Schwartz proposes 5 percent severance tax on shale gas

Pennsylvania should enact a 5-percent severance tax on natural gas production to generate as much as $13.2 billion over 10 years for public education, transportation, and property-tax relief, U.S. Rep. Allyson Schwartz, a Democratic candidate for governor, proposed Wednesday.

“All Pennsylvanians deserve to share in the shale wealth,” Schwartz said during a conference call with reporters.

She called 5 percent a “moderate, reasonable” rate of tax, equal to that charged by neighboring West Virginia, which shares the rich Marcellus Shale natural gas formation with Pennsylvania. Texas charges 7.5 percent, and Oklahoma charges 7 percent, for example.

Gov. Corbett (R) has fought efforts to impose a severance tax, maintaining that it would hamper development of a rapidly growing gas-drilling industry.

“Gov. Corbett is standing with the middle class,” said energy adviser Patrick Henderson, noting that the industry has created 250,000 direct and indirect jobs in the state. “Pennsylvanians want more jobs and fewer taxes.”

Pennsylvania does impose a local-impact fee on drilling activity, but that is based on the number of wells in operation rather than the volume of gas produced. Schwartz argues that this is wrong- headed, noting that last year’s $198 million take from the impact fee was a drop of $6 million from 2011 – even though gas production increased by 69 percent.

In addition to the impact fees, the industry has generated over $1.7 billion in corporate tax payments, Henderson said.

Money from the new tax would be used to reverse cuts to funding of basic and higher education, expand access to preschool, and pay for repairs to roads, bridges and railroads, Schwartz said.

The plan would raise $612 million if it were implemented in 2014, according to projections by the Pennsylvania Budget and Policy Center, which the campaign cited. By 2022, proceeds would top $2 billion. The cumulative take would be $13.2 billion over a decade – or up to $16 billion including the impact fees, which Schwartz would continue.

Among other changes, Schwartz would establish an independent office to monitor citizen complaints about drilling activities, and would restore the ability of local governments to regulate drilling through their zoning codes, now preempted by state law.

Here is a link to a PDF of Schwartz's white paper on the tax.


(Note: an earlier version of this post mistakenly stated the amount to be generated by severance tax plus impact fees. The correct figure is $16 billion.)