As Pennsylvania approaches a June 30 deadline for passing a state budget, its governor and lawmakers are debating whether or not to include a tax or fee on Marcellus Shale development in the fiscal document.
Pennsylvania Gov. Tom Corbett said last Monday he would likely veto any natural gas severance tax or impact fee included in the upcoming budget because he wants to consider the matter in more depth this fall.
“I don’t believe this should be connected to the budget,” Corbett told reporters following an hour-long speech before the Pennsylvania State Association of Township Commissioners in Lancaster, PA.
Asked whether he would consider a “swap,” or a severance tax used to offset some other revenue source, such as property taxes or personal income taxes, Corbett also said those discussions are “premature.”
Despite Corbett’s threat of a veto, lawmakers are increasingly calling for the fiscal year 2012 budget to include some mechanism for generating revenue from shale development — most likely an impact fee.
“I do not want another budget season to pass without a responsible Marcellus Shale impact fee being in place,” State Sen. John Yudichak, a Democrat from northeastern Pennsylvania, said last Wednesday.
While still firmly against any tax that would bring revenue into the General Fund, Corbett remains open to the idea of an impact fee to help local municipalities, but said he wants to postpone discussions until after his 30-member Marcellus Shale Advisory Commission issues its recommendations (see NGI, April 4).
The commission began meeting in late March and is scheduled to report on its findings by July 22, but the Pennsylvania General Assembly is trying to pass a budget by June 30 that not only address an estimated $4.2 billion shortfall, but also the increasing public support for some tax or fee on natural gas development.
Yudichak and three other Democrats — Senate Democratic Leader Jay Costa of Pittsburgh, Andy Dinniman from the Philadelphia area and Tim Solobay of Washington County — are proposing amendments to an impact fee introduced in March and revised by a committee earlier this month (see NGI, June 20).
The original bill imposed a $10,000 annual base fee per well adjusted by production and price (see NGI, May 2). The committee version removed those adjustments and instituted a graduated fee starting at $40,000 per well and decreasing annually through the first 10 years of production.
Now, Senate Democrats want to impose a $17,000 annual fee per well and bring back the adjustments. That scheme results in a 5% effective tax rate, higher than the original bill (3%) and the committee version (1%). At a price of $4.50/Mcf the fee would bring in around $200 million in fiscal 2012, $260 million in fiscal 2013 and as much as $500 million at its peak, Yudichak said (see NGI, June 13).
The amendments would direct 55% of the revenue to local impacts and 45% to statewide impacts, including $5 million for conservation districts, $2 million to the State Fire Commissioner and significant percentages to environmental programs like Growing Greener and the Hazardous Sites Cleanup Program.
While lawmakers generally support a tax or fee of some sort, there is no consensus on the structure of it. New proposals continue to arise on a weekly basis.
State Rep. Marguerite Quinn, a Republican from southeastern Pennsylvania, recently introduced House Bill 1700, the Shale Impact Mitigation Policy for Local Government, Environment and Roads Act (SIMPLER).
“I’ve listened clearly to what the governor has said: no tax. This is not a tax,” Quinn said.
SIMPLER would impose a “graduated” impact fee, but in much larger amounts: a $50,000 per well fee in the first two years of production that decreases by $5,000 every two years over 15 years. The bill would impose a $15,000 fee for years 15 through 20 of production, and a $10,000 annual fee after year 20.
State Rep. Jesse White, a Democrat from southwestern Pennsylvania, recently said he plans to introduce an impact fee that would impose a $20,000 annual fee per well, adjusted by price and production volumes, as well as an annual $2,000 “operation fee” collected over the life of all unconventional natural gas wells.
Quinn, White and the Senate Democrats all threw out a provision requiring local governments to adopt a “model ordinance” for natural gas development in order to get funds from the fee, an controversial attempt to end the battles between drilling companies and municipalities by standardizing zoning codes.
“We feel that is a subject for another day and another way,” Yudichak said. “We wanted to focus strictly on the revenue side of the issue.”
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