Governor Proposes Severance Tax—Again

Summary: The Governor’s third budget address did not ask for increases in personal income or sales taxes to patch over the State’s budget deficit, but he did trot out an old favorite of his—the severance tax on extracting gas from the Marcellus Shale formation.  It is widely assumed to be a non-starter with the Legislature, but it has been put on the table and as such must be analyzed.

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This year’s budget proposal calls for a severance tax of 6.5 percent on Marcellus Shale gas production to go into effect July 1, 2017 (the start of the new fiscal year). In the past two budgets the severance tax proposal called for a five percent levy on the value of the gas coming from Marcellus Shale wells (also called unconventional wells) plus an add-on of 4.7 cents per thousand cubic feet (Mcf) (see Policy Brief Volume 15, Number 10).

While proponents of the severance tax are quick to point out that Pennsylvania is the only major gas producer without a tax on the value of gas produced, they fail to mention that the Commonwealth is the only state with an impact fee.

We have written extensively on the impact fee which was instituted by Act 13 of 2012 (see Policy Brief Volume 12, Number 11).  The impact fee is to be paid on any well drilled within the Marcellus Shale formation.  The amount of the fee depends upon a few things:  (1) the trading price of natural gas on the New York Mercantile Exchange (NYMEX)—the higher the price, the greater the fee; (2) the age of the well—there is a gradual reduction in the fee as a well ages; and (3) the volume produced with wells producing less than 90,000 Mcf per day would be exempt as are any wells that are subsequently capped.

A key difference with the impact fee compared to the severance tax is that most of the money is returned to the communities where the activity is taking place, both at the municipal and county level.  However, some money is distributed to all counties (with or without wells), and seven state agencies.  None of the money goes back to the general fund.

In his first two budget proposals, the Governor stated that producers would still be responsible for paying the impact fee as well as the severance tax.  In this proposal (FY 2017-18) he is offering a credit against the severance tax for any impact fees paid.  Act 13 stipulates that if a severance tax is enacted, it voids the impact fee.  While laws can be amended so that both can exist, what would be the point of having both?  If the severance tax is passed, eliminate the impact fee.  Take the amount the impact fee would have generated (the average for the first five years is $213.3 million) and distribute it to those communities and state agencies receiving impact fee money in the same ratios.

As proposed the Governor’s severance tax, along with the impact fee credit, is projected to net $293.8 million in FY 2017-18. How much gross revenue would the 6.5 percent severance tax produce?  Of course the answer depends upon the trading price of natural gas and the volume produced by unconventional wells.  Production has been steadily growing in the Commonwealth with 5.09 billion Mcf reported in 2016.  This is up from 4.6 billion Mcf removed in 2015 and the 4.07 billion in 2014.  Thus, the rate of increase has slowed sharply—2016’s production is up 10.6 percent over 2015 which was 13 percent higher than 2014 while 2014 was 31.2 percent higher than in 2013.

The price of natural gas, as measured by the Henry Hub price (the terminal out of Louisiana, traded on NYMEX and the basis for the impact fee) has fluctuated over the past few years.  In 2016, the average annual price of natural gas fell to its lowest point over the last five years ($2.46 per Mcf).  The high point was $4.46 per Mcf in 2014 and the average since 2011 is $3.16.

Thus, had a severance tax of 6.5 percent been in place for 2016, and using the Henry Hub price, it would have grossed $814.1 million—5.09 billion Mcf multiplied by an average selling price of $2.46 gives a market value of $12.5 billion.  But as we mentioned in Policy Brief Volume 15, Number 16, while the Henry Hub price is the basis for calculating the impact fee, Pennsylvania natural gas producers sell their gas at five local hubs in the state such as the Transco-Leidy hub in Potter County and the Dominion South hub near Pittsburgh.  At these hubs the prices have been lower than those of the Henry Hub, due in large part to the expanding supply being removed from the Marcellus Shale and lack of pipeline capacity.  As a result the actual value of production and the tax revenue will likely be far less than if calculated using the Henry Hub price.  And under the Governor’s proposal the net from the severance tax would be reduced by crediting companies with the amount of the impact fee paid—that fee has been around $200 million a year.

If the severance tax passes at the proposed rate, Pennsylvania would go from not having such a tax to having one of the highest rates in the nation.  Neighboring Ohio’s rate is 2.5 cents per Mcf while West Virginia charges five percent of market value.  West Virginia had an add-on of 4.7 cents per Mcf which had been dedicated to paying off a workers’ compensation debt, but that debt has been paid off and the add-on has been dropped (July 2016).  There is also a bill in committee that would reduce the severance rate to four percent and three percent over the next two years.  Thus at a time when Pennsylvania is looking to impose a severance tax, West Virginia is looking to lower theirs.

