Evaluating Gov Corbett's Marcellus Shale Impact Fee

OCTOBER 3, 2011 | by NATHAN BENEFIELD

Gov. Tom Corbett unveiled his Marcellus Shale impact fee proposal in Pittsburgh today. Corbett's proposal represents a significant improvement from some of the leading tax and fee proposals.

Framework

Counties have the option of imposing a fee to compensate for drilling's impact, outlining the maximum charge for each year of production for the first 10 years. This allows each county to assess the true impact of gas drilling—since many counties report no increase in costs—and charge an appropriate fee. The proposal appears to allow counties to charge different fee rates, based on impacts, as long as the fee doesn't exceed the maximum rate for each year.

The fee could be used for a limited number of expenses related to gas drilling (more on this below), with a portion of the revenue sent back to the state for transportation, well plugging, pipeline inspection, and a handful of other uses. The fee would also be a flat rate per unconventional well. These limits make the proposal truly a fee, rather than a tax in disguise.

Most of the revenue from the fee (75 percent) would be kept locally, divided between counties, municipalities with drilling, and municipalities without drilling. None of the revenue would go to the state General Fund, or for Growing Greener. This is the key distinction between an "impact fee" and a tax supported by special interests who just want more funding.

Suggestions for Improvement

First, the limits for use of the impact fee should be narrowed to exclude items that are not direct impacts of gas drilling—e.g., low-income housing, social services programs, and judicial system costs. These costs are the effect of population increases, and should be addressed through current local tax structures. If the current tax code needs to be adjusted to reflect the unique transitory nature of the drilling boom, that should be addressed separately.

Second, the fee would allow for counties to offer credits against the fee for investments in natural gas infrastructure. While the details are limited, it appears this would include supporting natural gas fueling stations and conversion of public transit fleets to natural gas vehicles—which are not impacts of gas drilling. Rather, any credit should be tied to expenditures that companies make to pay for their identified impacts. This would include road improvements funded by gas drillers. With an estimated $200 million spent by drilling companies in 2010 on road repair, legislators should be careful not to discourage future investments in local infrastructure.

Regulatory Changes and "Energy Independence"

The bill more than doubles the required distance between a drilling site and bodies of water, private wells, and public drinking water systems. Drillers would also assume responsibility, unless proven otherwise, for water contamination within 2,500 feet of a well, up from 1,000 feet. The proposal drastically increases violation fines and penalties, and increases well bonding costs by more than 400 percent.

Gov. Corbett's proposal also touched on promoting more use of natural gas-powered vehicles to foster "energy independence." The details are still sketchy, and there are no costs identified. But it sounds eerily similar to the state "Marcellus Works" proposal or the Congressional "NAT GAS" Act. These proposals are based largely on the "Pickens Plan" (from which T. Boone Pickens would profit substantially) to subsidize natural gas vehicles. Consumers, businesses and local governments don't need taxpayer subsidies to encourage them to save money, as these plans suggest, nor should the state try to pick winners in our energy future.

Corbett Marcellus Announcement



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