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To frack or not to frack, that is the question.
At least it was a few years ago when drilling companies first arrived in force in Pennsylvania to sink deep wells to extract natural gas from the Marcellus Shale.
Environmental concerns over fracking—the means used to extract the gas—dominated discussion among environmentalists and even mainstream politicians.
Not so much anymore. Politicians have rushed to embrace gas drilling, mostly as a means of extracting tax revenue for the state.
Take the four Democratic candidates for governor as an example. They all want to impose a percentage tax on gas drilled, with proposals ranging from five percent to 10 percent.
With Tom Corbett as governor and with Republicans in control of the legislature, the Hughes bill is probably DOA for this year. But next year—with perhaps a Democratic governor in place—is a different matter.
It’s hard to resist the lure of gas money.
Pennsylvania has vast reserves of natural gas deep in the ground beneath us. Previously unreachable, it can now be mined using the deep drilling technique that has become known as fracking.
Alone among the natural-gas producing states, Pennsylvania does not levy a tax on the gas extracted.
Instead, it has the gas companies pay an “impact fee,” roughly equal to $50,000 for each well drilled. First enacted in 2012, the fee currently brings in $200 million a year, with 60 percent of the money directed to the handful of counties that have the most gas wells in their midst.
Why do we have a fee on wells rather than a tax on gas? Because Corbett, elected on a “no new taxes” pledge, would not go for a tax. The most he would buy is a “fee.”
Now comes an independent study that questions the wisdom of Pennsylvania’s policy.
The Independent Fiscal Office, a nonpartisan research agency created by the legislature, recently reported that Pennsylvania has the lowest fee/tax structure of the 11 natural-gas producing states.
It is the equivalent of 1 percent—compared to the yield from taxes and fees in other states that range from 2 percent (Ohio) to 7.5 percent (West Virginia).
And most of those states levy a percentage tax on the gas extracted, exactly what Hughes and the Democratic candidates are proposing.
No matter who is nominated on May 20, Corbett will face an opponent in the fall who wants to extract more from the gas industry to raise money for favored state programs. (Education comes to mind.)
The governor will have a hard time defending his “impact fee,” especially since the big gas and oil companies involved in the business are paying higher taxes in other states and seem to be doing just fine, thank you. Even industry-friendly Texas (4.5 percent) and Oklahoma (3.9 percent) levy taxes on gas extracted.
Recently, the Pennsylvania Budget and Policy Center, along with two counterpart organizations in West Virginia and Ohio, wrote the governors in those states urging them to adopt a uniform tax and fee structure set at West Virginia’s level.
The move would discourage drillers to move a mile up a country road—and cross the border into a low-tax-and-fee state.
The shift in political thinking about Marcellus Shale is happening for several reasons: One, environmental concerns have been muted somewhat by experience.
Two, researchers who try to determine how much gas is under the rock keep upping their estimates. One older estimate puts the value at wellheads at $1 trillion.
In the view of some enthusiasts, Pennsylvania is poised to become the Saudi Arabia of natural gas.
Three, a tax on gas represents a way to raise big money for the state without increasing personal or business taxes. It is a new source of revenue that does not impact the regular taxpayer, the way increases in the personal income tax or sales tax would.
To summarize: it is a tremendously appealing option.