Gas Severance Tax a Necessary Evil
Washington PA Observer Reporter
26 May 2010
It's becoming pretty clear now that the natural gas industry will be
here for a long time. Much of the state's surface is being gobbled up
in leases, including 700,000 acres of state forest. Thousands of wells
are being drilled. And now we learn that the Marcellus Shale isn't the
only gas-bearing rock below us.
The Utica Shale and the Upper Devonian are at different levels than the
Marcellus, but geologists say all three are layered in a column under
Southwestern Pennsylvania. So, it may be possible to tap gas from these
other layers from the same wells.
Within a few years, it is possible that Pennsylvania could be second
only to Texas in natural gas production. But unless the state enacts a
gas severance tax, we'll receive only collateral benefit from all this
activity and an environmental mess we can't afford to clean up.
Among the 32 states that produce natural gas, 27 of them charge a
severance tax. Pennsylvania, in fact, is one of just 11 states that
impose no severance tax of any kind on its natural resources.
Currently, three bills proposing an extraction tax on gas are making
their rounds in the Legislature. They differ in how much is collected,
how the tax is assessed, and where the revenue goes.
We are not fond of new and additional taxes to conduct business as
usual, and at least one of the bills proposes pumping 90 percent of the
severance tax revenue into the state's general fund. This is a bad idea.
We do, however, favor a severance tax, primarily to pay for what is
shaping up to be the enormous cost of monitoring the industry,
protecting our water supplies and managing the damages to the
environment, which, in the wake of the Gulf oil spill, should be
considered probable rather than unlikely.
Part of the revenue from that tax ought to go for infrastructure
improvements in the areas where the severance is taking place. It
doesn't make much sense to spread the benefit of the tax evenly, lining
the pockets of Allegheny County, for example, where almost no drilling
is taking place, when the pain of extraction is localized in places
like Washington and Greene counties.
Critics say a severance tax will kill the industry in its infancy, that
the gas companies will pick up and move elsewhere. That's not going to
happen. Texas, Oklahoma, New Mexico and Alaska all reap more than $1
billion a year each in gas-extraction taxes, and the industry has not
left those places. Because the gas drillers pass those taxes on to gas
suppliers and transporters, and the suppliers and transporters pass
them on to customers, and because Pennsylvania imports four times as
much gas as it produces, customers here are paying those severance
taxes. A severance tax here will not hurt the drilling companies,
because the tax will ultimately be passed onto customers, most being in
other parts of the country and perhaps Canada.
As we have written before, no one wants to see this state's sales and
income taxes increased, or our real estate taxes continue to rise. This
state has done an abysmal job at controlling spending, and that must be
addressed first. Even then, however, more revenue will be required to
meet this state's obligations. We must increase revenue, but we should
be doing it by imposing the no-brainer taxes first, like that on
smokeless tobacco.
It's becoming clearer every day that a gas severance tax doesn't
require much brain, either.