Shale Daily / NGI All News Access

No Marcellus Tax in Pennsylvania Budget

As promised, Pennsylvania Gov. Tom Corbett did not include a severance tax on Marcellus Shale production in his first budget.

"There has been much pressure to tax the gas being drawn from the Marcellus Shale," Corbett said, according to a transcript of his budget address Tuesday "The Marcellus is a resource, a source of potential wealth, the foundation of a new economy. Not just something new to tax."

Corbett said the resources belong to the people who own mineral rights and work out leases with drilling companies.

"What Pennsylvanians will gain is the jobs, the spin-offs, and if we don't scare off these industries with new taxes, the follow-up that comes along," Corbett said, adding that the Marcellus and the deeper Utica Shale "promise riches going into the next century."

The Corbett administration believes that the natural gas industry will add up to 200,000 jobs and more than $18 billion in output to the state economy by the end of the decade, and noted that tax revenues have increased in counties with significant drilling activity (see Shale Daily, March 2).

In the hope of making Pennsylvania "the Texas of the natural gas boom," Corbett announced the formation of a Marcellus Shale Commission, led by Lt. Gov. Jim Cawley, "to oversee how we can build around this new industry and how we can make certain we do this while protecting our lands, our drinking water, our air and our communities, all while growing our workforce." Corbett invited 29 people from government, industry, academia and environmental advocacy to be on the commission, which is tasked with issuing a report within four months of its first meeting.

Proponents of a severance tax see a way to generate revenue during tight budget cycles, and note that Pennsylvania is in the minority by not taxing natural gas. Opponents argue that it would harm a new industry in the state. State lawmakers continue to introduce severance tax legislation.

Citizens for Pennsylvania's Future (PennFuture) said Corbett was "leaving money on the table," more than $150 million to date, by not taxing natural gas production.

"Gov. Corbett's failure to propose a drilling tax is a choice to place the burden of paying for the costs of damage to the environment and local communities on state and local taxpayers, rather than the drillers," said PennFuture President Jan Jarrett. "With growing concerns about the safety of drilling, Tom Corbett continues to paint drilling as an unequivocal position. And he refuses to have the drilling industry pay its fair share for the use of our natural gas."

Corbett's 2011-2012 fiscal year budget gives the Department of Environmental Protection (DEP) $140 million in general funds, down from $147 million this fiscal year. Those cuts comes as Marcellus Shale permits and drilling activity are expected to increase. After issuing 2,589 Marcellus Shale permits in the 2009-2010 fiscal year, the DEP expects to issue 4,300 this fiscal year and 5,700 in the coming fiscal year.

The DEP also generates revenue from permitting fees, in addition to general fund allocations.

While the budget anticipates permits rising to 7,500 per year by 2016, it does not forecast any corresponding change in permit applications (50,000 per year), enforcement matters (11,600 per year) or complaints (7,000 per year) during that same time period.

The $27.3 billion budget also reduces allocations to the Susquehanna River Basin Commission and the Delaware River Basin Commission. The two joint state/federal agencies regulate water withdrawals, a crucial issue for shale development in Pennsylvania.

The budget forecasts $65 million in revenue from the Oil and Gas Lease Fund, which collects rents and royalties from leases on state lands, such as parks and forests.

The state currently leases some 800,000 acres of parks and forests for drilling. PennFuture said it was "relieved" that the budget did not include revenue generated from leasing additional lands. Corbett has said he plans to lift a moratorium currently in place on leasing additional state lands for drilling (see Shale Daily, Oct. 27, 2010).

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