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Sen. Scarnati Announces Proposed Marcellus Shale Drilling Impact Fee
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Senate President Pro Tempore Joe Scarnati (R-Jefferson) this week unveiled a Marcellus Shale impact fee proposal he said will generate $121.6 million in FY 2011-12, more, he said, than the proposal many Senate Republicans were willing to support during last year's discussions. The proposal would have a base fee of $10,000 per well, plus an additional factor for gas production and the price of gas. Over time, Sen. Scarnati said, as production and the price of natural gas increases to $5 per MCF, his proposal could generate $1 billion in revenue over five years.
The Public Utility Commission would be in charge of administering the fee and distributing the proceeds to county and local governments impacted by drilling and to the statewide restoration programs included in the plan.
"Since the beginning, I have felt that a majority of revenues from the industry needs to remain local, and this proposal clearly provides that parameter," Sen. Scarnati stated. "A fee assisting those communities where the drilling takes place and where road improvements, water and safety enhancements are needed makes a tremendous amount of sense."
Sixty percent of impact fee revenue would go to a newly established Local Services Fund for counties and local governments affected by drilling operations: 36 percent for counties with producing wells, 37 percent municipalities with producing wells and 27 percent to municipalities without producing wells, but located in counties with producing wells.
These funds could be used by counties for:
-- Reconstruction, maintenance and repair of municipal roadways and bridges;
-- Preservation and improvement of municipal water supplies;
-- Maintenance and capital improvements to municipal waste and sewage systems;
-- Preservation and reclamation of the surface waters of the municipality; and
-- Other lawful purposes reasonably related to the health, welfare and safety consequences of severing natural gas in the municipality.
The remaining 40 percent of the fee revenue would go to:
-- County conservation districts, perhaps as much as half of this amount; and
-- Statewide environmental and infrastructure impacts, including environmental cleanup projects distributed through the Commonwealth Financing Authority, water and sewer infrastructure, impacted state highway improvements and hazardous sites cleanup.
Sen. Scarnati said he is open to discussing changes to the proposal, but would not look to reduce the 60 percent share of revenue going directly to impacted local governments.
"While not all communities have Marcellus shale, it is my sincere belief that everyone will be impacted by this developing industry," Sen. Scarnati added. "There is little question that the goal of this proposal is not only to help our local communities, but it is also to help protect our environment statewide."
The proposal would also direct the Public Utility Commission to publish a model municipal zoning ordinance to regulate Marcellus drilling operations within their existing authority. Any county or municipality adopting measures which go beyond this model ordinance would be ineligible for impact fee revenue.
The $121.6 million revenue estimate for the proposal's first year are based on collecting the new fee for both 2010 and 2011 from Marcellus Shale drilling companies. It uses a natural gas price of $4.50 per MCF and assumes 1,500 new wells per year will be drilled in the state beginning this year.
Sen. Scarnati said he met with Gov. Corbett on Monday and talked about the proposal in detail, saying he got a "yellow light" from the Governor, not a green light or red light, a yellow light.
Late Friday, Gov. Corbett was quoted by Capitolwire.com as saying his Marcellus Shale Commission is documenting the impacts from drilling and until those impacts are identified no legislation should be written.
Lt. Gov. Jim Cawley, who chairs the Governor's Marcellus Shale Advisory Commission, called the Scarnati proposal, "a starting point for conversation, but it also becomes the target for all the slings and arrows everyone might wich to throw at it. I commend Joe (Scarnati) for stepping forward with a proposal. We're going to take a look at all the proposals and make the best, most prudent recommendation to the governor that we can."
With respect to the House, Sen. Scarnati said, "I cannot see how we get a state budget process done with all the cuts without addressing an impact fee on this industry." The public has connected the dots, he said, between big budget cuts and the drilling industry not paying a fee or tax and he's confident House Leadership will too.
The Associated Press reported Steve Miskin, a spokesman for Speaker Sam Smith (R-Jefferson) and Majority Leader Mike Turzai (R-Allegheny), said the $27.3 billion budget proposed by Gov. Tom Corbett is an appropriate amount to fund government operations. Besides, imposing a Marcellus Shale fee or tax does not enjoy broad support among the House's 112 Republican members in the 203-seat chamber.
"Do we as a caucus feel we have to pass a Marcellus tax or fee? No, that does not have 102 (Republican) votes," Miskin said.
Sen. Scarnati said he hopes to introduce the proposal in bill form in about a week and looks to move it out of committee after the May 17 Primary Election break with a final Senate vote in early June.
"Pennsylvania has a tremendous opportunity with the Marcellus shale industry, but we must be vigilant in ensuring our communities and the environment are preserved now and in the future." Sen. Scarnati said. "This is a common sense proposal, and it is a responsible first step in the state's partnership with this industry."
A summary of Sen. Scarnati's proposal is available online, along with revenue estimates for coming fiscal years. Listen to a portion of Sen. Scarnati's conference call with reporters announcing the proposal.
Here's a sampling of the reaction to the Scarnati proposal.
