The Real Victims of a Severance Tax

Jim VanBlarcom, a busy Bradford County dairy farmer, set a work day aside to come to Harrisburg and tell his story to Gov. Tom Corbett's Marcellus Shale panel. Royalty money from leasing farmland helped him double his dairy herd size, and he's glad the industry's here.

VanBlarcom understands the growing pains natural gas activity brings first hand.  A trucker working with the gas industry took out an electric pole, shorting out his compressor and causing 3,000 gallons of milk to spoil. He then explained how the trucking company paid him the market value of the lost milk, money to fix his compressor and labor costs.

When it came to road damages, VanBlarcom explained, "All of them have been rebuilt better than ever, and all it took was a phone call to the gas company.  The next day they had trucks in there resurfacing the entire roadway."

Jacqueline Root, a farmer in Tioga County, similarly remarked, "I see the roads being repaired in a much more timely fashion with the companies taking care of it, and in ways that our townships can't necessarily cope." Root went on to say that she would only support a local impact fee—a subject being considered by the governor's panel—if it did not change the industry's current role in infrastructure improvement and work in the region.

In many ways, it is Jacqueline Root, Jim VanBlarcom, and other Pennsylvania landowners, farmers, job seekers and consumers who are the real victims of a severance tax on natural gas. While drilling won't disappear with a tax, the effects will be borne through reduced investment in the state, lower wages, reduction in job growth or a reduction in spending on things like road improvements and philanthropy. 

Most people don't realize a severance tax hurts Pennsylvania citizens directly, but a typical lease splits tax obligations between drilling companies and landowners. The industry has paid out an estimated $7 billion in lease and royalty payments to residents since 2006—money that landowners stand to lose.

No matter how much tax advocates argue otherwise, there is no evidence to support the claim that natural gas companies aren't paying their "fair share."  Because of this, it's unjust to enact an "impact fee" while failing to identify impact costs drillers are not addressing. Proponents just want more money for Harrisburg politicians to dole out, and they really don't care if pesky little things called facts don't support their demands for higher taxes.

Moreover, tax advocates don't care how much drilling companies are paying in taxes now—according to the Pennsylvania Department of Revenue, more than $1.1 billion since 2006. This figure includes $234 million paid this fiscal year. They don't seem to care that other states have used severance taxes to lower or eliminate personal income taxes or corporate taxes, or that Pennsylvania has the second highest corporate tax rate in the world. They don't seem to care that the state oversight for drilling is entirely funded through natural gas permits, or that drillers fully pay for the cost of any accident, and pay hundreds of millions each year for road repair.

Although drilling companies are required to repair any damage to roads they cause, they also provide transportation funding far above that, voluntarily using their money to improve roads and to invest in local communities.

Talisman Energy, for instance, paid $25,000 to have a guardrail installed on a dangerous roadway in Towanda, Pa., after a young girl traveled off the road and died. Although the accident was unrelated to drilling or Talisman Energy, the company offered to pay for the project when the township didn't have the funds.

Overall, residents with drilling in their hometowns are having positive experiences with the industry, due largely to the fact that the Keystone State employs among the strictest drilling oversight program in the world. When EOG Resources had an accident in Clearfield County, the company paid eight times in fines the cost of the investigation and cleanup. This is the responsible way to hold companies accountable and address environmental concerns, not through new taxes that create special funds, which given well documented recent history, are likely to get raided by politicians and special interests.

Ultimately, gas drilling has stimulated the economy, saving family farms and putting tens of thousands of Pennsylvanians back to work. Sadly, it is clear that despite these benefits, politics and the insatiable desire for more revenue are driving calls for a severance tax. 

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Katrina Currie is a policy analyst for the Commonwealth Foundation, an independent, nonprofit public policy research and educational institute based in Harrisburg at www.commonwealthfoundation.org.