HARRISBURG – Calling it a huge victory for both working Pennsylvanians and those looking for work, the Commonwealth Foundation praised Gov. Tom Corbett today for his proposal that resists pressure from special interest groups and tax-and-spend politicians to impose a statewide severance tax on natural gas extraction.
“Those who were looking to redistribute other people’s money to their pet projects will be sorely disappointed with the framework established by the governor today,” said Matthew J. Brouillette, CF president and CEO. “By making it optional for counties to impose any additional fees on natural gas job creators, Gov. Corbett keeps his pledge not to raise taxes while ensuring the natural gas industry continues to pay for its impacts on local government.”
While there is room for improvement within the proposal, the free-market think tank applauded it for providing appropriate parameters for the legislative discussion over the coming weeks. As the General Assembly considers the proposal, CF is encouraging legislators to apply following five principles in crafting final legislation:
- Businesses should pay the cost for government they use. If a business is not paying for its negative impacts on the environment and/or infrastructure, it is appropriate to charge a fee to pay for the government’s cost to remediate the problem. Since drilling’s impact on government does not increase if a gas well is more profitable, a “fee” should not be tied to production.
- Any fee should be directly related to uncompensated costs of government. A new fee should not be imposed to extract additional revenue for unrelated government purposes or subsidies. For example, Growing Greener is not directly related to remediating problems caused by the natural gas industry.
- Any fee rate should be established in the context of what businesses are already paying in taxes, fees, and contributions to local communities and the state, setting the fee rate at a level to only cover those uncompensated costs of government.
- Any fee should be imposed at the county or municipal level, not at the state level. This ensures competition between local governments, discourages excessive fee rates, and reduces the threat of cross-subsidization and redistribution of additional fee revenues to unrelated government purposes.
- Before imposing a new fee, elected officials should consider if current local taxes and fees should be revised to cover any uncompensated costs of government. For example, would it be appropriate to adjust local hotel and emergency services taxes to better address the influx of large numbers of workers into sparsely populated areas of Pennsylvania? Or, are there other fee mechanisms that can be more directly tied to any uncompensated costs of government?
“The governor’s proposal adheres to many of these key principles, but legislative and regulatory improvements can be made to ensure we encourage the economic opportunity of natural gas exploration and extraction while holding the industry accountable,” said Brouillette.
For example, the Commonwealth Foundation applauded the provision that counties have the option of imposing a fee to compensate for drilling’s impact. This allows each county to assess the true impact of gas drilling-since many counties report no increase in costs-and charge an appropriate fee. The proposal appears to allow counties to charge different fee rates based on impacts, as long as the fee doesn’t exceed the maximum rate for each year.
“This is a key provision for tax competition and making sure elected officials don’t issue punitive or redistributive tax policies,” said Brouillette.
The Commonwealth Foundation identified two important areas for improvement. First, the limits for use of the impact fee should be narrowed to exclude items that are not direct impacts of gas drilling-e.g., low-income housing, social services programs, and judicial system costs.
“These costs are the effect of population increases, and should be addressed through current local tax structures. If the current tax code needs to be adjusted to reflect the unique transitory nature of the drilling boom, that should be addressed separately,” said Brouillette.
The second opportunity for improvement is the provision allowing counties to offer credits against the fee for investments in natural gas infrastructure. While the details are limited, it appears this would include supporting natural gas fueling stations and conversion of public transit fleets to natural gas vehicles-which are not impacts of gas drilling. Rather, any credit should be tied to expenditures that companies make to pay for their identified impacts. This would include road improvements funded by gas drillers.
Brouillette cautioned, “With an estimated $200 million spent by drilling companies in 2010 on road repair, legislators should be careful not to discourage future investments in local infrastructure.”