Notes from Marcellus Shale/Severance Tax Panel

Several CSCC members (myself included) attended tonight’s Bucknell Institute for Public Policy forum on the topic of the Marcellus Shale and severance taxes. The speakers were State House Representative Rick Marabito (D-83) and State Senator Gene Yaw (R-23). I took some notes, and wanted to share some of the highlights of what was said.

Overview
Mr. Marabito gave a prepared speech, drawing analogies with coal industry, emphasizing impacts & costs of drilling, emphasizing the fact that 38 other states have severance tax, and outlining policy vs. political concerns. Mr. Yaw gave a rebuttal to many of Mr. Marabito’s points, said industry was not getting a “free ride,” and claimed that PA already had “highest taxes” and “the strongest environmental regulations” of any state.

The crowd (large, but not filled to capacity) was generally vocal and showed much hostility towards Mr. Yaw. They listened politely to Mr. Marabito and applauded at the end, whereas audience members responded to several of Mr. Yaw’s statements as he made them. He made an unfortunate choice to begin his speech with a rhetorical question which may have prompted some of this response. Several times, he asked audience members to be quiet and complained to the moderator. (One particular example was when a questioner was, rather harshly, asking him to state how much he had received in campaign donations from the industry, and how much business his law firm did with industry clients.)

With all due respect to the senator, he did himself a particular disservice by: (a) claiming he had “no idea” how much the industry had contributed to him, and told people to “look it up” on a website; and (b) commented that the personal tax rate in PA was “something like 3.2%.” (This may be picky, but as someone who just filed his income taxes, I thought a state legislator ought to know the tax rate is 3.07% and has been since 2003.) Both gentlemen made statements without directly referencing sources (I’ve noted these below), but Mr. Yaw repeatedly stated beliefs that the gas industry was being unfairly singled out, and that we needed to entice companies to come to PA (as opposed to companies coming here because of the physical location of the gas), which was disappointing.

Below is a summary of the statements they made; most of these are not direct quotes, and I apologize for any errors or omissions. I did not take as good notes during the Q&A period, other than the ones mentioned above.

Rick Marabito:
Said the Marcellus Shale offered an “awesome opportunity,” but that we have an “awesome responsibility” as well.

Emphasized importance of distinguishing between policy issues and politics issues related to severance tax.

Prefers to call severance tax an “impact fee” because drilling will impact the community in three major ways:
1. Infrastructure (roads, bridges)
2. Environment (soil, water, air)
3. Social relations (population growth will require additional public services)

Because well sites are off the beaten path, we don’t think about them. All businesses and individuals should recognize that there are costs associated with drilling. Gas companies are responsible for these impacts, so they should contribute to costs. If we don’t have an impact fee, costs will be borne by other businesses and taxpayers. For 150 years, there was no tax on coal industry and we are still cleaning up from it.

38 other states impose a severance tax. When we buy gas from other states, we pay their severance tax. When we sell out of state, the cost of the severance tax will be passed onto the end-use where it belongs.

PA Budget and Policy Center estimates we have lost $145M so far by not acting and establishing a severance tax.

If we impose a severance tax, there is concern about where money goes. We would like revenue to stay in local area, but negotiations in legislature will be needed. Most legislators (in House) are from southeastern PA; they will argue that money should go to general fund for fairness.

Lobbying is also a problem in Harrisburg. PA is 1 of 11 states that don’t limit campaign contributions. Natural gas companies gave $2.85M to PA legislators from 2001-10. Emphasized that just because people accept a contribution doesn’t mean they act one certain way; he disclosed that he received donations from 2 gas companies for approximately $1000.

Closing thoughts: Polls [source?] show 60-70% of public is in favor of tax. Many people talk about adopting Arkansas tax model (a delayed tax), but ex-governor of Arkansas made statement last month that he believes Arkansas was hurt by that and should increase tax. Push legislators to do the right thing, and not let us fall into the same cycle as what happened with the coal industry. “If a severance fee is good enough for Texas, why isn’t it good enough for Pennsylvania?

Gene Yaw:
Opened with a rhetorical question, “Why do you think a severance tax would be paid by the gas industry?” which led to an uncomfortable silence, then some responses from audience which devolved into some back-and-forth and Mr. Yaw asking people to let him speak. Claimed that severance tax would just be a production cost, passed onto landowners.

Idea that gas industry was getting a “free ride” was "false." “Studies” [source?] say that severance tax would make us the highest taxed place in the world. Gas companies paid $1 billion in taxes in the past year [source?]. Texas is lowering their severance tax rate [source?] because they are afraid drillers will leave and move to PA.

Mr. Marabito’s analogy with coal was unfair, because during coal boom, we did not have the EPA, DEP, Clean Water Act, Clean Air Act or other environmental protections.
If we enact a severance tax, money will go into a “black hole” in Harrisburg where legislators stand in line for handouts, and money will not come back to local community. In 2002, state supreme court ruled that gas wells were not subject to tax. Has introduced a bill that will correct that but allow localities, not the state, to tax wells.

Closing thoughts: We’ve enticed other businesses to come here; why not do the same with the gas industry?