State Rep. Jim Christiana last week said he wants to eliminate Pennsylvania’s impact fee on natural gas drilling and replace it with a severance tax, a proposal that is garnering mixed reactions from local stakeholders.
Christiana, R-15, Beaver, said his proposed legislation would include an initial 3 percent severance tax starting on July 1. The tax would be tied to the price of natural gas, however, meaning it could increase to as much as 5 percent according to market conditions.
Christiana’s proposal would abolish the impact fee that has been used in Pennsylvania since 2012. Last year, the impact fee distributed $223.5 million across the state.
In contrast, Gov. Tom Wolf previously touted a plan that would have kept the impact fee while also adding a 3.5 percent severance tax and a charge of 4.7 cents per thousand cubic feet.
Jack Manning, president of the Beaver County Chamber of Commerce, said Tuesday he reacted positively when he heard about Christiana’s proposal.
For starters, Manning said Wolf’s proposal of 4.7 cents per thousand cubic feet is “way out of line with the market and onerous beyond belief.”
“What Jim seems to be proposing from what I know is very reasonable and puts us in line with other gas-producing states,” Manning said.
The chamber of commerce as a whole has been advocating for a “rebalancing” of where tax revenue comes from in state government, which includes property, corporate and any potential severance tax.
The only potential problem with Christiana’s proposal is that it abolishes the impact fee, which has become “embedded” in the finances of local communities that benefit from it annually, Manning said.
If the impact fee goes away, Manning said, local communities might have a hard time adjusting to a new formula.
Christiana’s proposal would dictate that of the first $175 million generated through his severance tax, $125 million would go to counties affected by drilling.
Of all the revenues generated after that $175 million is distributed, one-third would go to local communities and two-thirds would go to the state’s general fund.
David Spigelmyer, president of the Marcellus Shale Coalition, said his group will closely scrutinize the legislation if it is introduced.
But on first glance, it doesn’t appear to be something that will help an industry that is under “enormous financial pressure” as of late, he said.
That financial pressure is coupled by the fact that rig counts are down drastically from just several years ago.
Information collected by a company called Baker Hughes found that Pennsylvania had an average of 110 active rigs in 2011 and 84 in 2012. That number sat at 27 active rigs at the end of 2015.
Furthermore, the U.S. Department of Energy released a report Tuesday that said natural gas prices have fallen to their lowest level in 16 years.
A severance tax of any kind wouldn’t be beneficial to the industry that is trying to recover, industry officials argue.
“Higher energy taxes, as well as duplicative and burdensome regulations, will make investing in the commonwealth and hiring Pennsylvanians even more difficult,” Spigelmyer said. “Policymakers should focus on common-sense solutions to ensure we continue to create jobs and spur shale-related manufacturing opportunities.”
Gordon Pennoyer, a spokesman for Chesapeake Energy, declined to comment. Chesapeake has 22 active wells in Beaver County as of October.
A request for comment made to Range Resources also wasn’t returned Tuesday.
This article was written by Jared Stonesifer from Beaver County Times, Pa. and was legally licensed through the NewsCred publisher network.