Economic Impact

In the first two years of Pennsylvania’s impact fee–which is really 60% fee and 40% tax–the state has collected $406.7 million from drillers. Since Marcellus Shale drilling began in earnest in 2008, drillers have ponied up more than $500 million to repair PA roadways. Add to that permit fees, state corporate taxes and state income taxes and all told, drilling companies have paid out well over a billion dollars in PA–a staggering number.

However, more than a billion dollars is still not enough for PA’s Democrat politicians who continue to agitate for a severance tax to grant them an open spigot of money to spend as they please. Their insatiable appetite to spend other people’s money seemingly knows no bounds…

Natural gas companies fixed or are repairing at least 413 miles of state roads in Susquehanna, Wyoming and Wayne counties, mostly damaged by their heavy trucks, a Times-Tribune review of state Department of Transportation records show.

The industry spent more than $500 million statewide on repair and replacement projects on state roads since the natural gas boom began, said Kathryn Klaber, chief executive officer of the Marcellus Shale Coalition. That does not include nearly $406.7 million in impact fees the state Public Utility Commission said natural gas drillers were required to pay to counties over the same period, but critics say the industry still isn’t paying its fair share.

“That’s not something we should celebrate,” said state Rep. Mike Carroll, D-Hughestown. “They’re doing what they should be doing. That should be a given.”

There have been some instances in which PennDOT has had trouble getting the companies to conduct repairs, said Terry McHenry, a PennDOT district inspection manager, but “by and large, they have been pretty darn good.”

Before drillers can put their heavy trucks on many state roads, natural gas companies are required to take out insurance policies amounting to $12,500 per mile, McHenry said.

PennDOT conducts weekly inspections on bonded roads and requires natural gas companies to repair damage they caused.

When there is damage, McHenry said companies submit a maintenance repair plan to PennDOT and pay contractors to fix the roads.

In many cases, he said drillers leave the roads in better shape than they found them.

“In the end, I think we will have – in most cases, not in all cases – a better roadway system than before they got here,” McHenry said.

The industry also sometimes reconstructs roads before work in an area begins to gain better access to gas wells, said Klaber. In those cases, the industry wants to ensure it is not paying for damage caused by other major users of the same roads, she said.

Carroll said he still has concerns about roads not necessarily associated with Marcellus Shale communities being damaged by heavy trucks and not getting the appropriate funding to repair that damage. For example, he said trucks carrying equipment and water may travel through Lackawanna and Luzerne counties on Interstate 81.

Klaber said other industries that send vehicles such as delivery trucks and school buses are not asked to pay additional fees for damaging public roads.

“We should celebrate economic activity” that keeps the roads occupied, she said.

State Rep. Sid Michaels Kavulich, D-Taylor, like several other of his Democratic colleagues from the region’s legislative delegation, said he appreciates the industry’s work on roads.

At the same time, Pennsylvanians need to learn from the legacy of the coal mining industry, he said.

That means getting fair value for the natural resource the industry extracts from the commonwealth for its citizens and additionally require the industry to put aside money for cleanup of environmental contamination.

Taylor still suffers from mining subsidence years later, Kavulich said, adding he fears the state is not doing enough to ensure the industry is held financially accountable for environmental impacts.

The House members, along with state Sen. John Blake, D-Archbald, each expressed support for a natural gas severance tax.

Pennsylvania is the only state in the nation with major natural gas production that does not have a severance tax, Blake said. He called the impact fees “woefully inadequate.”

Kavulich said the impact fees levied on the industry currently translate to about a 1 percent tax, and he would support a “moderate” severance tax of 3 percent to 4 percent as some neighboring states have.

A Pennsylvania Budget and Policy Center report found that despite low market prices, the economic value of natural gas increased from $1.6 billion to $3.9 billion between the second half of 2010 and the second half of 2012.

The organization found that the impact fees remained flat despite that, while a 4 percent natural gas severance tax like West Virginia’s could generate between $434 million and $490 million in 2013-14 – about twice as much as the center’s $228 million to $229 million impact fee projections.

That money could be invested in areas like education and health and human services, in addition to fixing damaged infrastructure, Kavulich said.

A severance tax would make Pennsylvania less competitive, Klaber said, and the Pennsylvania Budget and Policy Center’s estimates do not account for lost revenue from drillers ceasing operations in response.

She said investment would slow in response to a new tax, and many companies were already hurt by retroactive impact fees, resulting in lost capital investment.

“Northeast Pennsylvania would be the hardest hit by a severance tax,” she said.

Klaber argued that the industry already has given taxpayers value in return for extracting natural gas through hundreds of millions of dollars worth of gas leases for state-owned property.

In addition to the leases, impact fees, investments on state roads, she said the industry also pays state corporate taxes and permitting fees, while its employees pay state income taxes.

“This industry has paid its way in many different ways,” Klaber said.*

*Wilkes-Barre (PA) The Citizens’ Voice (Jul 22, 2013) – Natural gas industry routinely fixing state roads