The plan would charge a $40,000-$10,000 fee per well, and direct the bulk of its revenue to county and local-level governments who are dealing with the clogged roads, uptick in emergency service demands and other negative offshoots of Marcellus Shale drilling.
Trying to get up to speed on Corbett’s plan? Here’s a primer on everything that happened this week.
How We Got Here
First, a bit of background. Pennsylvania is the only major energy-producing state that doesn’t assess a tax or fee to natural gas extraction. In 2009 and 2010, Democrats tried, failed, tried again, and failed again, to pass a tax into law.
Then, Republicans took control of the House and governor’s office. Corbett made it clear he’d veto any tax that reached his desk. In an April speech, he called the idea of taxing an industry simply because it was successful “un-American.”
Corbett used a speech before the State Association of Township Supervisors to lay out his case against a tax. It’s the most detailed explanation he’s given to-date on his reasons for opposing a drilling levy. He said drilling is “hiring Pennsylvanians and giving hope” in rural pockets of the state, and that the economic growth is indirectly boosting tax revenue. “Those are people that are back on the employment rolls. Those are people that, if they were on welfare, they can be off welfare now,” he said. “ That we won’t be spending state tax dollars on. Those are people that have salaries that will pay income taxes. That will go and buy goods. That will pay sales taxes. And the people who sell them the goods now have jobs that are growing.”
With Corbett standing firm, lawmakers began discussing a fee, rather than a tax, that could help local governments deal with drilling’s strain. Senate President Pro Tem Joe Scarnat, who helped kill off a tax in 2009, emerged as a key proponent of an impact fee. He unveiled a bill in April, and pushed for its passage along with the state budget. But Corbett stopped the Scarnati plan in its tracks, by vowing to veto any bill that reached his desk before his Marcellus Shale Advisory Commission, a panel he appointed to suggest drilling policies, issued its final report.
Then, everyone waited. And waited. A month after the report came out, Corbett was still vague on what suggestions he agreed with, and what policies he’s push for.
Last Friday, StateImpact broke the news Corbett was ready to unveil a plan.
He called for a maximum first-year fee of $40,000-per-well, with a gradual reduction to $10,000, after four years. Corbett said the plan would generate $120 million statewide in year one. The catch? Counties, not the state, would implement and collect the fee. They’d have an option of a lower rate, or no rate at all.
While Corbett’s impact fee got the bulk of attention, his proposal had broader components, too.
The governor wants to increase the minimum distance between a gas well and streams, rivers, or private water supplies. He also wants to up the amount of money drillers pay to bond their wells, and double penalties for civil violations, from $25,000 to $50,000. Another major proposed change would be to increase the “presumed liability” for drillers from 1,000 feet to 2,500 feet. That means if a person lives within 2,500 feet of a drilling site, and his or her water supply goes bad, the energy company would assume the legal liability for the problem.
Finally, the incentives: Corbett wants to set up “green corridors” throughout Pennsylvania, with natural gas fueling stations every 50 miles. It’s unclear how he’d fund this effort, though part of the money would come from incentives his plan offers drillers. Energy companies could reduce their fee payment by up to 30 percent, by “[making] improved investments in natural gas infrastructure.” That includes “setting up natural gas dueling stations or natural gas public transit vehicles,” according to Corbett’s press release.
Corbett’s county-level impact fee led to concerns from both the drilling industry and county officials, who worried it would create a patchwork system, where things change from county to county.
One concern, [County Commissioners Association of Pennsylvania Executive Director Doug] Hill said, was the possibility of an economic “border war.” “One county levies [a fee],” Hill explained, “and its neighbor doesn’t, [thinking], we’re going to be more competitive than you are.”
Indeed, counties wouldn’t need to set their own rates, under Corbett’s plan. And the $40,000 first-year fee is a ceiling, not a standard. So Washington County could set a $30,000 fee, while neighboring Greene opts for a lower $5,000 rate.
Would the difference be enough to push the drilling industry out of one county, and into another? Marcellus Shale Coalition president Kathryn Klaber said it’s a possibility. “Any time you’re putting a higher fee or a different kind of administrative burden, all these things add up,” she said. “It’s clear the Coalition would be accepting of a modest, competitive fee, [but] as you start adding up, [a higher fee] can have a discouraging effect on capital investment. Because every single well is assessed for what kind of return it would deliver. There’s no doubt a fee or tax goes into that calculation.”
CCAP formalized its concerns later in the week, after its members held a statewide conference call to discuss the proposal.
Top lawmakers shared those concerns, as we wrote on Tuesday. “Senate Majority Leader Dominic Pileggi said a county-level assessment is ‘technically possible,’ but questioned its wisdom. ‘It would be easier to have a statewide tax imposed and collected. …You avoid the challenges of operations that overlap multiple county jurisdictions. And you have a predictable tax assessment system in place, so people doing business across the state have one office they need to communicate with.’”
But for now, Corbett is sticking to the county-level plan. At a mid-week press conference, he said local officials need to decide for themselves whether or not they need a levy.
Not coincidentally, Americans for Tax Reform leader Grover Norquist, who administers the “no new taxes” pledge Corbett signed onto during the 2010 campaign, told StateImpact the fee plan would constitute a tax, if it’s levied by the state.
The plan, as it stands, is “clearly moving in the right direction,” said Norquist, who heads Americans for Tax Reform. He likes the fact that counties, not the state, would decide whether or not to implement the levy.
If this changed to a state-assessed system, it would count as a tax increase, Norquist said. That wouldn’t necessarily mean Corbett violated his pledge, though. “You’d just have to have an offsetting tax decrease somewhere else,” he said.
The Road Ahead
What happens next? Corbett staffers begin sitting down with legislative leaders, to hash out their differences and work the administration’s proposals into a specific bill. Republican Senator Joe Scarnati has called for a bill to become law by the end of the month. Corbett has shied away from deadlines and ultimatums himself, but says he shares Scarnati’s desire to resolve the issue soon.
Something will likely pass, whether that happens in October, this winter, or early next year. Why? Because ultimately, politics drives what happens in Harrisburg, and Marcellus Shale has become a major political football. More than 60 percent of Pennsylvania residents support some sort of levy on drillers.
Looking for more information? Check out our topic page, which hosts every story we’re written about impact fee proposals.