Further Thoughts on PA’s Severance Tax “Mess”

Dan Markind

Last week MDN published an opposing viewpoint about the current severance tax debate in Pennsylvania (see Guest Post: An Opposing View of PA’s Severance Tax “Mess”). Please take time to read it. MDN editor Jim Willis has high respect for the author, Dan Markind (a partner with law firm Weir & Partners). When we published his post, we introduced it with our own thoughts. Dan had asked for the opportunity to respond to our intro, which we readily agreed to. Below is Dan’s response. We bring it with no further commentary necessary here, other than we like Dan and appreciate his views, even the ones we may not agree with…

Daniel Markind response to MDN introduction from post published Oct. 12:

I read this morning’s response in the Marcellus Drilling News to my latest Marcellus Shale Update that dealt with the Pennsylvania budget mess. Before I reply I need to thank Jim Willis for his kind words about me and to tell him I have the same respect for him that he shows me.

As for the substance of the MSN post, please don’t confuse my belief that a mineral extraction tax in Pennsylvania is likely with an endorsement of such a tax. Personally, I share many of MSN’s thoughts on the subject. In fact, overall I think the local impact fee structure is quite clever and works well in the Commonwealth. That however, is not the current discussion in the Pennsylvania Legislature.

I believe the mineral extraction tax is likely to be enacted for the same reason that I support the natural gas industry – because I try to look at the world as it is and not as I would like it to be.

Start with the industry as a whole. I support natural gas production not because I have any great love of fossil fuels. Instead, after looking at the issues carefully over a decade I conclude that with all its faults, unconventional natural gas production from tight formations decreases our carbon emissions, poses minimal risk to our water supply (if the wells are drilled and maintained properly), provides economic prosperity and increases energy security. I have a personal interest in all of those.

Now to the tax issue. What I see is that whether or not the extraction tax is a good idea for Pennsylvania, the concept has developed a life of its own. To a great extent, this is due to historically uninspired outreach by the gas industry. Remember, here in Pennsylvania the majority of voters do not live in shale country.

Many Pennsylvanians believe that because the State has no mineral extraction tax the gas industry gets off scot-free. This is patently false. Unfortunately, the industry has done such a poor job of counteracting this narrative that many State residents believe otherwise. This is the reality we face. That it’s neither true nor fair is beside the point. The question for the industry in October 2017 is, given where the State is now, what is the best way forward for the industry?

Based on what I know of State politics, and what I see as budgetary reality, I find it unlikely that the current budget crunch will end without enactment of an extraction tax. Again, whether that is good or bad theoretically is irrelevant. Therefore, I have told the industry numerous times that its best move at this point is to engage with the process.

I might be wrong. That’s the risk I take when I state my views in real time and don’t limit myself to second-guessing after the fact. But from where I sit in Southeastern Pennsylvania, I see the industry’s recent political moves as being shortsighted and counterproductive.

With no great joy, I stand by my comments in the update you published, and in many of the prior ones leading up to it. If I’m wrong, I’ll be the first to admit it, and I’ll let you publish my admission. If I’m right I’ll feel no great joy. Either way, however, I’ll continue to write what I believe to be true and not what I wish were true.

Thank you for publishing my thoughts, and I look forward to reading your excellent pieces in the future.

Dan

MDN postscript: We readily agree with Dan that the industry has not done a good job in “counteracting the narrative” in the severance tax debate. In many ways we have no one to blame but ourselves.