A final point to consider is the effect the severance tax will have on royalty payments received by mineral rights holders in Pennsylvania.  In states with severance taxes, producers are allowed to deduct the amount of the tax from royalty payments.  These deductions would in turn reduce the royalty payments to Pennsylvanians, implying lower income tax revenue to the state.

In 2006, before the Marcellus Shale boom in Pennsylvania, the state recorded 246,889 returns that claimed income from a category called “rents, royalties, patents, and copyrights”.  The amount claimed came in at $3.6 billion.  In 2014 (the most recent data available), the state recorded 342,889 returns—an increase of 39 percent in eight years.  The accompanying income claimed was $6.9 billion—nearly double the 2006 amount.  At the personal income tax rate of 3.07 percent, remittances to the state would have risen from $109.4 million to $211 million.

Unfortunately, the proposal to enact a severance tax on Marcellus Shale gas production is once again on the table.  It would place Pennsylvania from being the only major gas producer not levying a severance tax, to having one of the highest in the nation.  Another question is what to do with the impact fee.  After all Pennsylvania is the only state with an impact fee.  The current proposal is to give the producers a credit against the severance tax.  But it will further underscore Pennsylvania’s status as an unfriendly to business state and lower the profitability of gas production in Pennsylvania and the incentives to produce gas in the state as more business friendly states get a bigger share of expanding production.   For example, Ohio and West Virginia have lower tax rates and also sit on the Marcellus Shale and Utica Shale formations.  At a time when the industry is just recovering from low prices and a subsequent reduction in its workforce and drilling activity, there needs to be encouragement for growth, not more disincentives as represented by a severance tax.

Another Punitive Wrinkle to Severance Tax

In his first budget address the newly inaugurated Governor carried through with his promise to go for a severance tax on Marcellus Shale gas production.  He has proposed a five percent severance tax on the value of natural gas being pumped from the Marcellus Shale formation in Pennsylvania plus a 4.7 cent tax per thousand cubic feet (Mcf) fee.  As we outlined in previous Policy Briefs (Volume 15, Numbers 10 and 14) there are questions as to whether a net of one billion dollars in revenue will be forthcoming from the tax scheme and, just as important, whether using Marcellus tax revenue to fund huge increases in education spending without first proving the additional funds will improve education quality should be a non-starter in the General Assembly.

 

As we demonstrated in the earlier Briefs the problem is quite simple: the price of natural gas has been on a downward trend since late 2014 and does not seem to be coming back up anytime soon, with the Henry Hub price closing at $2.72 on March 23rd—38 percent lower than its trading price one year ago.  In one Brief (Volume 15, Number 10), using 2014’s unconventional well production of just under 4 billion Mcf, and the average Henry Hub price for 2014 ($4.13) and factoring the per cubic foot fee, the estimated amount generated will be about $1 billion.  However, in mid-February, that price had fallen to $2.75 and the amount realized would be around $735.5 million.  With the most recently recorded trading price at about the same level, our revenue estimate would be essentially unchanged.

 

Here it is important to note that the price used in the above calculations is the Henry Hub price as mentioned in Act 13 which is used to set the price for the impact fee schedule.  Henry Hub is a natural gas pipeline hub in Louisiana that is the national benchmark, as traded on the New York Mercantile Exchange, but it is not necessarily the price at which natural gas is sold in Pennsylvania.  Pennsylvania has its own hubs where drillers bring gas to the market. Hubs in the southwest, near Pittsburgh, such as the Dominion South, are a little closer to Henry Hub.  But for the Transco-Leidy Hub in Potter County, the selling price is much lower due to the oversupply being brought to the market and the inadequate pipeline infrastructure in moving it out to other regions.  News reports note that at the Dominion South hub, the selling price as of March 20th was $2 per Mcf, while at Transco-Leidy, the price was $1.49.

 

Of course the problem the severance tax proposal faces is that prices do in fact fluctuate.  The original announcement said the tax would be five percent of the value of gas produced. And then we learned that an updated proposal included a 4.7 cent per thousand cubic feet add on fee. And now that prices have continued to stay low and revenue forecasts are not moving higher, we are learning through the media that an updated severance tax proposal will set an arbitrary minimum gas price for tax calculation purposes at $2.97 per Mcf.  This is obviously an attempt to get more money when prices are low and add stability to revenue. But this would create a serious problem when prices are as low, or lower, than they are now.

