Pennsylvania

Energy. Environment. Economy.

Wolf proposes 6.5 percent tax on Marcellus Shale

Gov. Tom Wolf, center, delivers his budget address for the 2016-17 fiscal year to a joint session of the Pennsylvania House and Senate, as the speaker of the state House of Representatives, state Rep. Mike Turzai, R-Allegheny, left, and Lt. Gov. Mike Stack, right, listen at the State Capitol in Harrisburg Pa., Tuesday Feb. 9, 2016.

Chris Knight / AP Photo

Gov. Tom Wolf, center, delivers his budget address for the 2016-17 fiscal year to a joint session of the Pennsylvania House and Senate, as the speaker of the state House of Representatives, state Rep. Mike Turzai, R-Allegheny, left, and Lt. Gov. Mike Stack, right, listen at the State Capitol in Harrisburg Pa., Tuesday Feb. 9, 2016.

Governor Wolf wants the state’s natural gas drillers to pay a 6.5 percent tax on Marcellus Shale production, which he estimates will bring in $217.8 million dollars for fiscal year 2016/2017 to the general fund. It’s a bold move for a governor who failed to get anywhere last year with the lower 5 percent extraction tax proposal.

In his budget address, Wolf focused on the current stalled budget process and did not even mention taxing natural gas drillers, or discuss any details about his proposed budget. He struck a defiant tone toward Republicans who may continue to oppose any tax hikes.

“Indeed anyone in this Chamber who claims we can simply cut our way out of this mess without also increasing revenue is just ignoring the math,” said Wolf.

House Majority Leader Dave Reed talks to reporters after Governor Wolf's 2016 budget address. Reed is flanked by Speaker Mike Turzai (L) and Representative Bill Adolph (R).

Marie Cusick / StateImpact PA

House Majority Leader Dave Reed talks to reporters after Governor Wolf's 2016 budget address. Reed is flanked by Speaker Mike Turzai (L) and Representative Bill Adolph (R).

But industry leaders say Wolf is ignoring market realities. Production has tanked across the state as the price of natural gas reaches new lows. An indication of just how much drilling has slowed in the state is revealed by the $217.8 million revenue expected from the 6.5 percent tax during the initial fiscal year. That’s roughly what the state has taken in each year through the per-well impact fee currently levied on drillers. And it’s much lower than Wolf’s initial 2015 budget proposal, which projected $1 billion in revenue from the five percent severance tax proposal.

House Majority Leader Dave Reed, R-Indiana, says the revenues from a 6.5 percent tax won’t come close to balancing the budget.

“The bottom line is it doesn’t bring in any money because natural gas prices are at record lows,” Reed told reporters after the budget address. “We went from a situation last year where the governor proposed a billion dollar severance tax to fund education,… by the end of last year even he admitted his severance tax proposal [would have] only brought in $50 million dollars.”

Pennsylvania now charges a per-well “impact fee” on natural gas drillers, which has been reduced this year because of low gas prices. In the past the impact fee raised an average of $225 million a year, most of which went to local communities impacted by drilling. In this proposal, impact fee funds for gas drilling areas would remain intact, but instead of a per-well fee the money would come out of the 6.5 percent tax. That revenue is estimated at $133.1 million, and is in addition to the $217.8 million expected for the general fund. Total projected revenue generated from a 6.5 percent shale gas tax would be $350.9 million for FY 2016/2017. These estimates  jump each year, reaching $507 million for the general fund by 2020/21.

Erica Clayton Wright, spokeswoman for the Marcellus Shale Coalition, an industry group, says it’s the worst possible time to consider taxing the industry.

“We already are seeing significant reductions in capital expenditures and job losses,” said Wright. “This is not the time to add additional taxes.”

Wright says the natural gas tax will hurt average Pennsylvanians.

Pennsylvania remains the only state not to impose an extraction tax on natural gas. Wolf’s proposal would have drillers start start paying the levy July 1.

Comments

  • Fracked

    When is the right time??? It wasn’t time to tax the industry when they slithered into PA in 2005-2006 because they threatened to keep their rigs in WV if we made it too tough for them. It wasn’t time when they were making billions of dollars and it isn’t time now because there is a down trend in their boom and bust business. I suspect when the liquification ports are up and running and they are shipping the gas to “FOREIGN” markets we still won’t tax them. Which argument will be used? They are a fledgling business and need lots of help? They will leave and go elsewhere? OR they will stop contributing to the elected officials campaigns?

