context of the current budget deficit and the reliability of Gov. Rendell's severance tax revenue projections,"

 

But Mike Wood, research director at the Pennsylvania Budget and Policy Center, said a severance tax would merely bring Pennsylvania in line with the other states that already levy such a tax.

 

"Twenty-seven states levy a severance tax on natural gas production," Wood said. "The rate proposed for Pennsylvania's natural gas severance tax is competitive with these other states and matches the rate of neighboring West Virginia."

 

"I agree there should be a tax on this resource and that the lion's share of any revenue generated by a severance tax should go to the general fund first, but also a portion should go to conservation measures and to the municipalities involved," Rep.Vitali said. "Those exact amounts would have to be determined during budget negotiations over the coming months."