 

Setting a minimum price near $3 per Mcf means that for producers who are getting half that price the severance tax rate would be much higher than five percent. And the flat 4.7 cents per Mcf adds to the total tax rate.  Consider a producer with a monthly volume of one million Mcf selling at a price of $1.50 per Mcf. The value of the produced gas is $1.5 million. At five percent, this producer would pay a tax of $75,000 and another $47,000 from the 4.7 cent per Mcf add-on for a total of $122,000 per month—an 8 percent tax rate.  However, with the artificial price floor of $2.97, the severance tax will be based on $2.97 million in value and this producer would pay $148,500. On top of that the company would still pay $47,000 in the per Mcf fee for a total of $195,500 in taxes that month.  That is a total tax rate of 13 percent of actual market value.  At that level, the tax becomes extremely punitive.

 

Of course, the tax paid will reduce the profit by that amount and will lower the corporate income tax somewhat but it will also lower the amount available for royalty payments and reduce the rate of return on investment.  In effect, the tax is an added cost on production.  When costs go up and cannot be passed on in prices, it hurts investment and production. The ramifications for the future of this industry in Pennsylvania need to be weighed carefully before this tax grab is even considered seriously by the Legislature.  And where is the proposal to apply the severance tax to shallow wells? Note that conventional vertical wells tapping into the Marcellus formation are also subject to the tax, but they represent a very small fraction of total production.

 

Finally, the Governor’s stated purpose for levying this tax is to use it for education. As we have shown in an earlier Brief (Volume 15, Number 14) adding dollars to education spending without demonstrating how they will improve education is folly. For the most part, advocacy for more money is special interest pleading by the education establishment that cares little or not at all about cost management.  There is never a willingness to entertain significant reforms such as ending teacher strikes or creating a voucher system that would let children get out of failing public schools. Any discussion of meaningful pension reform, a main driver of higher education costs, is met with derision.  The General Assembly should demand some concessions on these points before it considers increasing spending for education. It should also ask why some districts can achieve sterling academic results while spending well below the state average per pupil and some districts spend far more than the state average and have dreadful academic results. And it would be useful to critically review spending in other areas as well.

 

A “left leaning” think tank spokesman advocating the severance tax said that Pennsylvania is the only gas producing state with no severance tax and it is high time we had one.  Perhaps the spokesman might consider that several states do not have a personal income tax, does that mean Pennsylvania should get rid of its personal income tax? Twenty-five states have a right to work law, including important recent additions in Michigan, Indiana and Wisconsin. Should Pennsylvania not have a right to work law as well?

 

Only three states have significant numbers of teacher strikes and only eleven even allow teacher strikes. Pennsylvania for years has led the nation in teacher strikes.  Should we not outlaw teacher strikes as well? Moreover, only two states, one of which is Pennsylvania, have state owned liquor stores. Should the Commonwealth not join the 20th century and 48 other states and privatize its stores?

 

If Pennsylvania is out of  touch with  better economically performing states, it is because of its outdated laws regarding public unions, pension crises, prevailing wages, liquor stores, antiquated property assessment laws and so much more. The severance tax arguments are a red herring to take people’s minds off the real fundamental structural problems the state is beset with and cannot bring itself to deal with.  And it is also an effort to make people believe there are easy and quick fixes to the state’s financial woes that can be dumped on the backs of the Shale industry.

Governor Pitches Severance Tax Proposal

While stumping for the governorship, the current Governor made a Marcellus Shale severance tax a key campaign promise.  And true to his promise, now that he occupies the seat, he has officially proposed a five percent severance tax on the value of natural gas coming from the Marcellus Shale formation.  While most observers were sure this proposal was coming (see Policy Brief Volume 14, Number 59) they did not see the added twist coming—a flat fee of 4.7 cents per thousand cubic feet (Mcf) of gas extracted.

 

As we wrote in that Policy Brief, a five percent severance tax was not going to raise $1 billion based on recent production and gas price levels.  At 2014’s average trading price ($4.13 based on the formula from Act 13 that created the impact fee) and production rates (approximately 3.99 billion Mcf from unconventional wells) a 5 percent severance tax would have generated $822.2 million.  At recent lower prices—gas closed at $2.75 on Tuesday February 17th, down from $5.80 from this date one year ago—there is no chance of raising $1 billion from the severance tax alone; unless there is an enormous and unexpected surge in production.

