As a native of Pennsylvania, it pains me to single out my home state for pushing unwise tax and spending policies. Unfortunately, the politicians who run the state and local governments leave me with little choice but to speak out.
Earlier this week, the Pennsylvania House of Representatives passed a bill that would impose a severance tax on natural gas at a rate of 39 cents per 1,000 cubic feet of gas, which would be the nation’s highest such tax. We here at NTU sent a letter to the House in opposition to the tax. The bill passed on Wednesday by a vote of 104-94. But the fate of this tax is uncertain because the State Senate opposes such a high rate. Senate President Pro Tempore Joe Scarnati has told reporters that his chamber is seriously looking at Arkansas’ approach. In Arkansas, natural gas extraction is taxed at a rate of 1.5 percent for three years to allow energy companies to recoup investments, and then it increases to five percent.
Currently, Pennsylvania levies no such tax. Recent advances in natural gas exploration technology have opened up the Marcellus Shale, a vast natural gas field buried beneath Pennsylvania and other states. Energy companies are lining up to take advantage of this newly accessible resource. Marcellus projects have already created thousands of jobs and yielded more than $1 billion in tax revenues. A study by Penn State University estimates that continued development would provide 111,000 new jobs and $987 million in revenues by 2011. Moreover, these new jobs cut across the energy, manufacturing, service, and retail sectors.
But that kind of economic growth is not enough for Governor Ed Rendell and the other tax and spenders in Harrisburg, who want to a bigger cut from the wealth to pay for their pet projects and programs. Here is why, according to the Pittsburg Tribune-Review:
“Gas production from a typical Marcellus shale well drops dramatically over the first year, starting out at higher than 3,500 mcf, or thousand cubic feet, per day initially, and dropping over the first 12 to 15 months to less than 1,000 mcf per day, according to a Range Resources presentation on its website.”
“At that rate, with the House-approved tax, a typical well would start out generating $1,363 per day and then drop to $390 per day after 12 to 15 months. With the Senate proposal for a 1.5 percent tax for the first three years, the well would raise about $210 daily, based on today's gas prices.”
The problem is that the high tax the House proposes may stifle natural gas development and economic growth. According to the Commonwealth Foundation, which has created a website devoted to energy issues here, states with high severance taxes, such as West Virginia, have not experienced as much growth in the energy sector, including job creation, as states with lower or no severance taxes. By levying the nation’s highest severance tax on natural gas, Pennsylvania’s politicians could actually impede or ruin the Commonwealth’s opportunity to cash in on this amazing find. Hopefully, Pennsylvania’s State Senate will stand firm against this proposal.