    • bill

      First, your dates are wrong. The first test drilling began in 05-06 but the first commercially viable well wasn’t producing until 2008 and it was a home grown PA rig. The major companies like Exxon didn’t start drilling until 2011. Now isn’t the time for a tax because you won’t get much money and could drive the smaller drillers out of business. The big companies can survive with thin margins but the majority of the drillers are not large corporations but rather are small partnerships or LLCs. They cannot survive smaller margins.

      • Fracked

        I know very well when they first arrived. If the tax had been in place-like other energy producing states-when they arrived, and when they were prepared to pay the tax -we would be in a very different financial place for sure.

        • Guido

          So, just because another state does something it should be copied in Pennsylvania? We already have an impact fee and it has brought serious bucks into my county.

        • Chris W

          People ignore the impact taxes – mainly people that aren’t aware of them or those in Harrisburg that want more for themselves. The impact taxes have brought billions to PA but it goes to the counties not Harrisburg and that is a no-no to politicians that can’t get their hands on it. Shameful

    • Lori Huber

      Look at the market. Natural gas prices are at historic lows making many gas companies operate at a deficit. Many have ceased operation and moved on. The tax will guarantee an end in PA. If you heat with gas, you will know when that happens because the reprieve you’ve gotten over the past several years from $500-$600 heating bills to $100-$150 in the winter will be back and PA will suffer the loss of income that it’s already enjoying in impact fees, corporate and business taxes, income taxes on land owners supplying the gas, and thousands of jobs which will be gone, adding to the burden of unemployment in the state. If you kill the golden goose, at most all you get is one meal; then nothing. Someone better wake this idiot up because he is running around with the hatchet.

  • Roscoe McCloskey

    I would love to hear when Erica thinks would be the best possible time to tax the industry. This industry is so dishonest about the taxation, they just don’t want to pay, it is as simple as that. It will cost them money. It is not going to damage their industry, their ineptitude has already done that. They are poor business people and they are failing because of that fact. Did they not take into consideration that the price of gas and oil might go down? Nope, they over invested and became very comfortable wasting the money instead of being frugal. They all lived very comfortable lives earning far more than economics determined they should, and now that supply and demand has leveled things out they can’t even survive let alone make a profit. Any fool can make money when you can sell something for far more than it is worth, the gas industry has proven that. We should just ban extreme extraction and move on to sustainable fuels, we are going to have to one day, so let’s do it by choice instead of by necessity.

    • shinobi1

      Your radical liberalism is disgusting. If you oppose traditional American values and ways of doing things, kindly move to Europe. There are many losers over there who welcome your kind.

      • kenneth weir

        Your ignorance is only superseded by your stupidity. Dissent is a constitutional right.

  • joe

    how many different ways can a democrat tax something till it dries up? the consumer will get screwed, again. how about cutting the states spending, I know firsthand there is a ton of waste at penndot. but nooooooo can’t do that. It’s easier to screw everyone so the guvnr can pad the teachers pension fund. what a giant douche!!!

  • Stanich

    Pennsylvania…where the demonrats bring you the 60′s…all over again

  • CommonSense

    Hope the people of PA are happy about who they elected. Typical Dem approach – raise taxes. And are you joking… More money for schools.. That the Philly school system for example, always needs more money. And when they get it, its not enough and they need more. CONTROL SPENDING, that’s the answer.

  • shinobi1

    Wolf is certifiably insane.

  • steve

    The answer isn’t always more taxes. That is the only thing Wolf talks about, he does not ever discuss wasteful spending. The taxes he proposes are almost always on “Big Business”, because that won’t upset liberal democratic voters. He rarely looks at the impact the taxes will have on people in the state. Basic economics always works, make something more expensive and you will sell less, or make it more expensive to do here and it will move else where, what do you think killed Michigan and many of their cities? The automobile plants moved to friendly states, with tax benefits and lower labor costs. Just remember the cost of a gallon of gas in PA is 40 cents higher than Ohio because of Wolf. Where is that tax going?

