Taxation

As MDN reported last week, Pennsylvania Gov. Tom Wolf, an extremely partisan Democrat, is once again beating the drum for a Marcellus Shale-killing severance tax in the last of his annual budgets (see PA Gov. Wolf Broken Record: Proposes Budget with Severance Tax). At least, we hope it’s Wolf’s last budget and that Pennsylvanians won’t be foolish enough to re-elect him for another four years (fool me once…). Wolf’s plan, in a nutshell, is to tax drillers (and by extension, landowners) to the tune of $250 million a year, and give that money away to teachers and their unions in the Philadelphia region–the people who elected him to office. We spotted dueling newspaper editorials from last week–one from the (sometimes) conservative Pittsburgh Tribune-Review, the other from the (always) liberal Democrat-owned Scranton Times-Tribune. Below are those editorials illustrating clear-headed thinking, and muddled thinking (respectively), along with a January column co-written by the Marcellus Shale Coalition and the Pennsylvania Chamber of Business & Industry laying out the case against a severance tax in the Keystone State. Unfortunately this is an ongoing battle we must fight every single year. But fight it we must…
Read More “Severance Tax Battle in PA Heats Up One More (Last?) Time”

Here we go again. Supposedly striking a more “cooperative tone,” Pennsylvania Gov. Wolf’s sympathetic media buddies are trying to spin, as best they can, Wolf’s state budget proposal delivered yesterday. Wolf is a hyper-partisan who, in this latest budget, continues to demand a $250 million/year Marcellus-killing severance tax–on top of the existing impact tax. It is the only new tax in the budget, a budget that increases the already wildly overspent state budget by an additional $1 billion! Spending in Harrisburg is completely out of control–a disaster. The last governor (frankly the only governor in a generation) who tried to correct Harrisburg’s voracious appetite to spend more, Tom Corbett, got voted out of office after one term. Wolf is hoping to score a second term by continuing his Santa Claus routine–by pulling money from the pockets of those who earn it (landowners and drillers) to give away to those who don’t (teacher’s unions in Philadelphia). We are not exaggerating–this is fact. In his proposed $32.9 million budget, Wolf claims a “modest” severance tax will generate $248.7 million this year, and ALL OF IT will go to “education”–meaning teachers and their unions in the Philadelphia region. It’s political payback for their ongoing support and for their efforts to get Wolf elected in the first place. Why is this FACT not discussed openly in the media? It is repugnant to use the gun barrel of the state to steal the wealth of one group and transfer it to another as political patronage. Yet that is Wolf’s mission. Republican legislators reacted negatively to Wolf’s wildly overspent budget (and severance tax), as did the Marcellus industry…
Read More “PA Gov. Wolf Broken Record: Proposes Budget with Severance Tax”

In early 2012, Pennsylvania enacted the most sweeping rework of oil and gas laws in the state in decades (see Gov. Corbett Signs New Marcellus Drilling Law). Called Act 13, one of the provisions of the law is an “impact fee” collected on each horizontal shale well drilled. The fee is intended to offset the impacts of drilling in places where drilling happens, hence the name. However, in order to get enough support to pass Act 13, politics were played and 40% of the “fee” got re-allocated to non-impact uses–i.e., 40% of the fee became a tax (see PA’s New Tax on Drilling (er Sorry, Impact Fee)). In reality, PA’s impact “fee” is the equivalent of a severance tax. The main difference is that the fee is calculated according to a sliding schedule based on how long a well has been around. Beginning with the first year a shale well is drilled, and every year thereafter, drillers pay a set fee, regardless of how much gas is produced. If a driller drills a well but doesn’t complete it in year one, that driller still pays the same (very steep) fee, regardless of no production. In that way, an impact fee is superior to a severance tax as a revenue generator for the state. Impact fees are paid for 15 years. In setting up the somewhat complicated schedule for how much a driller will pay, it depends on how old the well is. The PA Public Utility Commission (PUC), the agency in charge of assessing and collecting the fee, periodically adjusts the fee schedule up to account for inflation. The fee assessed depends on how much the price of natural gas is selling for at the benchmark Henry Hub trading point (in Louisiana). In 2017 (which collected fees from drilling in 2016), if the price of natgas at Henry Hub averaged between $2.26 – $2.99 for the year (which it did, at $2.46/Mcf), the impact fee for a newly drilled well during the year of 2016 was $45,300. In 2018 (collecting fees from 2017), the price of natgas at Henry Hub was in the next higher bracket, averaging between $3.00 – $4.99 (2017 averaged $3.11/Mcf). So the fee for first year wells drilled last year will be $50,700–which is $5,400 higher than a driller would have paid the previous year. Our point: Drillers in PA pay big bucks in “fees” (i.e. taxes) to drill in the state. Slapping a severance tax on top of the impact fee would be a disaster, virtually shutting down any new Marcellus drilling. Yet that’s what Gov. Wolf and his Democrat comrades insist on doing. Below is the newly released impact fee schedule for 2018 (covering wells drilled in 2017), along with details on the whopping increase in the number of wells drilled in 2017 vs. 2016…
Read More “PA Shale Wells Drilled Soars 56% in 2017; Impact Fee Up $5,400/Well”