County Commissioners
The County Commissioners Association of Pennsylvania expressed its support for the conceptual outline of the natural gas impact fee released by Sen. Scarnati.
While the Association said it awaits the specific language of the proposal, it notes that the outline presented by the Senator, augmented by his commentary in a media briefing, meets the needs the organization has expressed for funding to address local impacts resulting from exploration and development of Marcellus Shale and other natural gas reserves.
The Association has sought revenues from restoration of property tax assessability of natural gas (lost to a Pennsylvania Supreme Court decision in 2002), a severance tax or an impact fee for this purpose.
Information developed by the Association shows diverse impacts on counties and municipalities, including bridge and highway infrastructure, emergency management and hazardous materials planning and response, 911 services, human services, criminal justice, records management and others.
The Association commented that the outline offered by the Senator meets its policy position calling for dedicated and meaningful funding for host counties, host municipalities, and non-host municipalities in host counties, and appropriately recognizes the broad diversity of local impacts.
The Association termed the funding levels and fund administrative procedures appropriate for local needs while not overburdening the industry. Counties and municipalities would be permitted to use the funds for highway, bridge, water and sewer infrastructure, and for public health, safety and welfare services reasonably related to natural gas development.
As such, they said, it would reduce the burden placed on local property tax payers for increased county and municipal services and expenditures generated by industry activities.
The Association also supports the outline’s allocation of some funding proceeds statewide to conservation districts and some environmental programs.
PA Environmental Council "It is time for Pennsylvania to adopt a reasonable severance tax or impact fee on the natural gas industry," said Paul King, President, PA Environmental Council. 'It does not matter what you call it, but we need new revenues from the industry to pay for the prevention and mitigation of impacts created by drilling. We commend Sen. Scarnati and other legislators who have stepped up to address this need.
“A severance tax or impact fee should not be used to lessen the responsibility that operators have for direct impacts. It can and should, however, be effectively used to help prevent those potential impacts before they occur, and to offset indirect and cumulative impacts in the future.
“It’s clear that much work remains to be done to ensure that the growth of the gas drilling industry is managed responsibly. There are many documented cases of direct costs to specific communities as well as indirect costs to the Commonwealth, and leaders in the industry have already stated their support for a tax or fee to address these costs.
“The Pennsylvania Environmental Council supports a reasonable tax or fee that:
-- Provides additional support and staffing to the Pennsylvania Department of Environmental Protection, Fish and Boat Commission, and county conservation districts for improved management of the industry and to ensure public safety and natural resource protection.
-- Supports local and state efforts to collect better information and develop sound regional planning on proposed well site locations prior to the start of drilling and extraction.
-- Funds the successful Growing Greener program to continue restoration and preservation work that helps citizens and communities address environmental legacy issues and ongoing challenges.
“A severance tax or impact fee should not be used to lessen the responsibility that operators have for direct impacts. It can and should, however, be effectively used to help prevent those potential impacts before they occur, and to offset indirect and cumulative impacts in the future.”
Chesapeake Bay Foundation
Matt Ehrhart, Executive Director of the Pennsylvania office of the Chesapeake Bay Foundation released the following statement in response to President Pro Tempore Joe Scarnati's release of his local impact fee legislation:
“We want to thank the Senator for his leadership on this issue, and for proposing legislation that will address a number of critical funding needs, including environmental protection. Sen. Scarnati’s proposal provides a framework for addressing environmental, and conservation concerns, and provides resources to communities being directly impacted by the development of natural gas.
“Sen. Scarnati’s proposal, as part of a larger funding solution, will address funding shortfalls for key community and environmental issues including: much-needed upgrades to our wastewater treatment plants; improvements to local water quality; restoration of our streams and rivers; increased funding for county conservation districts; and local dollars to be allocated toward meeting Chesapeake Bay restoration requirements.
“However, in order to fully address the current needs, funding for environmental programs must be fully restored. This proposal, combined with funding from the Oil and Gas Fund to address DCNR and other environmental program needs, and funding for the Environmental Stewardship Fund, as proposed by Sen. Don White, would secure the Commonwealth with the ability to restore and protect our environment for future generations.”
“We thank Sen. Scarnati along with Sen. John Yudichak (D-Luzerne), Rep. Camille George (D-Clearfield), Rep. Kate Harper (R-Montgomery), and Rep. Greg Vitali (D-Delaware), who have also proposed funding mechanisms for environmental funding, for their perseverance in bringing this issue to the attention of the Governor and the full Legislature.”
Sen. Jay Costa
Senate Democratic Leader Jay Costa (D-Allegheny) said of the Scarnati proposal: “Senate Democrats have strongly stressed the need to assess a reasonable and responsible tax on shale drillers. The Marcellus Shale gas play is a state resource and all taxpayers should receive the benefits of an extraction fee or tax.
“While I’m pleased that the Senate Republicans recognize the need for natural gas drillers to contribute back to the state for extracting our natural resources, it seems that Senator Scarnati’s plan includes a local distribution formula that creates winners and losers. There is no doubt that the distribution formula, as well as the amount of the levy itself and how it is assessed, will be a focal point of debate as the plan is considered in the Senate.”
