January 24, 2019
The fee Pennsylvania collects from natural gas drillers is expected to reach a record $247 million this year, according to figures released Thursday by the state’s Independent Fiscal Office.
Each year, Pennsylvania drillers are required to pay what’s known as an “impact fee” for every well they drill. The cost hinges on the type of well and number of years it’s been in operation. The funds get distributed to state agencies and local governments, with those in heavily drilled regions receiving the most money.
The IFO cites two reasons for the projected uptick in revenue, which is expected to come in $37 milion above the previous year. For one, the 779 new wells drilled in 2018 will offset a drop in revenue from older wells, because the fee declines as wells age.
Furthermore, some low-producing “stripper” wells have historically not paid the fee. But a recent state Supreme Court decision means potentially hundreds more will now have to comply.
Pennsylvania has an impact fee in lieu of a severance tax, which is common in other energy-rich states. Such a tax would collect revenue based on the amount of natural gas a well produces.
Pennsylvania lawmakers have debated enacting a severance tax for a decade. It’s supported by Gov. Tom Wolf, a Democrat, and a tax could result in higher revenue for the state.
But the natural gas industry and Republican leaders have pushed against a severance tax, saying it could harm investment and job growth.
In a statement, David Spigelmyer, president of the Marcellus Shale Coalition, which is the trade group for the state’s gas industry, called the impact fee an “important revenue source” for the state and communities.
In its projections, the IFO also determines the tax burden of the state’s impact fee on the gas industry by calculating an effective tax rate based on recent natural gas prices and production.
The agency’s latest estimate is 2.2 percent, which is down from 2.8 percent in 2017 and higher figures the two previous years. The IFO said the recent drop is due to an uptick in market value, which is driven by growth in gas prices and production, and it offsets higher impact fee collections.