States should put fracking money in trust funds, says new report

  • Marie Cusick

A new Brookings report says states with oil and gas drilling booms should be better prepared for the bust.

Lindsay Lazarski/WHYY

A new Brookings report says states with oil and gas drilling booms should be better prepared for the bust.

States at the center of the recent oil and gas boom should prepare for the inevitable bust and put drilling revenues into permanent trust funds, says a new report from the Metropolitan Policy Program at Brookings.
The researchers singled out Pennsylvania and argue it should enact a severance tax on gas production. Drillers currently pay a per-well impact fee, which has generated more than $860 million over the past four years. This year the fees are expected to bring in $185.5 million— the lowest amount ever.
“Pennsylvania would be wise to levy a severance tax on its oil and gas industry and deposit a portion of that in a permanent trust fund,” the authors write.
They note taxes from oil and gas development are affected by global energy markets and become a volatile revenue source if they are not in a well-managed fund. They also cite what’s known as the “resource curse,” in which economies based on natural resources grow more slowly than diverse economies.
For example, Alaska relies heavily on oil revenue and after prices plummeted, the state faced a $3.5 billion budget deficit this year.
“A boom in extractive industries can stunt the development of other higher-skill, higher-tech sources of prosperity that are more conducive to long-term economic growth as more resources flow into the booming industry,” the authors write.
Governor Tom Wolf made a campaign pledge to impose a severance tax on Marcellus Shale drillers, but he failed to deliver during his first year in office, and instead presided over a historic 9-month-long budget stalemate with the Republican legislature. He called for a tax again in his spending proposal this year.
The Brookings research was funded by the Rockefeller Foundation and Nathan Cummings Foundation. Two senior members of the Wolf administration contributed to the report: Cindy Dunn, of the Department of Conservation and Natural Resources and John Quigley, of the state Department of Environmental Protection.

Up Next

Philly's energy hub: A renaissance for the Delaware Valley or a pipe dream?