 

This no doubt explains the add-on flat 4.7 cents per Mcf to the tax proposal. This combined tax proposal follows West Virginia’s scheme of a five percent severance tax plus the 4.7 cents per Mcf.  The latter was added in 2005 to provide money for a worker compensation fund.  However, a major difference is that West Virginia also allows deductions for annual industry operating expenses—a feature not included in the Governor’s proposal.

 

Taking 2014’s production rate as a base, the 4.7 cents per Mcf would raise another $187.4 million.  When added to the five percent severance tax, which would have generated $822 million, had it been in place in 2014, the two taxes together just top the $1 billion mark.  This matches the campaign talk of generating $1 billion to be spent on education.

 

Remember that to get to a billion dollars in revenue it was necessary to use last year’s production and prices—and the add-on flat fee.  At the recent price, $2.75 as of February 17th and, assuming last year’s production, the two new taxes would produce just under $735.5 million.  If prices and production fall from where they are now, estimated revenue from the proposed tax scheme would fall further.

 

Keep in mind too, that these revenue predictions assume no reaction from the industry.  When costs rise that cannot be passed along to buyers in the form of higher prices, it could negatively impact production and specifically new well drilling. Thus, depending on market conditions, there could well be contraction in the industry, particularly from the smaller companies who were operating with very thin margins when the price of natural gas was significantly higher in 2014.

 

We were already hearing of drillers holding back on tapping new wells when the price started to fall earlier this January.  2014’s production levels from unconventional wells (Marcellus Shale) were 28.5 percent higher than in 2013.  But this represents a decline from the growth in 2013 when production was up 52 percent above 2012, which in turn was 92 percent better than 2011.  The production growth rate could well slow further or stop altogether if the Governor’s tax proposal is enacted. Thus, it is important to have a much better and clearer sense of the industry’s probable reaction when making revenue projections.

 

In addition, there are other considerations to be weighed before the tax proposal gets very far in the General Assembly. For instance, will the levying of the taxes have a chilling effect on talks with  complimentary industries or businesses the Commonwealth is trying to lure to the state—such as the  cracker plant which separates the chemical compounds in natural gas for use in the manufacturing of other products?

 

Second, bear in mind that passing a severance tax would—as required in Act13—rescind the current impact fee and do away with substantial revenue presently being shared by municipalities, counties and state programs.  The impact fee over its first three years has generated more than $632.4 million in revenue at an average over $210.8 million per year.  Therefore, any money collected by the proposed severance tax will have to backfill Act 13 promises to these entities.  It is unlikely the current recipients of the impact fee money will sit still and watch those dollars disappear. This is especially true of the counties with heavy concentrations of rigs that receive significant payouts from the impact fee revenue.

 

If the Governor is looking for an additional $1 billion to fulfill his campaign promises, he will almost certainly need to raise more than $1.2 billion to do that and replace the impact fee.  Given our estimations above, using 2014’s production report and the current gas price, the net gain to state coffers (total severance tax revenue minus impact fee obligations) would be just shy of $525 million.  Certainly well off the billion dollar mark trumpeted on the campaign trail.

 

While the Governor has made good on his campaign promise to propose a severance tax, it is not clear how it will be received by the Legislature.  In areas where the impact fee money has had a positive effect, and drilling had boosted employment and local tax coffers, this will be a tough sell.  The Governor was quoted in the news media as saying “The alternative is not really no tax.  It’s no drilling, a ban, as in the case of New York.”  Does he really mean to imply that he would recommend a ban? If so, that will be a total non-starter and a very poor choice of words considering the large economic benefit this new industry has produced for the Commonwealth.

Governor Pitches Severance Tax Proposal

While stumping for the office, the current Governor made a Marcellus Shale severance tax a lynchpin of his candidacy.  Now that he occupies the seat he has officially proposed a five percent severance tax on the value of natural gas coming from the Marcellus Shale formation.  While most observers knew this was coming, see Policy Brief Volume 14, Number 59, he added an another twist—a flat fee of 4.7 cents per thousand cubic feet (Mcf).

 

As we wrote in that Policy Brief, a five percent severance tax was not going to raise $1 billion. At 2014’s average trading price ($4.20) and production rates (approximately 3.88 billion Mcf) it would have generated $817 million.  Now that the prices have fallen—closing at $2.62 on Monday February 9th, down $5.50 from this date one year ago—there is no chance of raising $1 billion from the severance tax alone.

