Feb 12, 2015 4 min read

Gov. Tom Wolf rolled out his plan to tax natural gas drilling earlier this week, claiming the new tax would generate $1 billion by 2016-17. He is optimistic at least some form of his plan can win approval of legislators because they all know the state faces a huge deficit and needs to raise more revenue somehow.

We don’t share the governor’s degree of optimism, but do believe the Marcellus Shale industry has so far gotten off lightly in terms of taxes and can well afford to pay to Pennsylvania the same amount it pays to other states in which it drills.

Gov. Wolf’s plan, however, calls for the gas industry to be taxed more here than in other states. On top of the proposed 5 percent severance tax, he’s tacked on 4.7 cents per thousand cubic feet of gas extracted from the Marcellus Shale formation. As House Majority Leader David Reed pointed out in an Associated Press article yesterday, that effectively raises the tax to 7.5 percent, which he claimed would be among the highest in the nation. That is not likely to sit well with legislators with whom gas drillers won (or bought) favor; the level of taxation with be compromised down, and Wolf’s expectation of $1 billion will go down with it.

The gas industry boomed here over the past 10 years, and one reason for it is the friendly tax environment. There has never been an extraction tax, and Act 13, passed three years ago, instituted impact fees critics of the gas industry claim amounts to only a 1 to 2 percent tax. Act 13 has done nothing to assist education, as Wolf wants his severance tax to do, but it has been of enormous value to our local municipalities.

The gas industry paid more than $630 million in impact fees since 2012. The money is funneled through counties to municipalities directly affected by gas drilling in order to help them rebuild roads damaged by heavy truck traffic and to boost police and other community services. Some municipalities have already come to depend upon these subsidies heavily. Morris Township in Greene County has a population of just over 1,000. It receives about $500,000 a year in Act 13 impact fees, and supervisors expect to receive more this year because of increased drilling activity. What would the impact be on residents if the township lost that revenue yet still had to deal with the effects of gas drilling?

Wolf said some of the severance tax would be returned to communities directly affected by gas drilling, but we share the skepticism of local government officials the current distribution of the fees to municipalities, conservation districts and emergency management agencies will survive.

The gas industry warned any increase in taxes on it will discourage development and thus have a negative economic impact on the area. We suspect a slowdown in drilling activity would be most welcomed by many Southwestern Pennsylvanians who watched a landscape already scarred by coal mining endure another assault, even if that means a loss of money and jobs.

Our advice to the governor and legislators is to consider first not how much revenue can be wrung from the gas industry but how great the impact of drilling is on the communities where it is done. If a severance tax is enacted, it must continue to provide our municipalities with the money they need to deal with the problems created by drilling, and it must continue to provide the money needed to pay for the regulation and inspection of wells.

Any new tax that ignores these needs would be a great mistake, and we’d be better off with Act 13 alone.