The Gas Tax

Gov. Wolf surprised no one on Feb. 11 when he announced plans to create a severance tax of five percent on the natural gas extracted in Pennsylvania. Wolf campaigned on this tax – this exact level of levy — and has wasted no time following through. Unlike his predecessor, who was hamstrung by his ‘no tax’ pledge to Grover Nordquist – Gov. Wolf can make good on his promise without having to put it into effect. The severance tax will have to become legislation, meaning that something specific will have to get through the Republican-controlled legislature. As of the announcement, there were few specifics of the proposed law released.

The lack of specificity tempered the remarks of anyone who responded. The shale gas industry responded negatively. There were implied threats of further slowdown in drilling and development of the resource in Pennsylvania. Comparisons to the extraction taxes of other states brought reminders that places with higher taxes – like Texas – have virtually no corporate taxes. The comparison to West Virginia prompted the reminder that drilling and processing in West Virginia lagged the activity in PA by quite a bit. But again, it was hard to lodge too much of a complaint against the proposal without knowing what was in the proposal.

One tidbit that the governor did mention was that local government would still participate in the impact fees, which will still be charge to some degree. My belief is that the loss of impact fees to local government is the biggest negative in Gov. Wolf’s proposal. The gas industry will figure a way to profitably get at the largest gas deposit in North America. Local municipalities and counties bear the brunt of whatever impact drilling has. The use of those impact fees has brought new roads and infrastructure to places that the state has barely invested in over the years.

Washington County Chamber of Commerce President Jeff Kotula may have spoken for all local government yesterday when he expressed concern about the share of impact fees that would find their way from Southwestern PA to Southeastern PA, where there is no drilling but a lot of votes.

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