Democrat Tom Wolf, who was elected governor in November, wants to tax natural gas drilling to increase funding for education and other things. Here are 11 things you need to know about the issue.
There is no natural gas drilling here, but the county has transmission pipelines to move large amounts of gas.
The county receives money from an impact fee on natural gas drilling, including $419,572 from 2013 for park, preservation and similar projects. The county had also received more than $1.9 million in natural gas drilling money for transportation work as of August.
Some local impact fee money could be lost if there are changes to how revenue is collected. Still, it’s possible more money could flow to York County, especially to its schools, with an extraction tax.
Heating homes and businesses, generating electricity, powering vehicles, and as a building block for consumer goods, such as detergent, pantyhose and paint, according to trade associations for the industry.
StateImpact Pennsylvania has a useful map. Bradford County, in northern Pennsylvania, and Washington County, in southwestern Pennsylvania, are two top areas.
It’s also known as a severance tax, and it’s based on the quantity, value or both of a resource removed, or “severed,” from the earth.
A June 2013 report from the National Conference of State Legislatures described Pennsylvania as the largest U.S. natural gas producer without a severance tax.
Wolf’s argument is that Pennsylvania residents are already paying some of the cost of severance taxes in other states when they pay for natural gas and other fuels. He said the cost of those taxes gets embedded into the price for those fuels, so Pennsylvania money is going indirectly to governments in other states.
“Everybody here get a thank you note from the taxpayers of Texas and Louisiana?” Wolf said during an October editorial board meeting at the York Daily Record/Sunday News office. “Of course not.”
Wolf said the extraction tax “really is exportable.” It’s also possible that gas companies will absorb some or all of the costs, he said.
Wolf has said that a 5 percent extraction tax would be competitive with rates in other states, so the industry won’t leave. Wolf’s tax would be on the market value of the gas at the wellhead, according to StateImpact Pennsylvania.
In June 2014, the president of the Marcellus Shale Coalition, David J. Spigelmyer, sent a letter to lawmakers saying that increasing taxes on natural gas drilling would “place Pennsylvania at a competitive disadvantage and rigs may move to other states, like Ohio, where economics are more favorable — and the jobs would follow.”
The coalition has also pointed to Pennsylvania’s corporate net income tax rate — the highest flat rate in the nation — to say that looking only at extraction taxes isn’t an apples to apples comparison. The coalition and other opponents say that between various business taxes and the impact fee, gas companies are already paying a lot to the state.
You should look at the overall business climate, the coalition and other opponents of an extraction tax have argued.
The natural gas produced in Pennsylvania in 2008 accounted for less than one percent of the total marketed natural gas produced in the United States, based on U.S. Energy Information Administration data.
But production has increased.
In 2013, Pennsylvania accounted for close to 13 percent of the nation’s marketed natural gas produced.
Pennsylvania now ranks second in the nation for marketed natural gas production, behind only Texas, based on 2013 data from the U.S. Energy Information Administration.
(Colors vary based on production. Click on individual states for more details. )
Viewing this article on a mobile device? Click here to see a map showing how different states compare for marketed natural gas production.
Estimates have varied. Wolf estimated $550 million in one of his early 2014 TV ads.
In August, the Pennsylvania Budget and Policy Center increased its estimate, based on increased production. The center, which supports such an extraction tax, estimated that a 5 percent tax would bring in more than $1 billion in annual revenue by 2015-16, including $780 million in new funds if you subtract the current impact fee money.
Wolf then used that figure in his campaign.
But The Associated Press reported earlier this month that the $1 billion estimate was based on a higher wholesale price of gas than drillers in the Marcellus region are seeing. A 5 percent severance tax would bring in between $525 million and $675 million a year at current prices, depending on cost deductions drillers could make, The Associated Press reported.
The Pennsylvania Budget and Policy Center on Dec. 9 sent out a news release, saying it had revised its annual estimate to $881 million and that it expected Pennsylvania prices to go up once planned pipelines come on line.
His campaign said education funding would be his top priority for extraction tax money. His “Fresh Start” policy plan listed other areas, including subsidizing interest rates on student loans; making strategic investments in infrastructure; and developing clean energy alternatives.
In November, the Independent Fiscal Office projected a $1.85 billion shortfall for the 2015-16 budget, including $171 million for the current fiscal year, and more than $1.6 billion for next year.
Wolf has to get support from some Republicans to pass anything, as they control the state House and Senate.
Some Republicans have expressed support for some form of an extraction tax. Tom McGarrigle, a Republican from Delaware County, backed a new 4 percent extraction tax during his successful state Senate campaign in 2014. He proposed keeping the impact fee and using all the extraction tax money for education, according to the Delaware County Daily Times.
In September, state Sen. Dominic Pileggi, then the Senate majority leader, told a business group that the an extraction tax on the natural gas industry will probably happen in 2015, according to Chadds Ford Live.
But Pileggi in November lost the majority leader job.
When state Sen. Jake Corman, the newly elected majority leader, was asked about an extraction tax in November, he said he didn’t want do anything to jeopardize attracting a multi-billion dollar Shell Chemical complex in Beaver County. The complex would process ethane from natural gas to produce a building block for petrochemicals.
“That’s a game changer for southwestern PA, which will create thousands of jobs. It will create far more revenue and wealth to the commonwealth than any severance tax would even hope to accomplish,” Corman said. He said the state needs to “put out the red carpet for that facility to land here in Pennsylvania.”
The Philadelphia Inquirer reported that Corman told a Pennsylvania Manufacturers’ Association forum in December that he would consider an extraction tax if Wolf negotiated over reforming state pensions.
State Sen. Pat Vance, R-Cumberland County, in November said whether there’s support for an extraction tax “might depend on how large the deficit is in the budget.”
In 2012, Gov. Tom Corbett and the Republican-controlled General Assembly gave counties the authority to approve an impact fee on unconventional natural gas wells. Some of that money is distributed to counties that do not have drilling.
The amount of the fee is determined by the age of the well, the type of well and the average annual price of natural gas, according to a March report from the state’s Independent Fiscal Office.
The Corbett administration said in October that the impact fee had brought in more than $630 million to date.
The above map shows direct impact fee money from the Unconventional Gas Well Fund for counties with drilling. Figures are for 2013. Counties shaded in yellow did not receive money from that fund. Other colors vary based on funding.
Viewing this article on a mobile device? Click here to see a map showing how much money counties with drilling received from the Unconventional Gas Well Fund.
If an extraction tax passes, under current law, the impact fee goes away. Wolf has said he would use some extraction tax money to replace revenue to local communities, but he declined to say how much would go to local communities when asked in October by StateImpact Pennsylvania. Wolf spokesman Jeffrey Sheridan did not directly respond to questions about what Wolf wants to do about current funding for counties without drilling, like York.
Later, during a Dec. 23 news conference in York, Wolf said, “Localities should not be at all afraid of my proposal for a Marcellus Shale tax.”
State Sen. Rob Teplitz, D-Dauphin County, supports an extraction tax. He said he wants the bulk of the money go to education, but he said he “wouldn’t want to hurt any communities that are receiving money from the impact fee.” He said he expects what happens to those communities will be part of the debate over an extraction tax.
State Rep. Kevin Schreiber, D-York, another extraction tax supporter, said it would be ideal for York County to continue receiving the same amount of funding for the same areas, including for the parks and preservation projects. But he said he’s open to other options, including increasing education funding to provide property tax relief.
This article was written by Ed Mahon from York Daily Record, Pa. and was legally licensed through the NewsCred publisher network.