The Natural Gas Not-A-Tax

Yesterday, the Republican Senate President Pro Tempore Joe Scarnati released his much anticipated Marcellus shale Not-A-Tax “local impact fee.” The proposal would require drillers to pay a “Base Fee” to the Pennsylvania Utility Commission of $10,000 per well. This Not-A-Tax “Base Fee” will be “adjusted independently for increases in production volume and price of gas.” The revenue from these taxes fees would be redistributed to counties (36%), municipalities with drilling (37%) and municipalities nearby drilling (27%) with only 60% going to local governments and 40% going to state government.  The tax fee would be retroactive for all of 2010.

Regardless of how politicians spin it, this is a tax (not a fee), it is not local, and it is not tied to environmental and infrastructure impacts.

It is not a fee. A fee, by definition, is a charge for a service, no more or no less than the cost of providing that service.  The fact that the fee will adjust with production makes this a tax.  And the fact that the fee amount is arbitrary shows it has little to do with the cost of government services.

It is not local. A significant portion of the fees collected (40%) will be directed to statewide programs; much of the “local impact fee” would leave local communities where drilling is occurring.

It goes beyond local impact. Many programs that will likely receive portions of these “fees” do not address any of the local environmental or infrastructure impacts caused by gas drilling. Furthermore, drilling companies are already held responsible for environmental and infrastructure damages by current law and regulations. Drilling companies are required to put up bonds for all posted roads and bridges, repair any damage they cause and are responsible for any groundwater contamination within 1,000 feet of each well.

The Marcellus “local impact fee” is nothing more than another tax by another name so Harrisburg has more money to spend rather than reprioritizing and/or reducing spending.  As pointed out in this fact-check, drillers have revitalized local economies; paid billions to state residents who own the natural gas beneath their land; and paid their “fair share” through fees, road repairs, and state and local taxes common to all businsesses.

Whether politicians try to obfuscate and call it a “fee” or acurately call it a “tax,” it is still bad economic and tax policy in the making.