Sen. Dominic Pileggi
Senate Majority Leader Dominic Pileggi (R-Delaware) appeared to be lukewarm on the fee which would not provide funding to counties where drilling isn't taking place and told WITF Radio reporter Scott Detrow, “My view is that the entire Commonwealth needs to benefit from an extraction tax, regardless of whether or not communities have wells or pipelines in their own area."
Sen. John Yudichak
Sen. John Yudichak (D-Luzerne), Minority Chair of the Senate Environmental Resources and Energy Committee, said, "I am encouraged by the bi-partisan consensus that is building in Harrisburg to impose a Marcellus shale tax or fee to protect local communities and Pennsylvania's environment.
"I applaud Senator Scarnati for weighing into the debate with a serious proposal that recognizes that the natural gas corporations must pay their fair share toward the responsible development of the Marcellus shale industry in Pennsylvania. While I have some concerns with this proposal and the limited resources it may generate, I look forward to working with Sen. Scarnati and the Administration to get comprehensive Marcellus shale policy in place by end of this years' budget process."
Sen. Yudichak introduced Senate Bill 905 with Sen. Ted Erickson (R-Delaware) that would impose a production based – severance tax starting at 2 percent and growing to 5 percent. The funding from Sen. Yudichak's proposal, similar to Sen. Scarnati's impact fee proposal, would not go to the state general fund budget; it would be directed to impacted local communities and statewide environmental protection programs.
Rep. Camille George
Rep. Camille George (D-Clearfield), Minority Chair of the House Environmental Resources and Energy Committee, said Sen. Scarnati's proposed "local impact fee" on Marcellus shale gas drillers is a welcome first step toward fairness for Pennsylvania taxpayers.
"Acknowledgement by Senate GOP leadership that the Marcellus industry must step to the plate to address its gas-extraction responsibilities is an overdue but needed step in the process," said Rep. George. "At least now we can move past the boilerplate refusal to consider fair fees.
"What we see today from Sen. Scarnati contains promising aspects," Rep. George said. "However, I have deep concerns with the funding levels, potential intrusion on local control and the mechanisms that would be employed to implement the policies."
"Several key parts of this bill are very similar to my severance tax proposal," Rep. George said. "My House Bill 833, the Natural Gas Severance Tax Act, allocates a majority of the funding to local governments, with the rest being distributed to infrastructure and environmental programs and efforts.
"Both of our measures do not send money to the General Fund," Rep. George said. "Unfortunately, most similarities end there."
Rep. George questioned the ability and suitability of the Public Utility Commission crafting a model zoning ordinance that local governments could not exceed and still receive local impact fees. The proposal also calls on the PUC to collect and distribute the revenues.
"This could be outright scary, and I've yet to deduce what qualifies the PUC to write local zoning ordinances for drilling," Rep. George said. "The Oil and Gas Act already outlines to what extent local governments can regulate gas drilling."
Rep. George said funding for environmental cleanups falls short of what is needed, and funneling it through the Commonwealth Financing Authority seemingly could expose it to political wheeling and dealing.
"When the bill is introduced and I can see the actual language, I will provide more information," Rep. George said. "I hope to provide a comprehensive comparison of Sen. Scarnati's impact fee versus my House Bill 833 severance tax.
"Overall, I think this could be a positive beginning to the end of Pennsylvania taxpayers bearing the brunt of the risks and costs of Marcellus shale gas extraction."
Former DEP Secretary Former Department of Environmental Protection Secretary David E. Hess released this statement in response to the Scarnati proposal.
"Sen. Scarnati's proposal includes many of the key provisions asked for by many environmental groups, communities and major companies in the Marcellus Shale industry-- support for local governments facing unprecedented pressures from drilling operations and funding for environmental restoration programs that are part of the state's core mission.
"His proposal is one of only a hand full in the last nine years to generate a net gain in funding for environmental restoration programs. It's in stark contrast to the last eight years when $1.3 billion in state environmental funding was diverted to balance the budget or fund programs which could not get funded on their own.
"His proposal also comes at a critical time because programs like Growing Greener, which funds mine reclamation, watershed restoration and installation of best management practices on farms, is all but out of money. It is also important to help us comply with the federal mandate to reduce nutrients going to the Chesapeake Bay and cleanup 19,000 miles of Pennsylvania rivers and streams that do not meet water quality standards.
"Sen. Scarnati is to be congratulated for his leadership on this issue. His is one of several proposals now pending in the General Assembly by Sen. John Yudichak (D-Luzerne), Rep. Kate Harper (R-Montgomery) and Rep. Camille George (D-Clearfield) which could provide much-needed funding to support communities dealing with drilling impacts and to fund environmental restoration programs.
"While there are many details yet to come, and other parts to the environmental funding puzzle, I hope this issue is resolved and on the Governor's desk by June 30 along with next year's state budget."
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5/2/2011 |
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