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Pennsylvania is Fracking its Most Vulnerable Citizens

By: Aaron Kostyk

Blog Category: Economics of Environmental Regulation

As of 2012, the Commonwealth of Pennsylvania has been charging companies an “impact fee” to extract natural gas from the Marcellus Shale deposits.[1]  Several States, which have had longer relationships with the natural gas industry, have what are known as severance taxes, which are essentially just set rate percentage taxes.[2]  Pennsylvania could potentially generate $1.2 billion annually by the year 2019-20 with a 4% severance tax, which is three times as much as the current revenue generated by the “impact fee.”[3]  This is hardly some radical, leftist environmental regulation, Texas and West Virginia have had severance taxes for years, and as production increases the revenue gap between these two models increases in favor of a set percentage severance tax.[4]  The obvious question is why does the Commonwealth continue to surrender revenue to private interests while bemoaning budgetary constraints?

As editorials and think tanks coalesce against leaving money on the table with the “impact fee”, Pennsylvania will have to reconsider its tax policy to conform to States that have been dealing with the natural gas industry for decades.  Given Governor Corbett’s very public spat with Philadelphia area activists and education interests, perhaps it is time for the Commonwealth to consider plucking the low hanging fruit of natural gas revenue to ensure that education funding and spending on social services continue to improve.  Obviously the Marcellus Shale deposits bring jobs and opportunity to many long suffering rust belt towns but it does not stand up to scrutiny that  these jobs will dry up if Pennsylvania has the same tax rate as Texas.

The opinions expressed herein are strictly those of the author and do not necessarily reflect the opinions of the Widener Journal of Law, Economics & Race. 

[1] Michael Wood, A Look at Other States Shows Marcellus Impact Fee Shortchanges Pennsylvanians, 2013 Pa. Budget & Pol’y Center, Aug. 08, 2013 at (2013), http://pennbpc.org/look-other-states-shows-marcellus-impact-fee-shortchanges-pennsylvanians (last visited Mar. 17, 2014).

[2] Id.

[3] Id.

[4] Id.

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