Fracking and Revenues for Local Governments

By Mike Bernhard

Recently, fracking promoters in Afton circulated a reprint of a press release in the Binghamton Press & Sun-Bulletin. The headline, “Marcellus fee nets $22M for Pa. Counties,” intended to suggest that gas revenues flowing to local government would reduce the tax burden of homeowners here in Afton and/or provide funds for services that local authorities sought to provide their residents. That suggestion is a mirage.

First of all, the funds at issue are not taxes collected by the localities in question, but 40% of the “impact fees” collected by the state on a per-well basis, not on the well’s output. Pennsylvania is only one of two gas-producing states that does not impose a severance tax (a state-level tax based on the output of the well), which in other gas-producing states is available to fund education, health, infrastructure and other social programs. The other state without a severance tax: New York.

Second, drillers in Pennsylvania, exempted from paying severance taxes that support public purposes, are happy to trumpet the levels of impact fees going to local governments. But the impact fee fund was front-loaded by law: the fee was applied retroactively to wells drilled before the law was passed¹. The press release referred to the Pennsylvania counties (Bradford and Tioga) with the largest number of fee-paying wells, but even there, impact fee disbursements to local governments have already declined in the three years since the system was established, reflecting the declining per-well fee levels ($50,000 in year 1, $40,000 in year two, and $30,000 in year three).

Third, the press release says that “the money helps counties and local communities address any impacts from the industry, such as the repair of local roadways, environmental protections and affordable housing opportunities.” That is, the fees are used to undo the damage done by the industry itself. They do not contribute to the general welfare as do taxes.

But the main problem with all revenues from the shale drilling industry, be they impact fees or severance taxes, is that the economic, financial and environmental damage that is part-and-parcel of the gas industry will show up years or decades after these revenues have been collected and spent by localities.

In Afton, the three current well applications paid one-time fees, for a total of $10,460. None of this trivial amount is forwarded by the state to our town. It can’t even cover the administrative costs of the permitting, much less the cost of regulation and monitoring of the wells: another subsidy to the gas industry.

So revenues from gas drilling to New York town governments will be limited to their share of property-tax revenues collected on producing wells (the share that does not go to the county). Naturally, local gas promoters will be trumpeting and exaggerating those tax prospects, so I will deal with them in the next issue of the Vision.

Footnote: ¹Since retroactive (ex post facto) laws are clearly illegal, gas companies have consented to pay the fees for political reasons: to reduce the call for serious taxation of this super-profitable industry. The impact fee law, by its own terms, expires on the adoption of a state severance tax. Thus, every local official who needs the impact fee disbursements to mitigate local road and other damages by the industry has become a political opponent of any level of state-level taxation.

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