  • Julieann Wozniak

    Drop in the bucket, compared to the billions in damage this industry has done to streams, wells, air quality, the agricultural and tourism business here in Greene County. We got few of the oft promised, always lied about jobs, jobs, jobs. In fact, imported shale workers sucked up all the affordable housing in the county and increased our homelessness problem I stand with Wolf! I’m sick of austerity and Tea Party misrule. I will be once again voting my self-interest, with both birth certificate and drivers’ license in hand….just in case.

    • rockjockpa

      Greene County, a hot bed of tourism??? Spare me. Other than 65 people coming in to celebrate Rain Day once a year, what else do the they come for?

      Greene County has benefited greatly from the drilling, just ask the County Commissioners or the thousands of happy citizens getting big checks or finally have a job. Greene County unemployment rate was always way high due to lack of industry, now it is here.

      • Julieann Wozniak

        Fishing, until we lost Duke Lake, the Ten Mile and its tribs, Whitely and Dunkard Creeks. The latter became a cesspool of illegally dumped fracking waste in its upper reaches and headwaters. Not to mention hunting, hiking, and kayaking. You really want to kayak on a stream that is filled with carcinogens.

        I’m in IT. Realllllly small business owner, which the tea baggers ignore as they pander to the rich. Most residents of my town work at WVU or one of the two Morgantown hospitals. And yes, the County Comissioners do get paid “big checks” by the gas industry and are deliriously happy, and so is Rep. Pam Snyder.

        Waynesburg? Meh. Nothing to see there.

        • rockjockpa

          Well, you ARE correct that there has been environmental degradation in Greene County, but the incidents and waters you reference were clearly documented by several respected researchers and regulatory bodies to have been harmed by coal mine waste, not Marcellus activities.

          Just because some wacko environmental extremist says it is so doesn’t make true. Not to be critical…

          • Julieann Wozniak

            There is video and photographic evidence of the dumping that occurred in Blacksville. And I would hardly call the member of the Isaac Walton League “wacko extremists.” On the contrary, they are longstanding, respected members of our community. As opposed to billionaire gas company CEOs, none of whom live here and regard the natives as extraneous to requirements; we are all “wacko extremists,” the moment we open our mouths in protest.

          • rockjockpa

            Funny, I just Googled “Wacko Environmentalist Extremists” and Isaac Walton League came up.

    • Lori Huber

      LOL – you are completely delusional. I have many friends and family who got jobs with the industry and industries that support the industry who are all worried about losing them. I worked for a company that supplied the gas companies before leaving the work force. My twp has earned tens of thousands of dollars in just 2 short years that has gone to local communities and school districts from just the few wells located here, and the gas companies have provided road resurfacing and maintenance in communities where they operate. Greene County TOURISM?!!! are you kidding me? Homeless? What a misrepresentation of facts. You can spout your rhetoric to those from other areas but don’t try to spread the lies to those who live here because we KNOW better. Good Lord!

  • rockjockpa

    Wolf’s proposed budget is the largest spending increase in 25 years and will raise taxes on the average PA family $850. How is that compassionate? To tax poor working families in order to funnel monies to the bloated teachers’ unions?

    There are some really simple solutions that Wolf will not address that include cutting spending and turning the PSERs pensions into 401 Ks just like the rest of Pennsylvanians get.

    But, no, When you are a tax and spend Governor, that’s what you do… You raise taxes and spend more money. Not to be critical….

  • rdsouza

    What is it about politicians. The world is going to hell in a hand-basket and all they think of is raising taxes! Hey Guv of PA, you will simply make a bad situation worse with this proposal. I guarantee you a decline in state tax take if you do this. Ask Hoover! He raised taxes back when and caused the great Depression! Instead think Pres Coolidge/Kennedy/Reagan.

  • Chris W

    Bold move? We have lost Haliburton from Indiana County last year to the possibility of new tax increases ..they had been there since the 1960′s – they moved to Ohio which is more tax friendly to businesses.They were one of our top 5 employers – now those jobs are gone forever.

  • steve

    You sound like a sheep for Wolf! Basic economics works everywhere, if we have extra in PA we can export to other states unless of course we are as expensive or more expensive. Got any facts to back up your geography lesson? I’ve lived in both states, taxes are lower, roads are better in Ohio. It’s about higher quality and less waste.

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