"Pennsylvania's public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people."
- Pennsylvania Constitution,
Article 1, Section 27
By Madeleine Dean
Our Pennsylvania Constitution guarantees us not only the right to our natural resources, but also the responsibility of ensuring that our resources are used for the benefit of all Pennsylvanians. Unfortunately, when it comes to natural gas, out-of-state gas companies are getting the lion's share of growing profits, while residents see little reward.
Currently, the only revenue that the state receives from the exploitation of our Marcellus Shale natural-gas resources is an impact fee, or tax, based on the number of wells drilled. During the past fiscal year this fee amounted to an effective tax rate of 1.5 percent - the lowest rate in the nation, according to Pennsylvania's Independent Fiscal Office (IFO).
This year, the impact fee generated $226 million; of that, about $25 million went to state agencies to offset the environmental effects of drilling. Of the remaining revenue, 60 percent went to the counties and municipalities hosting the wells. They may use the funds in several ways, including for roadways, public safety, environmental programs, agriculture preservation. and career and technical job training. The remainder went to the state, placed into the Marcellus Legacy Fund, which serves as funding for statewide initiatives with local impacts.
One problem with the impact fee, however, is that once an optimal number of wells has been drilled, revenues stagnate, despite growing production and profits for gas companies.
Last session, I introduced legislation to enact a severance tax in conjunction with the impact fee, which would allow the commonwealth to capture this growth at a rate that is both competitive with other states and fair to Pennsylvanians.
This session I will again introduce legislation that will impose an approximate 4 percent severance tax, in addition to the impact fee. I hope for support in the legislature and the governor's office.
Capturing these funds could not come at a more crucial time. The IFO has estimated that Pennsylvania is facing a $2.2 billion structural deficit for the upcoming fiscal year. This shortfall is indicative of an economic strategy of short-term, unsustainable revenue sources dependent upon such items as the selling of new casino licenses, shuffling tobacco settlement funds, and deferring payment obligations to managed-care organizations - tactics that led to the degradation of Pennsylvania's credit rating by the three major credit rating agencies: Moody's, Fitch, and the Standard and Poor's.
In addition, on Sept. 15 and Nov. 12, the State Budget Office had to borrow $700 million and $750 million, respectively, from the treasury to avoid a negative cash balance in the state's general fund, leading Treasurer Rob McCord to say, "The state's fiscal health remains precarious."
Such emergency maneuvers lead one to wonder why we are relying on borrowing money to fix our budget when the state is sitting on a wealth of untapped resources - or at least untapped by the commonwealth.
Were a 4 percent severance tax to be enacted, it is projected to generate more than $760 million in fiscal year 2015/2016 alone - the impact fee has brought in $632 million in the past three years combined.
Adequately taxing our natural resource would bring these much-needed dollars to fund education and environmental protections, steering our commonwealth to a more balanced budget for years to come.
Two things are true:
First, Pennsylvania cannot afford to continue to rely on unsustainable revenue sources; we have seen the damaging effect such moves have had on our economy, our school funding, and our credit rating.
Second, we have a constitutional obligation to reasonably tax shale gas extraction for the benefit of all Pennsylvanians.
I am hopeful that we will be able to develop, with the help of Gov.-elect Tom Wolf, sustainable sources of revenue like a Marcellus Shale severance tax. As a legislator, I am determined to work toward this end because not only do we have constitutional claim to our natural resources, but we also have a fiduciary obligation to promote economic viability, working toward a grander vision of our commonwealth's fiscal health.