Debate over Marcellus Shale Industry Continues

Another key issue that arose once again this week during the FY 2011-12 budget debates is that of the Marcellus Shale natural gas drilling industry, and how the state should balance supporting its growth without adversely affecting individuals, communities, and local governments. Lawmakers have proposed various severance tax formulas, most of which differ in the allocation of revenues collected to the state General Fund, the areas immediately affected by the drilling, and funds aimed at ensuring the protection of the environment. The Corbett administration has maintained that it would not support a tax on the industry of any kind.

 

Last week, however, President Pro Tempore Joe Scarnati (R-Jefferson) introduced Senate Bill 1100 – legislation that would levy a retroactive “local impact fee” on gas drillers. The annual fee ($10,000 per well) would be assessed on each well, with the amount based on natural gas price and production. With the fee applying to 2010 activity, as well, the combined 2010/2011 revenues estimated to be collected reaches $121.2 million by March 1, 2012.

 

These revenues, collected by the Public Utility Commission (PUC), would be distributed in three basic categories: county conservation districts, local communities, and statewide environmental and infrastructure projects. For 2011, for example, county conservation districts would receive $5 million, which would increase to $7.5 million in 2012 and each year thereafter. Local governments would receive 60 percent of the remaining revenues to put toward maintenance and repairs to roadways and bridges, municipal water supplies, and waste and sewage systems; as well as other projects “reasonably related” to the health, welfare, and safety consequences of drilling within the municipality. The rest of the revenues would go toward similar projects on a statewide basis, most (80 percent) of which would be distributed by the Commonwealth Financing Authority (CFA). State highways would receive another portion (10 percent of the statewide funding), and the remaining 10 percent would be dedicated to the Hazardous Sites Cleanup Fund.

 

However, there has been some question this week as to whether the impact fee could actually be construed as a tax on the industry – again, a policy that Gov. Tom Corbett ran his gubernatorial campaign opposing. Scarnati refutes this interpretation of his proposal, and emphasized his desire to see the bill brought up for discussion and debate in the five remaining weeks leading up to the June 30 budget deadline. As yet, a meeting of the Senate Environmental Resources and Energy has not been scheduled to begin the bill’s process to final passage.