Note: This commentary was first published in Gas and Oil Magazine.
For decades, Pennsylvania has been plagued by slow economic growth. The Keystone State lags the nation—ranking 49th, 45th, and 48th, respectively—in job, income, and population growth since 1970. “Brain drain,” a trend of workers leaving the state to find employment elsewhere, continues to plague the commonwealth. Just last year, Pennsylvania lost a net 31,400 in state-to-state migration, according to the Census.
But recently, there has been a bright spot with the rise of natural gas extraction in the Marcellus shale formation.
It’s indisputable that where there is Marcellus shale drilling there has been robust economic growth. Over the past six years, Pennsylvania counties with Marcellus shale drilling led the state in job growth along with growth in workers’ wages.
- Marcellus shale counties had, on average, 8.7 percent employment growth. Counties with no Marcellus shale activity had 0.6 percent job growth
- Marcellus shale counties averaged 29.9 percent growth in total wages. Counties with no Marcellus shale activity had less than half that amount.
- Average weekly wages among all jobs grew in Marcellus shale counties by an average of 20 percent, compared with 11 percent wage growth in non-Marcellus counties.
This boom has been apparent in the Northeastern and Southwestern parts of the state, where the Marcellus shale formation lies. Susquehanna County in the Northeast led the state in both total wage growth and average weekly wage growth, while neighboring Sullivan County led in employment growth. Greene County in the Southwest ranked second in all three measures of economic growth.
Some—including Pennsylvania’s Governor-elect Tom Wolf—see this boom as an opportunity for government to cash in and solve some of the state’s looming fiscal challenges. Advocacy groups are calling for new severances taxes on natural gas, on top of a recently enacted impact fee.
Such a severance tax will make Pennsylvania less attractive for gas drillers. This tax increase will not only hamper jobs and wages in the industry, but will victimize Pennsylvania landowners whose royalty checks will shrink and small business owners who provide products and services to gas drilling industry.
Pennsylvania has already lost ground to other states. In the 2013 Fraser Institute’s Global Petroleum Survey the state ranked 58th in attractiveness to invest, down 24 spots. When West Virginia increased its severance tax drilling, activity declined, according to the Pennsylvania Independent Oil and Gas Association. Such a policy in Pennsylvania would dim one of the few bright spots in our state’s economy.
Much of the push for a severance tax is based on a myth that gas companies aren’t paying their “fair share,” and that Pennsylvanians aren’t truly benefiting from the industry. In reality, gas companies paid an estimated $810 million in royalties to landowners in 2013, have contributed $500 million to road repairs, and have paid billions in existing state taxes.
Gas drillers face the same tax climate common to every other Pennsylvania business, including the highest effective corporate income tax rate in the industrialized world.
Despite these facts, special interests lobbying for government handouts continue their calls for new taxes and fees. These interest groups neglect to mention the real harm that will come as a result of punitive taxes.
For starters, shale gas has reduced energy costs dramatically, saving Pennsylvania families thousands of dollars every year. Excessive taxation would effectively raise energy costs across the state, as those costs are passed on to consumers.
Natural gas taxes would also hurt small businesses, like New Pig Energy in Blair County—a company that manufacturers well pad containment products. New Pig Energy vice president Beth Powell says, “Marcellus Shale is 100 percent of our business. Our employment has more than doubled since we started. We are up to 23 employees.” But if a natural gas tax stifles drilling, New Pig’s employees could lose their jobs.
Unfortunately, the threat of a job-killing energy tax looms over all Pennsylvania—workers in the drilling industry, businesses that provide related products and services, landowners, and families struggling to make ends meet while heating their homes.
Throwing cold water on an industry fueling Pennsylvania’s economic growth is not only unfair, but will do far more harm than good.
# # #
Nathan A. Benefield is vice president of policy analysis for the Commonwealth Foundation (CommonwealthFoundation.org), Pennsylvania’s free market think tank.