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Pew
Center on the States
Fracking
for State Dollars
By Pamela M. Prah, Staff Writer
Natural
gas being drilled by
hydraulic fracturing on a farm near Wyalusing, Pennsylvania (Corbis)
Could
Ohio, New York or
Pennsylvania be the next North Dakota and “frack” its way to budget
surpluses?
The
United States is on track by
2020 to become the world’s largest oil producer and a net exporter of
natural
gas, a reversal of fortunes with huge consequences for many state
budgets. But
it depends on what kinds of taxes the states want to impose. States as varied as
Pennsylvania and
Louisiana have already lost out on hundreds of millions of dollars from
the
energy boom because of their tax policies, while Texas and North Dakota
continue to cash in.
The
boom in oil and natural gas
production is due to the common but highly controversial practice of
hydraulic
fracturing, commonly known as fracking, and horizontal drilling, both
of which
have allowed companies to reach oil and gas deposits that previously
were
trapped in shale and other “tight” rock formations. Energy companies
insist the
process is no threat to nearby groundwater; environmentalists generally
disagree.
These
deep-drilling techniques
helped North Dakota bypass Alaska last year to become the second
largest
oil-producing state (Texas is first) through development of the Bakken
oil
shale field. Meanwhile Pennsylvania has been called the “Saudi Arabia
of
natural gas” as production there more than quadrupled between 2009 and
2011 due
to expanded horizontal drilling combined with hydraulic fracturing of
the
Marcellus Shale field.
At
Issue: Severance Taxes
But
states collect vastly different
amounts of severance tax revenue on oil and gas. North Dakota, for
example,
imposes an 11.5 percent severance on oil, subject to certain
exemptions, and
collected nearly $1.9 billion in all severance taxes in 2011, up from
just
$83,000 in the pre-fracking days of the 1990s.
Pennsylvania
has no severance tax
at all. Instead it has an impact fee that helps localities fix roads
and other
drilling damage. The impact fee brought in $204 million in 2011, but
that was
only about half of what the state could have collected had it used a
tax
comparable to that of neighboring West Virginia, by one estimate.
“There
should be a tax like other
states have,” says Pennsylvania state Representative Gene DiGirolamo, a
Republican who last session pushed a 4.9 percent tax on companies
drilling for
natural gas in the Marcellus shale field, the largest such gas deposit
in North
America, and one that also covers parts of Ohio, West Virginia and New
York,
among other states. “We’re not chasing the gas industry out of the
commonwealth,” says Republican state Representative Tom Murt, who is
cosponsoring the legislation. “We just want the industry to pay their
fair
share.”
Pennsylvania
is the only state with
substantial oil and gas reserves that does not have a severance tax.
Even
tax-averse Texas has one: It levies 7.5 percent on natural gas and 4.6
percent
on oil, which helped to bring in $2.7 billion in combined severance
taxes for
the state in 2011.
Severance
taxes vary not only in
their rates but in how the tax is calculated. In some, the rate is
based on the
taxpayer’s gross oil and gas income, according to this state-by-state
review of
shale gas regulation and tax structures from Resources for the Future.
Other
states calculate the tax on the amount of oil and gas extracted.
Nationwide,
severance taxes on all natural resources in 2011 went up $3.5 billion
from 2010
to 2011, a 31.2 percent increase, data from U.S. Census show, due in
large part
to fracking. “Shale energy development has transformed the U.S. energy
sector,”
says Kyle Isakower, vice president of the American Petroleum Institute
(API).
A
state-by-state study sponsored by
API predicts that between 2012 and 2035, fracking will deliver $130
billion in
taxes and payments to North Dakota and its local governments.
Pennsylvania will
collect $60 billion, and Texas $397 billion.
Higher,
Lower Taxes Proposed
Supporters
of creating a severance
tax in Pennsylvania face an uphill battle. Republican Governor Tom
Corbett is a
vocal foe of the idea. He has signed the Taxpayer Protection Pledge,
under
which he promises not to raise any taxes as governor.
Contrast
that with the situation in
neighboring Ohio, where Republican Governor John Kasich has been
pushing to
increase the severance tax, currently among the lowest in the nation
(10 cents
per barrel of oil and 2.5 cents per thousand cubic feet of natural
gas). Kasich
wants to use the money raised from the higher severance taxes to pay
for a cut
in the personal income tax. His proposal failed in the Legislature last
year ,
but it could be included again in the fiscal 2014 budget that he
releases next
month…
Read
the rest of the article at Pew
Center on the States
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