Shale Daily / NGI All News Access

Pennsylvania Lost $200 Million Without Natural Gas Production Tax

Pennsylvania lost nearly $200 million in state revenue by not imposing a tax on natural gas in October 2009, according a statewide think tank.

The state was set to reach that milestone on Friday, according to the Drilling Tax Ticker hosted by the Pennsylvania Budget and Policy Center (PBPC). The nonpartisan but left-leaning think tank believes that lost revenue could have prevented deep cuts to education, health and environmental programs in the state budget passed at the end of June without harming the investment climate for natural gas development (see Shale Daily, June 30).

Pennsylvania, which sits atop the prolific Marcellus Shale, is currently the only producing state that does not levy a tax on natural gas production. "Lawmakers have allowed drillers to avoid a tax that they pay everywhere else, and middle-class families are paying the price," PBPC Director Sharon Ward said. "$200 million could have kept more teachers in the classroom, college tuition more affordable and prevented a hike in property taxes."

Skeptics, particularly Gov. Tom Corbett, say the industry carries its weight through other taxes, economic development and job creation (see Shale Daily, April 27).

The PBPC Drilling Tax Ticker uses a proposal then-Gov. Ed Rendell made in 2009. It would have imposed a 4.7 cent/Mcf tax on production plus a 5% tax on the sale price of natural gas. The state House ultimately passed that measure, but it died in the state Senate before Rendell and many lawmakers left office in fall 2010.

That proposal is currently out of vogue, though. After Corbett promised to veto any tax increase, lawmakers formulated impact fees to cover the negative effects of development. While the projected annual revenues from those proposals range between $180 million and $550 million, most fall far short of the Rendell proposal (see Shale Daily, June 13).

Although the Pennsylvania General Assembly failed to include a severance tax or impact fee in the current budget, the issue will almost certainly be revived when lawmakers return in the fall. The PBPC is critical of the current impact fee proposals, though, saying they don't being in enough money and primarily send collections to eight particularly active counties for drilling while passing up general fund revenue for education and health programs, or personal tax reductions.

Corbett said he won't consider any impact fee until his Marcellus Shale Advisory Commission issues its report on the matter next week.

The PBPC acknowledges that the Ticker depends on several uncertain and unpredictable data points. The calculation extrapolates lost revenue using Marcellus Shale and conventional well drilling reports, semi-annual production reports, estimated well depletion rates and the money Henry Hub average price of gas.

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