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Pennsylvania losing $500M a year with no gas severance tax, report says

By Suzanne Elliott selliott@heraldstandard.Com 3 min read
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A recent report says Pennsylvania is losing $500 million by not imposing a severance tax on natural gas.

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Pennsylvania is losing $500 million in revenue by not imposing a natural gas severance tax, according to a recent report.

As Pennsylvania law makers wrestle with ways to plug a nearly $3 billion structural deficit, the Pennsylvania Budget and Policy Center, a liberal Harrisburg think tank, released a report that said the state is losing nearly $500 million each year because it does not have a natural gas severance tax.

The state’s fiscal year ended on June 30.

Pennsylvania is the second-largest natural gas producing state in the U.S., trailing only Texas. It is the only gas-producing state that does not have a severance tax on wells. A severance tax is implemented when non-renewable natural resources, like gas, are extracted from a taxing jurisdiction, such as Pennsylvania.

The report said the glut of natural gas has caused prices to fall. Also, the state lacked pipelines to transport the gas to places where there was more of a demand and higher prices.

“Now, with more pipelines operating, prices are rebounding and the amount of money Pennsylvania loses each year because it does not have a severance tax will grow rapidly,” the report said.

Rather than having a severance tax, Pennsylvania has a well impact fee. The fee was put into law by then-Gov. Tom Corbett. It allowed Corbett to live up to his no tax pledge, the report said. Since 2011, impact fees have raised about $200 million a year from the natural gas industry.

But, according to the report, because impact fees are not related to either the amount — or value — of gas that is extracted, collections have dropped off. In 2011, for example, $221 million was collected, but in 2016, that amount dropped to $173 million. This is despite production is now five times higher.

Impact fees are not expected to grow as gas prices rebound, according to the report.

The report said the market value of the state’s unconventional natural gas wells is expected to grow 80 percent from 2016 to 2018.

Impact fees are highest in the first year of a well’s life and can range from $40,000 to $60,000 a year, according to stateimpactpr.org. Over the years, the fees drop and completely end after 15 years. A little more than 500 new wells were drilled in Pennsylvania in 2016.

Through Act 13, impact fees are allocated to counties, municipalities and other programs. Fayette County, for example, will receive $872,846 from the state in early July. This is down from $1.056 million the county received in 2015.

Washington County is scheduled to receive $5.38 million, down from $5.68 million; Greene will receive $3,794, down from $3.94 million, while Westmoreland will receive $987,048, down from $1.132 million the previous year.

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