State Senate Proposes Impact Fee on Gas Drillin

State Senate Proposes Impact Fee on Gas Drillin

Friday, April 29, 2011
Knight Ridder/Tribune Business News
by Brad Bumsted and Andrew Conte, The Pittsburgh Trib

The ranking Republican in the state Senate today proposed an impact fee on Marcellus shale gas drilling, of which an estimated 60 percent would go to counties and municipalities with deep wells as well as townships and boroughs neighboring drilling production sites.

The fee would be used to help cover damage to roads and bridges, maintenance and improvement costs for water and sewage systems and emergency responder costs, said Senate President Pro Tempore Joe Scarnati, R-Jefferson County.

The other 40 percent would be split between conservation districts statewide and environmental funds for clean up and infrastructure, Scarnati said.

The exact breakdown of revenue from the fee is still subject to negotiation in a bill that Scarnati hopes will be ready for a vote in early June. The bill could be introduced as soon as next week.

The baseline fee is $10,000 per well, but it would be adjusted based on gas volume and the price of gas. The average fee per well would be about $25,000 in 2011, according to Scarnati's office.

The fee would be retroactive for 2010 and raise $45 million for last year. It will bring in $76 million this year and will rise to at least $150 million by 2014, Scarnati said.

The legislation was much anticipated because of Scarnati's stature in legislative leadership and because Republican Gov. Tom Corbett has said flatly he will not consider a tax that brings money into the General Fund.

"I have to believe this is in the sweet spot of where I believe most legislators will be," Scarnati said.

Moreover, he said it would be difficult to pass a state budget without some sort of levy on the burgeoning industry.

"I can't see how we get a state budget done without bringing some dollars in from this industry," he said.

The fees will not be used to balance the budget, which is $4.2 billion in the red. But the political dynamic of lawmakers voting for cuts requires a fee on the industry, he said.

Statewide polls show widespread support for a tax on shale drilling -- 69-22 percent in favor in a recent Quinnipiac University poll.

Scarnati said it is a fee and not a tax because the money does not go to the General Fund. There also are no exemptions as typically exist with shale extraction taxes, he said.

"What's the difference between a fee and tax? Governor Corbett's pen," Scarnati said. "That will be the ultimate test."

He said he had lunch with Corbett on Monday.

"At this point, I have a caution light," Scarnati said today in a phone conference with reporters. "I don't have a red light. I don't have a green light."

Marcellus drillers are open to an impact fee that provides money for local communities as long as it's "clear, straightforward and competitive," Kathryn Klaber, president of the Marcellus Shale Coalition trade group, said in a statement.

"Our industry understands that, while there are tremendous financial opportunities in Marcellus Shale development, there also can be impacts felt by our host communities," Klaber said.

"We support the concept of a fee with portions for local government and conservation and most importantly strong but consistent local regulations as part of this approach," said Matt Pitzarella, a spokesman for Range Resources.

"The devil is and will always be in the details and we eagerly look forward to seeing and reviewing those particulars, but we remain supportive of the concept."