Watching Government: Mulling a Marcellus impact fee

Oct. 3, 2011
Democrats and a few Republicans in Pennsylvania's general assembly have called for a severance tax on natural gas produced from the Marcellus shale formation.

Democrats and a few Republicans in Pennsylvania's general assembly have called for a severance tax on natural gas produced from the Marcellus shale formation. Republican Gov. Tom Corbett and Lt. Gov. Jim Cawley oppose the idea. They would rather see state lawmakers authorize an impact fee to help local governments handle consequences of developing the prolific tight shale gas resource that crosses much of the state.

The idea, while important, is not new. Western states considered it as they dealt with sudden growth in previously rural areas more than 30 years ago when large electric utilities were building coal-fired power plants. Local communities suddenly faced growing demands for services their existing tax bases couldn't handle.

Back then, the concept was called front-end financing. Its basic aim was to have the developing entity pay local taxes years before it normally would so local governments could provide adequate and effective police, fire, medical, housing, public education, and other services when they were actually needed.

It was a good idea in theory, but its details proved difficult—if not outright impossible—to work out. But it's finding new life in Pennsylvania.

When the governor's Marcellus Shale Commission (MSC), which Cawley chaired, issued its report in July, it included in its recommendations a few Marcellus producers would pay to help affected counties and localities pay for environmental remediation, public health evaluations and emergency responses, infrastructure improvements, increased social services, and natural resource agency administration and oversight.

Already paying taxes

Corbett and Cawley say that revenue from such a fee could be directed to where it's needed—unlike revenue from a severance tax, which would go into Pennsylvania's general fund and possibly be diverted elsewhere. They add that Marcellus producers already pay higher corporate, franchise, sales, use, and other taxes in Pennsylvania than producers in other states.

There's a precedent for the oil and gas industry to support a dedicated fee. The American Petroleum Institute, which normally opposes additional petroleum taxes, has endorsed federal levies on gasoline and diesel fuel because the money goes directly into the federal Highway Trust Fund.

MSC, which represents most of the region's producers, recognizes that its members' activities can have significant short-term impacts on communities, according to Pres. Kathryn Z. Klaber.

"Pennsylvania has the opportunity to create a sustained, highly competitive environment for growth of this industry," Klaber says, adding, "In order to help meet this shared goal, any local impact fee must be clear, straightforward, and competitive. And we are working closely with leaders in [Pennsylvania's state capital of] Harrisburg on proposals that focus on strengthening our partnership with municipal governments, while providing funds to local communities."

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