David Passmore posted on 11/1/2011 7:28:00 AM
There is much good sense in these five principles.

A couple of comments:

1. Agree that a severance tax is not justified merely because other states collect one. The principle of paying for social costs of drilling, extraction, and distribution is, in my belief, sound.

2. Local focus of tax/fee is sensible because (a) drilling and its consequences are most visible locally and (b) the loss "between the cup and the lip" of revenue collected by the state for local uses can be disturbing. Won't detail the reasons here, but, we must remember that municipalities far from drilling could experience costs of gas activity and will not have access to impact fees collected in distant localities.

3. The principle of recognizing that the full tax consequences of gas activity (including sales and income tax bumps) must be considered when discussing a severance tax/impact fee seems sensible. However, absent from most discussions is consideration of the amount of revenue that is appropriate to cover the current and future social costs of gas activity. The decision to impose a fee or set a tax is one matter, but establishing an appropriate, fair, and useful level of a tax/fee is another.

4. Agree that natural gas activity could respond to a production costs added by a tax or fee. However, it remains to be demonstrated how elastic gas drilling and extraction activity is with respect to changes in production costs. At another level, our own data indicate not much change in general economic activity (jobs, personal income, gross state product) might result from an increase in production costs at the level implied by most current PA severance tax/impact fee proposals.

5. A matter not discussed here--but which is central--is the joining of acceptance of a model zoning plan with access to tax/fee revenue by municipalities. We have heard local folks in some municipalities wonder whether the anticipated revenue is large enough to motivate a change in local zoning. This matter needs more public airing, as do other public concerns--no matter how daft they might seem to some.

Best regards,
David Passmore

PS: I hope it is clear that these comments are my own and not those of Penn State. As we write in Marcellus Business Central (see http://MarcellusBC.notlong.com), "You can be certain that there is no such thing as a common, sanctioned Penn State position on Marcellus Shale development around which all faculty researchers rally. As one of our colleagues observed, over 3,500 full–time professors are employed by Penn State, guaranteeing also that there could be over 3,500 independent postures and attitudes about Marcellus Shale at Penn State, some of which change daily. Think the University has one voice on Marcellus Shale? Think again."

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