Marcellus Fee Plans Largely Benefit Eight Drilling Counties

New report finds this approach is a departure for state tax policy and out of sync with most voters

HARRISBURG, Pa., June 28, 2011 /PRNewswire-USNewswire/ -- This week, the state Legislature will vote on a 2011-12 budget that makes deep cuts to schools and human services, despite a growing economy and a $550 million revenue surplus.

One item not on the voting schedule is a Marcellus Shale drilling tax or fee. Lawmakers say they will take up that issue in the fall, but the leading proposals now being debated in Harrisburg are problematic.

According to a new report from the Pennsylvania Budget and Policy Center, those plans would give the lion's share of local funding to only eight drilling counties, while doing nothing to address state cuts to education and local services. View the report here: http://ow.ly/5rjAa.  

Most voters see a drilling tax as a means to avoid cuts to education, early childhood and other state-funded services. A Quinnipiac poll released this month finds that 69% of voters would support a new tax on drilling companies to balance the state budget.

"For the second year, state lawmakers have failed to tap gas drillers to avoid cuts to public schools and vulnerable people, despite widespread public support for this approach," said PBPC Director Sharon Ward. "Instead, lawmakers are promoting narrowly-targeted bills that benefit a small share of Pennsylvanians, and leave other taxpayers to foot a larger bill for education and drilling-related impacts."

Few Benefit from Drilling Fee Proposals

The PBPC report looks at the demographic and economic characteristics of Marcellus and non-Marcellus counties and tracks the distribution of local revenue in leading Marcellus Shale impact fee legislation.

Only 16% of the Commonwealth's population resides in 24 Marcellus shale counties, defined as having more than 10 wells. 84% of Pennsylvanians live in the 43 non-Marcellus counties. Non-Marcellus counties have been the state's economic engines, accounting for 84% of population and 86% of the major state tax collections. Workers in these counties earned 89% of state wages in 2009, the last year for which data are available.

The report looks at the distribution of local share revenue in leading Marcellus Shale impact fee bills. SB 1100, sponsored by Senator Joseph Scarnati, allocates 75% of the local share revenue in 2012, $44.3 million, to just eight counties. Sixteen counties would split $14.2 million, while eight of the state's remaining 43 counties would receive less than $1 million in total.

Representative Marguerite Quinn's bill, HB 1700, limits the local share to half of all revenue raised from the fee, but provides more revenue, $89 million, to the top eight gas-drilling counties; $28.6 million to the next 16 counties; but only $1.5 million to the state's remaining 43 counties.

"The natural gas deposits in the Marcellus Shale are a Pennsylvania resource that should benefit all Pennsylvanians, not just a select few," said Neal Bisno, President of SEIU Healthcare Pennsylvania. "The people support a fair tax on these drillers. With the draconian budget cuts the Governor has proposed, the people need these revenues now more than ever."

The report found that Marcellus area residents are as likely and, in some cases more likely, to use General Fund services, including education and health care.

Marcellus counties are home to a greater share of school districts that receive a higher ratio of aid from the state to support K-12 education. Two-thirds of school districts in the Marcellus Shale regions have state aid ratios of 60% or more, compared to just 45% of districts in non-Marcellus counties.

"Most state taxpayers will benefit little from these drilling fee proposals," Ward said. "But they will be forced to pay more for their own schools, while continuing to subsidize school districts in the gas-rich region."

Marcellus residents were almost as likely to enroll in Medical Assistance as people in the rest of the state, although enrollments outside the shale region were slightly higher. In June 2011, 17.3% of residents in Marcellus counties received Medical Assistance, compared to 18.5% of non-Marcellus residents.

Marcellus Distribution Departs from Standard State Practice

The report finds that the shale bills depart from the standard distribution of state revenue and from the distribution systems in many gas-drilling states.

Only two of 13 gas-producing states examined in the report allocate no funds from drilling taxes or fees to general state services.

Three states, including Texas, provide no revenue from gas drilling taxes to local governments. Instead, local governments - including schools - recover costs through local property taxes on reserves and equipment, as they do with most industries.

"Lawmakers are traveling down a new road in tax policy and it's time to reverse course," Ward said. "Our Commonwealth does not dedicate state sales or income taxes based on the county of origin, and we should not start that practice with a shale tax."

This approach could have dire effects for some of the state's most vulnerable, said Alan Edelstein, Executive Director of Family & Community Service of Delaware County.

"We will be forced to cut cost-effective, local services that vulnerable people in Delaware County depend on," he said, citing anticipated budget cuts. "It's hard to do that knowing the state has better options. The natural gas industry is making a lot of money here, and they should be doing their part, like the rest of us, to protect Pennsylvania's vulnerable."

Christie Balka, Director of Child Care and Budget Policy at Public Citizens for Children and Youth, said that drilling tax revenue could help ensure greater access to quality child care, full-day kindergarten and a good K-12 education.

"Pennsylvania's elected officials should stop playing musical chairs with funding for children," Balka said. "… Unless they act now, many of our children won't have chairs to sit on next year."

The Pennsylvania Budget and Policy Center (PBPC) is a non-partisan policy research project that provides independent, credible analysis on state tax, budget, and related policy matters, with attention to the impact of current or proposed policies on working families. To learn more, go to www.pennbpc.org.

SOURCE Pennsylvania Budget and Policy Center