Since 2012, Pennsylvania has collected the equivalent of a severance tax from Marcellus Shale drillers via something called an impact fee. Same concept as a severance tax. You drill a well, gas comes out, you pay a tax. Except with an impact fee you pay whether or not anything comes out of the ground (a more reliable source of tax revenue than a severance tax). The impact fee quickly started to generate hundreds of millions of dollars a year in extra revenue for Pennsylvania–60% of which goes back to the communities where drilling happens (which Philadelphia politicians hate), and 40% of which goes to the black hole of Harrisburg for redistribution (which Philadelphia politicians love). Drilling began to slow in 2014, and crashed in 2015/2016, with low low commodity prices for natgas. As the price went down, so too did the number of new wells drilled. Impact fee revenue (which is delayed a year) also went down. The impact fee doled out this year is based on revenues raised in 2017. The PA Independent Fiscal Office (IFO) does a pretty good job of guesstimating how much impact fee revenue will be generated. Last July, the IFO predicted impact fee revenue from 2017 would end up being around $222 million in revenue (see IFO Predicts PA Impact Fees for 2017 Will Soar, Near Record High). Now that the year is in the can and production reports are rolling in, the IFO now predicts impact fee revenue will end up at $219.3 million. The all-time high for a single year’s impact fee revenue was 2013, when it was $225.7 million. Looks like 2017 will come within a whisker of that record. Meaning higher levels of new drilling is now “back” in the PA Marcellus…
Read More “PA IFO Says 2017 Impact Fee Revenue Near Record High”

Last September, amidst a heated state budget battle in Pennsylvania (where the phrase “severance tax” was on the lips of every Democrat and RINO in Harrisburg), a group of PA House Republicans did the hard work Gov. Tom Wolf and his cronies in the legislature refused to do: They figured out how to fund a wildly overspent budget without raising a single tax (see PA House Introduces Balanced Budget with NO Severance Tax). How did House Republicans do it? They went looking for state agencies hording money, with a plan to relieve them of their surplus. You know how it goes. Each year agencies don’t spend all of their allotted money, yet they ask for more the following year anyway, knowing legislators may shave some from the request. It’s obscene. Yet that’s how the game is played. When Republicans went looking, they found even the Dept. of Conservation and Natural Resources (DCNR) and Dept. of Environmental Protection (DEP) have been squirreling money away, unused in some of their programs. The House Republican plan from last September was not adopted, but elements of it were included in the final budget. The final budget passed in October instructs Gov. Wolf to reallocate $300 million from surpluses at various state agencies–from the agencies of his own choosing–as part of the “funding” for this year’s budget. The House Appropriations Committee will hold a meeting on Jan. 25 to question representatives from DCNR and DEP about the use and operation of special funds under their administration–to see if there’s a bit of surplus there that can be used for the state budget. Judging by the reaction from a former DEP Secretary, it seems both agencies take umbrage at having to subject themselves and their surpluses for scrutiny. At its core, this issue is about who will pay bloated teacher’s salaries in Philadelphia. Big Green wants to target the Marcellus industry to pay “for the children.” Yet when they themselves are asked to contribute a small amount of their bloated excess (give it up for the Philly teacher’s unions), THEY resist! They are all for raiding another industry, but refuse to have their own departments “raided” in order to balance a hugely overspent state budget. Anyone else smell rank hypocrisy?…
Read More “PA Enviros Resist Transferring Surplus to Help Balance State Budget”

Unstable people tend to create instability wherever they go–it’s just something we’ve noticed. Other people have noticed it too, at the highest levels of Pennsylvania state government. Business groups in PA are pointing a finger at unstable PA Gov. Tom Wolf. His repeated calls, his maniacal mission to force a severance tax on the Marcellus industry on top of the existing impact tax, is causing “instability” in the industry in PA. That is, companies are pulling back, not willing to drill as much, and investors are not willing to invest, because of the uncertainty of whether or not there will be a severance tax. It’s spooking the industry. These business groups, representing hundreds of thousands of PA residents, are calling on Wolf to end his unstable ways and quit calling for a severance tax. Specifically, they say, “He needs to stop it.” Is that blunt enough? Instead, these groups call on Wolf to reign in out-of-control spending. The less you spend, the less you need to rob from hardworking companies–companies providing tens of thousands of jobs and over a billion dollars of tax revenue for the state so far…
Read More “PA Gov. Wolf Creating “Instability” with Demand for Severance Tax”

A single vote saved the day on Tuesday, preventing the horrible Pennsylvania House Bill (HB) 1401 from potentially coming up for a full vote. We’ve covered this insane bill repeatedly because it is an existential threat to the Marcellus Shale industry in the Keystone State (see our stories here). State Rep. (and RINO) Todd Stephens, from Montgomery County, made a motion on the floor Tuesday evening to keep debating HB 1401 as a “Special Order of Business” after all the business was done for the day. Tuesday was the last day of the current session until late January next year. Stephens’ motion received 100 votes. It needed 101 to pass. What does it mean? At the earliest the bill won’t be considered again until Jan. 22. Practically speaking, since the bill has not been able to muster enough support to get a vote by the full House, it means the bill is now on life support–near death. Which is a VERY good thing for PA…
Read More “1 Vote Saves the Day – PA Severance Tax Vote Delayed to Next Year”