Dan Onorato’s Natural Gas Tax

Gubernatorial Candidate Dan Onorato held a press conference yesterday announcing he supports a tax on natural gas extraction in Pennsylvania (and that he kinda-sorta opposes other tax hikes). But he offered no details about his plan. However, I will attempt to translate his political statements into a policy position using quotes from PA Independent and Politics PA:

“Not a penny of [the severance tax] will go to balance the General Fund. I’m talking about using that to protect the environment, protect infrastructure, and to deal with all the problems that could possibly come from the Marcellus Shale industry,” said Mr. Onorato. He said the DEP needs more funding to investigate and oversee the gas industry’s activities in the state.

This is clearly different from Gov. Rendell’s proposal, which would generate $70 million to balance the state budget for his pork projects. Onorato’s plan would dedicate funding to the Department of Environmental Protection for costs (though DEP claims they have enough funding already, see below), another round of Growing Greener, and other “problems” related to drilling.

In fact, if the tax is only to be used for problems related to drilling, Mr. Onorato should insure funding goes only to places where drilling occurs — preventing his home county, Allegheny, and the Philadelphia region from receiving any of the gas revenue.

Onorato’s plan calls for a “competitiveā€ tax rate “comparable” with what other states have levied, but he declined to name an exact rate despite repeated prodding from reporters.

To be competitive with other states, Onorato would only support a tax with a lower rate in hard-to-drill areas, or that delays implementation in the first few years — as almost every state with a severance tax on shale gas currently does. Onorato would also have to dramatically lower Pennsylvania’s overall tax burden, as other states have used their natural resource taxes to do. He could imitate Texas or Wyoming, as some have advocated, and eliminate both the Corporate Income Tax and the Personal Income Tax.

“Tom Corbett thinks taxpayers should foot the bill to clean up and protect the environment. I think the drillers should pay for it.”

Now I’m unclear if Onorato is calling for a tax at all. DEP officials say they have enough funding for drilling oversight. In 2009, the DEP raised drilling permit fees from $100 to as high as $5,000 — generating $12 million this year, a 1,600% increase over last year. And fines pay for environmental remediation; for example, the Clearfield well blowout resulted in $400,000 in fines, while the clean-up and investigation cost only about $50,000.

Also, drillers are spending money to improve roads, even without a tax. Anadarko, for example, has decided to upgrade roadways rather than make continuous repairs. In Bradford County, Chesapeake Energy has already invested $15 million in road repairs with another $15 million in projects planned before the end of the year. And drilling companies have paid over $400 million in other state and local taxes.

Onorato uses environmental and road concerns to justify a natural gas jobs tax. Yet there is no reason to think additional money, above what is already being paid by the industry, is needed for these purposes, and no proposal currently introduced would use the revenue in this manner.