February 20, 2017
The Citizens' Voice
In the last five years, officials in bucolic Auburn Twp. used natural gas money to replace all the township’s public works trucks with brand new ones.
Home to about 2,000 residents, the Susquehanna County township used its share of the Act 13 impact fee — more than $3.25 million — to buy heavy equipment and repair roads.
“We didn’t go overboard. We don’t overspend,” said Berton Hollister Jr., chairman of the board of supervisors. “We use that money to basically make the township better.”
Since its creation five years ago last week, the natural gas impact fee has pumped more than $1 billion to rural Pennsylvania communities that host drilling.
Counties and towns with no drilling receive a smaller share — 40 percent of the total impact fee distribution, through the Marcellus Legacy Fund, revenue restricted for uses like conservation and recreation projects.
As Gov. Tom Wolf once again called for a severance tax on the gas in his 2017-18 budget proposal, people like Hollister wonder whether the cash infusion they have enjoyed for the last half-decade might be threatened.
Hollister, 60, who served as a supervisor for 36 years, said he sees the governor’s severance tax — 6.5 percent on the price of gas at the wellhead — as a way to wrest the revenue from gas-producing counties.
“They’re trying to pick it apart so they could legally get it away from us, that’s what we feel,” he said.
Created by Act 13, former Gov. Tom Corbett’s landmark revision to the state’s oil and gas law, drillers pay an impact fee for each well they drill. The fee diminishes over the life of the well. State numbers show disbursements to counties and municipalities in 2015, the last year for which data is available, was the lowest since its creation — $187.7 million.
Auburn Twp., 50 square miles, received the second-highest disbursement for 2015, $804,634. However, even that is down 6 percent or $47,234, from the previous year.
The governor’s budget proposal does not abolish the impact fee. Rather, the fee appears to take precedence over a tax. Drillers can take the amount paid in fees as a tax credit.
Morris Twp., Greene County, was the top-receiving town getting nearly $850,000 for 2015.
The problem with the impact fee: the lion’s share goes only to counties and municipalities that host drilling, said G. Terry Madonna, director of the Franklin & Marshall College poll.
So instead of a tax that potentially could lift the whole commonwealth, and provide an estimated $294 million to help plug this year’s state budget shortfall, most of it goes only to rural communities.
“The benefits of Act 13 are real, but they’re limited in scope to those local municipalities and counties,” said state Sen. John Yudichak, D-14, Plymouth Twp., minority chairman of the senate environmental resources and energy committee.
He voted “no” on Act 13.
“Act 13 ultimately stumbled because it was driven more by partisan ideology than a responsible public policy and good fiscal judgement,” he said.
While the number of drilled wells slowed, Pennsylvania remains the country’s second-highest natural gas producer, following Texas.
Impact v. severance
Pennsylvania is the only state that levies an impact fee and no severance tax, a common platform for tax advocates. Drillers and their advocates, however, argue they already pay their fair share when combining the impact fee with the state’s high corporate net income tax.
“I tire of hearing we’re the only state without a severance tax,” said George Stark, spokesman for Cabot Oil & Gas. “We’re the only state with an impact fee.”
Cabot, which drills predominantly in Susquehanna County, paid $60.2 million in impact fees over the last five years. While the number of new wells going online slowed the last few years, Cabot is among the state’s top producers pumping out 2 billion cubic feet daily.
“Where the work’s taking place, the local community is benefiting,” he said. He listed successful local projects like debt elimination, a fully-funded government pension fund, a new furnace and upgraded public works equipment. Taxpayers otherwise would have bankrolled them, he said.
At a time when the chronically low price of gas is keeping rigs from drilling new wells, a new severance tax would apply more drag to growth, Stark said.
“When you talk about an added tax burden at this time, I don’t know where that money comes from,” he said. “It’s just another cost of doing business, which means you don’t have money to invest in the drilling itself or the workers and their wages.”
In 2015, Franklin & Marshall’s Madonna found 49 percent of Pennsylvanians strongly favored taxing companies that extract and sell natural gas; 18 percent said they strongly opposed it; 7 percent said they didn’t know. The survey results mirrored sentiments from the same survey taken in 2011 and 2012.
However, with more Republicans in the state legislature than any other time in modern history, the governor’s second attempt at passing a severance tax is unlikely.
“The chances of getting a severance tax is remote given the attitude of the Republicans in the legislature,” Madonna said.