Memo on Marcellus Shale Impact Fee "Deal"

MEMORANDUM

TO: Members of the Pennsylvania General Assembly

FROM: Matthew J. Brouillette, Commonwealth Foundation

CC: Members of the Media

DATE: February 6, 2012

RE: Marcellus Shale Impact Fee “Deal”

Over the course of the Marcellus Shale debate, we’ve laid out some guiding policy principles that will hold the natural gas industry accountable for its impacts while also allowing for continued extraction and job creation. Unfortunately, based on the details from a House GOP memo, many of these principles would be violated if the current proposal is passed into law.

Five Principles

Businesses should pay the cost for government they use. If a business is not paying for its negative impacts on the environment and/or infrastructure, it is appropriate to charge a fee to pay for the government’s cost to remediate the problem. Since drilling’s impact on government does not increase if a gas well is more profitable, a “fee” should not be tied to production.

Any fee should be directly related to uncompensated costs of government. A new fee should not be imposed to extract additional revenue for unrelated government purposes or subsidies. For example, Growing Greener is not directly related to remediating problems caused by the natural gas industry.

Any fee rate should be established in the context of what businesses are already paying in taxes, fees, and contributions to local communities and the state, setting the fee rate at a level to only cover those uncompensated costs of government.

Any fee should be imposed at the county or municipal level, not at the state level. This ensures competition between local governments, discourages excessive fee rates, and reduces the threat of cross-subsidization and redistribution of additional fee revenues to unrelated government purposes.

Before imposing a new fee, elected officials should consider if current local taxes and fees should be revised to cover any uncompensated costs of government. For example, would it be appropriate to adjust local hotel and emergency services taxes to better address the influx of large numbers of workers into sparsely populated areas of Pennsylvania? Or, are there other fee/tax mechanisms that can be more directly tied to any uncompensated costs of government?

According to the House GOP memo, this “deal” is clearly a tax and not a fee. It is a tax because the rate is tied to natural gas prices, not based on actual impacts.

Second, the “deal” includes significant redistributions of these natural gas taxes to fund statewide programs that are unrelated to the impact of drilling, including alternative energy subsidies, downtown redevelopment projects, rail freight assistance, and other corporate welfare programs.

In short, a tax by any other name – no matter how artfully crafted – is still a tax. And raising new taxes just to redistribute them to unrelated political projects isn’t just bad policy; it will kill jobs and increase the costs of energy for Pennsylvania’s families.

If you have any comments, questions, or concerns, please feel free to contact me and/or our policy experts Katrina Currie or Nate Benefield.

For more on the Marcellus Shale impact fee, please see http://www.commonwealthfoundation.org/research/detail/marcellus-shale-impact-fee