 

Thus the flat 4.7 cents per Mcf has been tacked onto the proposed severance tax.  Taking 2014’s production rate as a base, 4.7 cents would raise another $182 million.  When added to the five percent severance tax of $817 million, the two taxes together magically produce $1 billion.

 

However at the current price and, assuming last year’s production—which might be too high—the two new taxes would produce just under $700 million.  If prices and production fall from where they are now, revenue from the proposed tax would fall further.

 

However, keep in mind his revenue predictions do not assume any reaction from the industry.  As we know when costs rise, production will fall.  Thus it is very likely that there will be contraction in the industry, especially from the smaller drillers who were just making it when the price of natural gas was significantly higher in 2014.  They may halt drilling, cap wells, and lower production which would bring the revenue to the state down as well.  We are already hearing of drillers holding back on tapping new wells when the price started to fall earlier this year.  This could also dampen any talk of Shell building the cracker plant in Beaver County.

 

The Governor then capped his stance by saying “The alternative is not really no tax.  It’s no drilling, a ban, as in the case of New York.”  Does he really mean to imply that he would recommend a ban? Has he thrown down the gauntlet to the Legislature?  Bad move if he has.

 

Finally, bear in mind that passing a severance tax would rescind the current impact fee and do away with substantial revenue presently being shared by municipalities, counties and state programs.  If the severance revenue is used to replace the impact fee, the net to the state for other purposes would likely be under $500 million.

Assessing the Impact of a Severance Tax for PA

In February 2012 the Pennsylvania Legislature enacted Act 13 which established an impact fee on companies drilling for natural gas using the hydraulic fracture treatment, primarily in the Marcellus Shale formation beneath the Commonwealth.  At the time there was a clamoring for a severance tax, but the impact fee prevailed.  The idea of imposing a severance tax was rekindled as it became a focal point of the recently concluded gubernatorial race.  The governor-elect has indicated that a five percent severance tax on drillers will raise more than $1 billion per year that could be used on education spending and in other areas.  Is this assertion on target?

 

Act 13 specified the level of the impact fee, based on the market price of natural gas and age of wells, and the allocation of funds collected (see Policy Brief Volume 12, Number 11).  Over the first three years, the impact fee has brought in a total of approximately $632.4 million.  After eight state agencies take their share off the top, sixty percent of the remaining funds have been returned to the counties and municipalities most directly impacted by the burgeoning industry ($129.4 million to date) —Washington County has received $15.2 million while Bradford County far and away leads the pack with $22.8 million.  Even those counties and municipalities that do not have an unconventional well within their borders have benefited ($20.65 million).  For example Philadelphia and Montgomery Counties have received $4.06 million and $2.13 million respectively despite being well outside the Shale formation.  The balance, forty percent, is deposited into the Marcellus Legacy Fund.  About one-third of the Legacy Fund is directed to the Commonwealth Financing Authority to pay for environmental projects.

 

Many of the counties and municipalities that have been the beneficiaries of these funds have relied on them to round out their budgets.

 

So what happens if a severance tax is implemented?  According to Act 13, section 2318, if a severance tax is implemented, the impact fee would be terminated, ending the money being bestowed on state agencies, counties, municipalities, and the Legacy Fund.

 

The severance tax proposed by the governor-elect is a five percent levy on the market value of natural gas removed from the Shale formation.  Using production reports from the PA Department of Environmental Protection[1] we can estimate how much revenue a severance tax would have brought the Commonwealth each year since 2011 (the first year of the impact fee collections).  For calculation purposes we will use the average annual price of natural gas based on last trading day of each month of the calendar year from the Henry Hub spot price as reported by the New York Mercantile Exchange as outlined by Act 13.

 

In 2011 unconventional gas wells produced 1.066 billion thousand cubic feet (Mcf) of gas.  Using a price of $4.01 gives a market value of just less than $4.3 billion.  The following table provides a summary of estimates for 2011 to 2014.

 

Year Output (Mcf in millions) Avg. Price Estimated Market Value (millions) Estimated Severance Tax Revenue (5%) (millions) Impact FeeCollected

(millions)

Net Change(millions)
2011 1,066 $4.01 $4,279 $213.96 $204.2 $9.76
2012 2,041 $2.79 $5,703 $285.16 $202.5 $82.66
2013 3,103 $3.75 $11,632 $581.63 $225.75 $355.87
2014[2] 3,881 $4.21 $16,357 $817.88 NA NA

 

We can see from the table that over the first two years, the estimated severance tax is not that far off from the impact fee.  In the third year the severance tax would have brought in more than double the impact fee.

