Slow Down the Shell Tax Giveaway Train

The Governor’s plan to offer tax credits totaling $1.65 billion to plants, including the proposed Shell ethane using facility, needs to take a breath in its headlong charge toward passage in the Legislature. There are several important questions that need to be answered.

First, why would tax credits be given to a plant likely to be located in a tax free Keystone Opportunity Zone? Under the provisions of the amended Opportunity Zone law, no state taxes or property taxes will be owed for up to 15 years of operation. And if other eligible ethane using plants come, will they insist on having a Keystone Opportunity zone designation at their chosen site?

Second, how can anyone be sure that the optimistic job creation numbers will ever happen? We have seen too many instances where large taxpayer subsidies given to companies have failed to produce anything close to the projected numbers-or where the development failed to last very long such as Volkswagen and the Kvaerner shipyard, or Lazarus or Lord and Taylor.

If other states, such as Ohio or West Virginia, are willing to give the store away to get the Shell plant, why not let them? Pennsylvania has the gas. We could slap a significant severance tax on any gas leaving the state and going to an out of state chemical plant. That might produce enough revenue to allow major cuts in the state’s outrageously high corporate income tax, one of the biggest deterrents to companies locating in the Commonwealth. Making Pennsylvania more business friendly through lower taxes for all companies is far preferable to making the state tax free for some companies. And we still have the drilling related jobs, the royalty and lease payments. Let another state worry about the inevitable environmental lawsuits.

Moreover, what will existing petrochemical or pharmaceutical plants already in the state think about the enormous tax breaks being offered to some newcomers? Will they demand tax breaks as well? Where does it end?

The present effort is not infrastructure enhancing and is not business climate improving. It merely adds to the perception that Pennsylvania is driven by special interests and favored companies. This is the price the state pays for being unwilling to enact Right to Work, repeal the prevailing wage law and adopt a more reasonable regulatory environment.

Opportunity zone tax incentives for blighted and costly-to-rejuvenate areas saddled with toxic waste, rusted out hulks of unusable equipment and buildings are one thing. Tax credits on top of those benefits make no economic sense.

Is the Declining Price of Natural Gas Slowing the Marcellus Boom in the Pittsburgh Area?

A rising tide of natural gas production across the country in recent years has produced what appears to be an imbalance of supply and demand that has caused the price of natural gas to plunge.

The average monthly price of natural gas in 2008 was $8.90 per Mcf. It fell to $4.08 in 2011 and by the end of January it had fallen even further to $2.71 per Mcf. In January some drilling companies announced that they were holding off on drilling new wells as a result of the price decline. In mid-March that price has fallen even further to $2.30 per Mcf. The speculation is that the Marcellus drillers will cut back even further.

And in the Pittsburgh area we may be seeing some of the fallout from this reduced activity in the payroll employment numbers which were just released for January. For the Pittsburgh metropolitan statistical area (MSA) the number of employees on payrolls in the mining and logging sector had risen every month rather steadily throughout 2011 before plateauing at 9,000 from November 2011 through January 2012. But the real impact may be on some of the sectors that had been buoyed by the Marcellus gas boom, specifically the manufacturing industry and the leisure and hospitality industry. Throughout most of 2011 the manufacturing sector had seen year-over-year growth. Beginning in November 2011 the sector experienced its first year-over-year-decline since July 2010. Both December 2011 and January 2012 had year-over-year declines. The leisure and hospitality sector also posted a year-over-year decline in January 2012, their first since May 2010. Is this a signal that the boom is beginning to subside?

While it is certainly too soon to draw any hard conclusions, one thing is certain: the Marcellus Shale boom has had a positive impact on the Pittsburgh region’s economy. If the falling price of gas causes these firms to cut back, it too will be felt in the economy-not just in Pittsburgh, but across the state.

Dousing the Gas Industry

Two negative incidents in the area (one in Clearfield County, one in Moundsville, WV) in recent days related to drilling into the Marcellus Shale certainly aren’t going to help with public relations for the gas industry. Not with the oil leak in the Gulf, not with an ongoing debate in Pennsylvania over whether to tax natural gas extraction.

The company involved in the Clearfield incident has been placed on a suspension by the state’s Department of Environmental Protection, the agency that regulates drilling activity in Pennsylvania. Some want Federal intervention and expanded oversight. Others want a moratorium on all drilling activity statewide.

This raises the question of local government’s place in the equation. State courts have heard cases in recent years over municipalities trying to exert their police power over drilling via the zoning process, and some have passed ordinances designating specific zoning districts for drilling activity. A publication by Penn State University points out that "the ability of municipalities to regulate natural gas exploration is limited by the Oil and Gas Act…[which] preempts a municipality or county from regulating a matter that has been addressed in the act". But it is quite possible that these recent events might raise issues as to the regulatory framework.