Gov. Tom Wolf’s first budget address, which was unveiled during a joint session of the House and Senate on March 3, was highly anticipated and rather ambitious.
As Wolf said, “Our budget is as bold as Pennsylvania has been for over 300 years. The reality is, times have changed and the ideas that may have worked in the past simply are not working anymore.”
Among many things, Wolf outlined a new severance tax on natural gas drillers to reinstate $1 billion in funding for basic and higher education that was cut by Gov. Tom Corbett’s administration.
This plan, also known as the Pennsylvania Education Reinvestment Act, contains provisions to protect property owners who lease land for natural gas exploration and would create a steady revenue stream precisely when Pennsylvania needs one to strengthen the long-term prospects of its residents.
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Pennsylvania is the only major gas-producing state without a severance tax. Without a severance fee, it is estimated that Pennsylvania could lose between $24 billion and $48 billion over the next 18 years.
Wolf proposed a severance tax that would be based on the value and volume of gas extracted from natural gas wells, a model used in West Virginia. Under Wolf’s plan, gas companies would pay a 5 percent severance tax, plus 4.7 cents per thousand cubic feet of extraction.
During Corbett’s tenure, he signed into law Act 13 of 2012, which provided a major overhaul of Pennsylvania’s oil and gas law. According to the Pennsylvania Public Utility Commission, the impact fee has brought in $630 million to Pennsylvania ($204 million in 2011, $202 million in 2012 and $224 million in 2013), which has overwhelmingly benefited communities across the commonwealth.
An impact fee is based on the number of wells drilled each year and on a per-well basis declines each year as stated in the legislation. A severance fee should be based on the amount of gas produced and the price of gas and should increase as production and/or price increases.
My Democratic colleagues and I think an additional severance fee would provide Pennsylvanians with a fairer return on the natural resources being removed from the state and would force big oil and gas drilling companies to pay their fair share.
Although we support Wolf’s proposal to tax the natural gas industry to help pay for education, we would prefer to see a proposal that includes a severance fee on top of the impact fee. But because Act 13 provides that the impact fee is repealed by a severance tax, it will be necessary, as Sen. Joe Scarnati said, for the impact fee “to be redone under a new law or whatever the new act would be.”
I believe the impact fee is a tremendous value to our local municipalities. It has done an awful lot to help with the actual impacts of drilling in municipalities and counties across the commonwealth.
Wolf’s proposal is designed to create new revenue dollars for basic and higher education, at the same time protecting our Marcellus communities with impact fee dollars. As mentioned previously, the impact fee has generated more than $630 million in state revenue — 60 percent of that revenue goes directly to local governments.
Wolf’s current budget proposal continues to dedicate 60 percent of all impact fee revenue to counties and municipalities hosting wells. Between now and June 30, the legislature needs to decide how best to accomplish this goal of preserving local communities’ share of the impact fee revenues and imposing a natural gas severance tax to help pay for education.