 

It is important to look at the net change because there are many state agencies, counties, municipalities, and the Marcellus Shale Legacy Fund that are currently being funded by the impact fee.  If it goes away, as specified in Act 13, these entities will still want to be compensated, so the severance tax will have to satisfy them as well as any new initiatives, such as education, the new administration wishes to fund.  Obviously the higher price of natural gas thus far in 2014 suggests that $1 billion in severance taxes might possibly be reached, but to reach $1.2 billion, enough to satisfy campaign promises and backfill the impact fee, the price would have to top $6.00 per Mcf and production would have to surpass four billion Mcf.  Or at current prices, production would have to rise by more than fifty percent.

 

Price is obviously subject to the supply and demand conditions, and they can be volatile because of such factors as cold winters, domestic production, export markets, etc.  The cold winter of early 2014 (February-March) pushed the price up over $8.00 per Mcf briefly for a couple of days, but it has been falling steadily since.  Prior to that stretch, the price hadn’t been over $5.00 since 2010.  As more wells are spud, the supply will keep increasing, holding prices down.  Falling prices will slow production and the drilling of new wells.

 

During the campaign much was made about Pennsylvania being the only state without a severance tax, so how do other states handle severance taxes?  There are thirty six states with a severance tax (although none with an impact fee).  Neighboring Ohio charges a simple $0.025 per Mcf, while West Virginia levies a five percent gross value tax plus a charge of $0.047 per Mcf.  West Virginia also allows deductions for annual industry operating expenses.  Other states such as Kentucky (4.5 percent of market value), Texas (7.5 percent of market value), Louisiana ($0.163 per Mcf), and Arkansas (5 percent of market value) allow for exemptions and deductions based on issues like high cost production, transportation expenses, low or marginal producing wells, and use of high efficiency equipment in an effort to encourage production.  If Pennsylvania contemplates a severance tax will it allow deductions and exemptions as well?  Also these states tax all natural gas and not just those from shale sources.  Will Pennsylvania impose the severance tax on more traditional wells?  The output of conventional wells is just a fraction of the output of unconventional wells but taxing natural gas should include them as well.

 

The natural gas industry has boomed with the advent of hydraulic fracturing in the Marcellus Shale formation and had given the state’s economy a boost during the most recent economic downturn.  We have documented in past Briefs (Volume 11, Number 38 and Volume 13, Numbers 27) the benefits of this industry to state coffers through income taxes, sales taxes, and now impact fees.  A severance tax, if too high, could have adverse consequences for Pennsylvania.  Instead of trying to push through a severance tax that will consume a great deal of the Legislature’s time and political capital, the new administration should focus on tackling the issue of pension reform which is the principal cause of the Commonwealth’s budget problem.



[2] The 2014 output value is an estimation based on the first six months when more than 1.94 billion Mcf of gas was extracted.  The average price for 2014 is the average through November and of course the impact fee for 2014 still has to be determined based on the final price of gas as well as how many wells were spud in 2014.

Agency’s Request Sure to Lead to Deluge of Others

The head of the Fish and Boat Commission wants a slice of a proposed severance tax on Marcellus Shale development in order to provide for additional oversight and enforcement of streams and the creatures that populate them as the intensity of Marcellus activity ramps up.

According to the Commission’s most recent annual report its mission is to "protect, conserve, and enhance the Commonwealth’s aquatic resources and provide fishing and boating opportunities". It operates on a $48 million budget: 67% of its revenues comes from licenses and fees related to angling and boating. By and large this agency does not rely on tax dollars and a Penn State publication on the role of regulation in the Marcellus drilling industry states the Commission’s water quality officers "work with DEP personnel to monitor the impacts of drilling and other activities on stream quality and aquatic life, and offer input to DEP on regulatory decisions".

As the Commission’s Executive Director noted "the commission has a role in patrolling streams and can punish operations that cause pollution, but we don’t have the money to hire new additional staff". He’d even like to lower the price of fishing licenses because he feels the state has "priced itself out of the market…and would like to reduce those".

The predictable fallout of the Commission’s request will be to spur on other state agencies and municipalities to wrangle for a piece of the pie. And why not? The Game Commission has lands to maintain where there will be Marcellus drilling, local fire departments might have to respond to incidents, state and county roads will have to be maintained, etc. But if the Commission feels it needs to devote additional resources to water quality or slash the price of its licenses, the best place to do that would be on the existing balance sheet and not from a yet-to-be-created tax.