Vol. 11, No. 18 – August 31, 2009
Penn Future Facts
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If the Senate Republicans have their way, and the $1 million in lobbying money spent this year by gas drillers has enough Democrats towing the industry line, the state budget crisis will be resolved without the enactment of a severance tax on natural gas drilling. And the loser would be the Pennsylvania taxpayer.
Multi-billion dollar Texas and Oklahoma-based energy companies as well as multi-national corporations like ExxonMobil are rushing to lock up drilling leases on millions of acres in the Marcellus Shale deposit that underlies most of Pennsylvania. The deposit is the largest and richest in North America. One company alone has identified 3,900 potential drilling sites in southwestern Pennsylvania.
They are all coming here because the Marcellus Shale gas is a bonanza. It has enormous economic advantages over other gas deposits because it is so near to the lucrative and well-developed northeastern markets; the chance of achieving a producing well is very predictable; the wells have high production rates; the gas has a high energy content; and the Marcellus deposit is huge.
Anadarko Petroleum’s president and CEO stated, “The early success from our Marcellus activities indicates this play possesses some of the most compelling economics in our onshore portfolio.” The Marcellus deposit is so productive and costs are so low that the companies can make a profit even at today’s low gas prices.
Pennsylvania is the only state with substantial mineral or gas deposits that does not assess a severance tax to pay for the depletion of a non-renewable resource. And failing to charge a severance tax allows the drillers to foist some of the costs of drilling – damage to roads and bridges, increased demand for sophisticated emergency services, contaminated drinking water supplies, increased demands on environmental regulators – onto the backs of taxpayers.
To add insult to injury, the gas drillers want the state to open up hundreds of thousands of acres of our public forest land to drillers immediately. They want to snatch up leases on public land at a time when the leases can be picked up for a song because of the current low price of gas. And remarkably, Senate Republicans and some blue dog Democrats apparently would rather take that deal than insist on a severance tax that will produce ongoing revenue to the tune of more than half a billion dollars a year by 2014.
Given the dire need for new revenues, it is fiscally irresponsible to fail to enact a severance tax in Pennsylvania. In fact, the possibility that Pennsylvania will adopt a budget without a new ongoing source of revenue like a severance tax has led Moody’s Investor Services to downgrade the Commonwealth’s credit outlook. Moody’s warns that reliance on tapping one-time sources of revenue to balance this year’s budget – like the Rainy Day Fund and the federal stimulus money – will fail to achieve “structural budget balance” and subject the state to further possible downgrades of our bonds. And that would cost Pennsylvania taxpayers money in the form of higher costs for state borrowing.
If the legislature and the Governor produce a budget that does not contain a severance tax on natural gas, they will leave money on the table in a time of dire need. And they will owe taxpayers a good explanation for why they made that decision.