Pennsylvania is strategically located to reap a windfall associated with Marcellus Shale. But any mineral extraction strategy must be buffeted by balanced and sensible environmental stewardship and targeted revenue streams.
Natural gas is not the magic bullet to cure fiscal and energy woes, and we need to avoid putting all of our eggs into the Marcellus Shale basket. We know what happens when coal companies abandon mines. And Pennsylvania rate payers remain at significant financial exposure as our five nuclear stations continue to store thousands of tons of nuclear waste with no forwarding address.
Let’s try something different and learn from previous mistakes. Why not balance fiscal, environmental, and local share issues before we spend what we don’t have, mortgage future generations, and lock out municipal input and oversight?
The resources that have been identified are vast by any standard. Large-scale drilling will occur in the Marcellus Shale formation from the southern tier of New York through West Virginia. Penn State estimated that the reserves are anywhere from 168 to 516 trillion cubic feet. “The Unites Sates currently produces roughly 30 trillion cubic feet of gas a year and demand for this gas is increasing yearly. (“Marcellus Shale: What Government Officials Need to Know.”)
The industry is quick to point out that a severance tax, which is opposed by Gov. Tom Corbett, will exacerbate a corporate net income tax of 9.5% and could cripple an industry that is just starting crawl. A few months ago, George Mitchell, the man considered the father of fracking, told Rock The Capital that gas drillers were not breaking even.
But environmental groups released a study that claimed Pennsylvanians favor a severance tax which could raise $632 million a year within five years. Jan Jarrett, CEO of PennFuture noted: “The Marcellus shale offers us a tremendous opportunity to expand our supply of domestic fuel…But it also offers a tremendous risk to the land, water and wildlife that makes Pennsylvania so special.” (Tribune-Review, March 17, 2009)
Is it possible that both sides are right?
We cannot let this issue degenerate into a win-lose sum game. Any middle ground must necessarily factor local share. We can not bulldoze communities, cannibalize their infrastructure, and leave behind a fractured environmental and economic legacy, while revenues are deposited into the state coffers.
Dr. Timothy W. Kelsey of Penn State’s Cooperative Extension provided a fair, balanced, and sobering assessment of the fallout from gas exploration in his study, “Potential Economic Impacts of Marcellus Shale in Pennsylvania: Reflections on the Perryman Group Analysis from Texas.”
Among his observations were the possibility that local communities may get hammered by the existing tax structure, experience resource depletion, and lack the ability to implement local land use regulations.
“Tax collections by the state government will increase in Pennsylvania through the corporate income tax and sales tax, yet these collections will have little direct benefit to the local jurisdictions who will face higher service costs due to natural gas exploration. In other words, local jurisdictions with natural gas wells very likely will face higher demands for services and thus higher costs, and yet receive little new revenues to pay for those services. The result likely will be higher local taxes (paid for by everyone, not just those directly benefiting from lease or royalty revenues), or cuts in other services.”
We can’t tax our way into prosperity, and we should not sell off our resources without factoring externalities, clean up costs,and water use.
Mr. Corbett backed himself into a no tax increase box, but among the proposals, he should consider to arrive at an equitable compromise include: a graduated “user fee”; accelerated depreciation; establishment of an external sinking fund for cleanup costs and site remediation; Memorandums of Understanding between the state and local municipalities for revenue sharing; and, an arbitration panel to reconcile local land use with state mandates as well as true up costs for water extraction.
We’re not going to get a second bite at the Marcellus Shale apple. We better pull out all of the economic and environmental worms before we are tempted to bite into a pomegranate.
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