On Monday, the Pennsylvania Budget and Policy Center (PBPC) watchdog group raised growing concerns about the amounts of money being left on the table by the Corbett Administration even as the Pennsylvania Marcellus shale formation yielded a record 3.1 trillion cubic feet of natural gas in 2013. According to the PBPC and the Allentown Morning Call, Pennsylvanians lost out on more than $200 million in oil and gas drilling tax revenues in 2013 had Gov. Corbett enacted a 5% severance tax as is done in West Virginia. Christopher Lilienthal, Communications Director of the Pennsylvania Budget and Policy Center (PBPC) stated Monday, “West Virginia has a severance tax whose rate is in the middle range of gas-producing states, but Ohio and Pennsylvania have lagged far behind.” The policy group states the effective tax rate on drillers under Gov. Corbett’s “Impact Fee” amounts to roughly 1.3% on the industry’s oil and gas production.
Effective January 1, 2014 Gov. Corbett signed a new 5 year Transportation Bill which raises state gasoline taxes, highway tolls and Department of Motor Vehicle fees on millions of Pennsylvanians. The reason for the transportation bill tax increase as stated by the Corbett is the bad shape of many Pennsylvania roads and bridges which among other things, have been pounded by out of state oil and gas drillers hauling massive heavy equipment rigs and water tankers driving in and out of the state since 2004 when the Marcellus shale gas boom began here. What Pennsylvania lags in the way of taxes on the oil and gas industry's Marcellus Shale production, it makes up for in gasoline taxes on Pennsylvanians, gasoline taxes which are now the fifth highest in the nation according to the American Petroleum Institute.
As reported last week by the Allentown Morning Call regarding the $200 million missed severance tax opportunity, State Sen. John Yudichak, D-Luzerne, minority chairman of the Senate Environmental Resources and Energy Committee, stated, "These are astronomical numbers,". "They show how Act 13 and the governor's impact fee has shortchanged Pennsylvania and will cost taxpayers in the long run."
Virtually all 38 oil and gas producing states in the U.S. levy a severance tax on the oil and gas extracted from within their borders. Severance taxes are used statewide to repair roads and bridges damaged by heavy drilling and fracking rigs, fund well inspections, clean up abandoned wells; dispose of piles of discarded drilling equipment and toxic drilling wastes along with upgrading emergency responders equipment used in response to drilling operation and road accidents.
Severance taxes have been a part of oil and gas industry for more than 100 years. As an example Texas levies a severance tax up to 7.5% on such companies as Chesapeake Energy, Chief Oil & Gas, Range Resources and Cabot Energy, among many others, on their Texas based oil and gas drilling operations. Yet in Pennsylvania, these same companies who call Texas their home are all currently taking in record amounts of shale gas and oil from the Marcellus while paying significantly less in taxes here. Michael Woods, Research Director of the PBPC and the Allentown Morning Call have been calculating the increasing oil and gas tax revenue losses.
In November 2013, Gov. Corbett enacted the new round of tax increases on gasoline and state road tolls along with increases for motor vehicle registration, inspection and licensing fees. These new tax increases which hit squarely on backs of Pennsylvania drivers, are part of the Gov. Corbett’s signature 5 year $2.3 billion five year Transportation Act. During the signing of the bill which raised Pennsylvanians taxes, Gov. Corbett said, "Because we worked together, we can now put shovels in the ground and rebuild our transportation system,"
A mid-year 2013 analysis by the PBPC watchdog group calculated had the Corbett Administration enacted Texas’ 6.6% severance tax in 2013-2014, by 2019 the tax revenues on the shale gas industry would be in excess of $2 billion, greatly reducing if not eliminating the need for the Governor to raise taxes on average Pennsylvanians in the form of higher of gasoline taxes to repair state roads.
Governor Corbett is on record as of 2012 stating he wants to make Pennsylvania “the Texas of natural gas drilling.” Today, Texas has an effective 6.6% severance tax and a state gasoline tax of .20 cents a gallon in part due to its long history of meaningful severance taxes. Today, Pennsylvania has a 1.3% localized “Impact Fee” on its oil and gas industry and a state gasoline tax of .42 cents a gallon. With out of state oil and gas operators continuing to drill and ship out trillions in natural gas to their customers, Pennsylvanians will now see higher prices at the pump along with increases in state government motor vehicle fees.
Disclosure: The writer is not a member of any political action group or campaign for the upcoming Pennsylvania governor’s race. He is not a member of any environmental or anti-fracking group. He is not being paid by any person or any entity listed in this article nor does he hold any stocks today in any oil and gas drilling companies.
To learn more about the severance tax issue on the Pennsylvania Budget and Policy Center, go to: https://pennbpc.org/
To learn more about Gov. Corbett’s 2013 Transportation Bill, go to: http://www.businessweek.com/ap/2014-03-10/new-money-for-pa-dot-highways-to-flow-out-in-april
To learn more about Pennsylvania and other states gasoline taxes, go to: http://www.api.org/oil-and-natural-gas-overview/industry-economics/~/media/47E397E1D3B14F61BAADCB6CA56A9F84.pdf