Tax Not Popular With Marcellus Shale Gas Industry

Citizen’s Voice

By Elizabeth Skrapits

Gov. Tom Wolf’s proposed budget is a winner for the state Department of Environmental Protection and for economic development, but a tax on natural gas extraction included in the proposal is not popular with the Marcellus Shale gas industry.

A major new source of revenue is a proposed severance tax on natural gas: 5 percent of the value of the gas at the wellhead, plus $0.047 per 1,000 cubic feet of gas from the well. If approved, it would take effect Jan. 1, 2016.

“Obviously, we’re very concerned about his proposal,” said Stephanie Catarino Wissman, executive director of the Associated Petroleum Industries of Pennsylvania. “While not surprising, it is disappointing.”

She said the issue is the impact it will have on the natural gas industry, from the effect on jobs to landowners and the royalties they get.

Because of the low cost of gas as a commodity, natural gas companies are already cutting back on capital expenditures, Wissman said. Adding a severance tax “is going to hurt,” and increase the cost of doing business in such a difficult environment — companies could cut back or even leave the state.

Marcellus Shale Coalition president Dave Spigelmyer also warned of the potential for economically damaging consequences, especially in light of changing global market dynamics. He stated that “now is the absolute wrong time for onerously higher energy taxes, which threaten jobs and Pennsylvania’s long-term competitiveness as well as our manufacturing potentials.”

The severance tax would replace the impact fee for municipalities affected by natural gas drilling. However, a total of $225 million would be set aside from the severance tax to replace the impact fee.

Part of the tax revenue would be used in the Pennsylvania Education Reinvestment Act, modeled on West Virginia’s severance tax, to fund basic education. A bipartisan commission is establishing a formula, which should be complete by June 10. It would take effect for the 2016-17 school year.

The budget replaces approximately $20 million, which previously came from the leasing of state parks for oil and gas drilling, in the Department of Conservation and Natural Resources’ general fund.

Wolf also calls for restoring more than $7.8 million to DEP’s general fund and boosts funding for environmental program management and department operations, with an additional $10 million from the severance tax for inspection and oversight of oil and gas operations.

The severance tax would be used to finance $675 million in bonds for economic development project that include private sector investment.

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