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Opinion- A Fiscal Conservative's Approach To The Natural Gas Severance Tax
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By Rep. Garth D. Everett You may have heard quite a bit of buzz about implementing a "severance tax" on Marcellus natural gas production in Pennsylvania. Just to be clear, a "severance tax" is a tax imposed on a nonrenewable resource, such as oil or natural gas, at the time the resource is extracted or "severed" from the earth.
Most gas-producing states levy a severance tax of some sort on natural gas production that is based on the volume and/or value of the gas that is produced. Generally, landowners pay their share of the gas severance tax based on their royalty percentage and will see these taxes deducted on their monthly royalty revenue statements. Then the gas companies pay the balance of the tax.
Despite Pennsylvania being the birthplace of the oil and gas industry, we have never instituted a severance tax on either oil or gas. However, the increase of Marcellus Shale natural gas production in Pennsylvania along with the slumping revenues from the state's traditional sources of revenue for the General Fund, mainly sales and income taxes, have made the subject of whether to institute a severance tax in Pennsylvania an issue of hot debate in the General Assembly.
One of my main concerns is not the tax itself but what we, as a state, do with the proceeds of both the tax and the royalties the state receives from its leasing of state-owned land. I believe that the Marcellus Shale gives us a unique opportunity to make some wonderful long-term investments that will help put Pennsylvania on a solid financial footing for generations to come.
First, let me simply say that I do not believe that the Commonwealth's proceeds from the Marcellus Shale, whether they be tax revenue or royalty payments, should go into the General Fund or otherwise be used for day-to-day operations of state government. This revenue is only going to last for a finite period of time and we should not become reliant upon it to operate our government, nor should we establish new programs to be funded by it.
I think that it is obvious that the first priority for any revenue from Marcellus gas should be used to deal with the direct, local impacts of its development.
I suggest we initially put all the state's Marcellus Shale proceeds in a restricted "impact fund" to be used only for compensation for the direct impacts of gas development.
For example, if the Department of Environmental Protection, the Pennsylvania Fish and Boat or Game commissions or county conservation groups need more people on staff to monitor and enforce regulations related to the development of the Marcellus Shale, they apply to the fund, explain why they need the funding and get funded if it is deemed that their need is directly related to Marcellus development.
Likewise, PennDOT, a county, a local municipality, a non-profit conservation group, or even a housing, medical, educational or social service agency, which could identify an impact or need resulting from Marcellus development, could apply to the fund.
All this would be done through a non-partisan and unbiased agency which would monitor and administer the fund. This way, we could ensure that all impacts of the development are addressed and treated fairly.
During the fiscal year, any amount in excess of $250 million would be transferred from the "impact fund" into a restricted "investment and debt reduction fund." This fund would be used to do exactly what the name implies - make investments in Pennsylvania's infrastructure and environment and pay down our existing state debt.
After dealing with the direct impacts of the development, we should use any gas revenue for long-term infrastructure investments and environmental remediation in Pennsylvania that will benefit us, our kids and our grandchildren, and relieve future generations of the debt load with which we have already saddled them.
Locally, these funds could potentially be used for required upgrades to sewer systems resulting from the Chesapeake Bay initiative, expanding sewer and water systems to further clean up our streams and spur economic development, encourage the development of alternative energy production, clean up land and streams damaged by coal mining and make many other long-term infrastructure investments in transportation, communications and technology.
We need to learn from the lessons that Texas and other energy-producing states have often failed to learn from - the "boom-and-bust" cycle. If we become dependent on the gas revenue to fund day-to-day operations of government and to institute new spending programs, what happens when the gas revenue is gone and what will we have to show for it?
We have a great opportunity here in Pennsylvania. We need to make sure we use it wisely.
Rep. Garth D. Everett (R) represents Lycoming County and is Minority Chair of the House Environmental Resources and Energy Subcommittee on Energy. He can be contacted through his website.
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9/13/2010 |
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