A recently released report by the West Virginia Center on Budget and Policy, a liberal think tank, recommends increasing the state's severance tax on natural gas liquids (NGL) if they are not being used to develop more in-state industries such as chemical manufacturing.
The center warned that the state is poised to repeat some of the mistakes it has made with coal production in the past, saying that as oil and gas is increasingly shipped from the state's Marcellus and Utica shales, a portion of jobs, profits and tax revenue is going with it. The report urged lawmakers to increase the severance tax on NGLs from the current 5% to 10% and offer a tax credit to offset the higher rate only if the NGLs are processed at an ethane cracker or similar manufacturing facilities in the state.
"West Virginia has a long history of relying on natural resource extraction to fuel our economy, but that reliance has recently resulted in the state shipping our most valuable resources out of the state to be developed," said Sean O'Leary, a fiscal policy analyst at the center. "As we have seen with booms and busts of the coal industry, this leaves behind an economy lacking diversity and development with not enough good-paying jobs."
The center's report was released as a state legislative committee is working to review West Virginia's tax policy. The call for a tax increase on NGL production also comes at a time when similar efforts are underway to increase unconventional production taxes in Ohio and Pennsylvania (see Shale Daily, Sept. 25; Feb. 11). Currently, West Virginia has the highest severance tax of any major oil and gas producing state in the Appalachian Basin, charging 5% for the gross value of hydrocarbons plus a 47 cent/Mcf volumetric fee.
A balance between increasing the severance tax and credits has been floated in the state before for coal, but those efforts never gained traction.
The center's research was conducted as part of the Multi-State Shale Research Collaborative, which counts among its members six left-leaning think tanks including the West Virginia Center on Budget and Policy. The collaborative has supported its members' calls for production tax increases in Ohio and Pennsylvania and published studies linking the region's shale boom to a rise in crime and an overestimation of the industry's economic impacts in the region (see Shale Daily, Nov. 22, 2013).
Republican lawmakers in Pennsylvania are also preparing to introduce legislation that would offer tax incentives for natural gas consumption in a bid to attract more petrochemical operators, gas-to-liquids facilities and general manufacturing as all three states compete for such infrastructure (see Shale Daily, Sept. 22).
West Virginia's oil and gas severance tax collections more than doubled last year with the continued increase in unconventional oil and gas production. Income rose to about $188 million in 2014, compared to $79.2 million in 2013, according to the state Department of Revenue (see Shale Daily, April 22;Feb. 12). An increase in the NGL tax, the center said, would increase that revenue by an estimated $168 million over the next five years.
West Virginia reported the nation’s highest unemployment rate in August. It was 7.6%, compared to 4.7% in neighboring Ohio, 5.4% in Pennsylvania and 5.1% nationwide.
Tax breaks to promote in-state industries that utilize NGLs would also create jobs and generate tax dollars, the report said.