The Pennsylvania Public Utility Commission (PUC) has announced in a press release that the impact fee for 2014 has raised $223.5 million. This is down slightly from 2013’s total of $225.8 million. Through the first four years of collections, the impact fee has totaled more than $855 million that has been distributed to state agencies, counties and municipalities across the Commonwealth as well as into a Marcellus Shale Legacy Fund (see Policy Brief Volume 14, Number 13).
Since the end of the recession, Pennsylvania’s economy has made a slow recovery. Drilling for natural gas in the Marcellus Shale formation has buoyed the state’s economy during this time adding many direct and indirect jobs. Yet, a debate still rages in Harrisburg, asking whether or not new tax policies should be implemented on the growing industry.
The impact fee is being challenged by the Governor’s severance tax plan. This plan will tax the value of natural gas at a five percent rate with a 4.7 cent per thousand cubic feet (Mcf) flat fee. With the recent slide in the price of natural gas around the country, the plan will also include a price floor of $2.97 per Mcf. According to testimony from the head of the Pennsylvania Independent Fiscal Office this severance tax plan, as proposed, would amount to a 17.3% tax on the industry in 2016. However, he notes that as pipeline infrastructure improves, that effective rate could drop to 7.3 percent over time. But how much damage will have been done to the industry until, and if, that happens. He further estimates that the current impact fee will amount to a tax rate of 4.7 percent in 2015, while in years past the effective rate has ranged from two to four percent.
Even though the new policy would increase revenue, many are looking beyond what is seen and question what effect the tax would have on the industry in the long run. Legislative leaders have resisted the call for a severance tax emphasizing that the current impact fee balances taxing the natural gas industry, while reimbursing the counties that are affected by drilling the most. Too much taxation could lead to a quick economic decline in the natural gas industry, one of the few industries within the Commonwealth that is growing and thriving.
