Pennsylvania Governor Tom Wolf has proposed a new state severance tax on natural gas drilling. The measure, which the governor introduced as a means to fund the state’s education system, would impose a 5 percent tax on the value of gas withdrawn from within the Commonwealth, plus a volume extraction tax of 4.7 percent per 1,000 cubic feet of natural gas. The severance tax would replace the state’s current impact fee, which imposes a charge on oil and gas developers for each new well drilled in Pennsylvania and funnels revenue back to the communities where the drilling takes place.
According to the governor, the severance tax could generate upwards of $1 billion annually. But he said he has yet to “work out a formula” concerning how revenue will be split among local governments and the education system. If approved by the legislature, the tax would take effect at the beginning of 2016, providing revenue for the state in the 2017 fiscal year.
The proposal is not the first time a severance tax has been introduced by state officials. Both Democratic and Republican lawmakers have voiced support for such a measure within the past few years. Democratic State Senator James R. Brewster argued that the revenues generated by Governor Wolf’s plan could “help relieve pressure on the local property tax and save local taxpayer dollars.”
But strong opposition to the measure has also already developed. Gene Barr, President and CEO of the Pennsylvania Chamber of Business and Industry, an organization that advocates for private-sector interests, framed the governor’s plan as a potential hindrance to economic growth in the Commonwealth: “Placing additional tax burdens on natural gas drillers won’t only drive them to other states that share our natural resources. It will lead to a decline in the ancillary and supply chain jobs that are helping our middle class thrive, which will cause us to lose our competitive advantage in the shale play.”
Pennsylvania’s natural gas industry is in the midst of an unprecedented boom. According to the U.S. Energy Information Administration, the Commonwealth is the fastest-growing natural-gas-producing state in the country, a trend fueled by its vast reserves in the Marcellus and Utica Shale plays. Pennsylvania is also the only major energy-producing state in the country that does not currently impose a severance tax on drillers.