Posts Tagged ‘budget’

Should Pennsylvania impose a tax on the gas drilling industry?  Governor Tom Corbett says “No” but he awaits a report from a Commission reviewing the issue.  The Commission report is due out in late July, 2011.  However, the State budget is due to be passed by June 30,  2011.  There appears to be bipartisan support growing in Harrisburg for some type of gas tax.  Whether sufficient veto proof support exists is yet to be determined.  The twelve lawyers at DLP continue to monitor this and other gas drilling rig related issues while representing victims of gas drilling rig accidents, Pennsylvania truck accidents and other gas drilling related incidents.

MARCELLUS SHALE has fractured existing societal fissures along the back country roads of Pennsylvania and chambers of government in Harrisburg.

Debates have flared over the proper level (if any) of taxation as well as drilling’s impact on clean water, pollution and disruptions in traditional lifestyles. It is an understandable result of a transformational discovery: the development of what could be one of the world’s largest gas fields.

The management of a natural resource such as the Marcellus Shale requires capital-intensive investment in a market where prices are unpredictable. This built-in business risk means that companies want as much cost certainty as possible, especially in the areas of taxation and regulation. Leaving them with open questions can hinder the development of a valuable natural resource.

There is a difference between taxation for general budget purposes and taxation to cover the inevitable costs of opening the state to natural gas production. As a partner in the development of this new resource, the state will have to underwrite some essential expenses. Roads will need to be built or strengthened to handle larger vehicles and traffic volume, and some basic services will have to be increased. To the extent that boom-towns boom, there could be the need to build schools and provide other public services. Looking both back into the state’s history and ahead into the future, the commonwealth will have to prepare for potential toxic cleanup costs or well reclamation.

The issue of taxation for Marcellus Shale development, though, should not be separated from the question of business taxation reform for the entire Pennsylvanian economy. Governor-elect Tom Corbett correctly has identified the need for the Keystone State to improve its business climate in order to generate growth and employment. Pennsylvania ranks 26th in the nation in terms of business tax climate, according to the Tax Foundation.

The best that can be said is that our state is the beneficiary of even worse policies in neighboring New York, New Jersey, Ohio and Maryland – all of which rank in the bottom 10. Our commonwealth received a “C” letter grade from the Pennsylvania Business Council for the state’s business competitive position. Facing fierce global competition for capital and jobs, being average simply will not do. The core of Corbett’s agenda is to change the business climate without new taxes. With the electorate and a new state Legislature behind him, he has the mandate to move forward in the New Year.

It would be a mistake to put a new tax burden on this fledgling industry, which is in competition with low-tax, gas-producing states such as West Virginia and Texas among others. It’s essential to remember that the market for gas is global and the advantages other states give their industry through the tax code are real. Pennsylvanians should not envision Marcellus Shale as simply a goose laying golden eggs, lest that goose fly away.

The temptation to levy special taxes – whether it’s because other states have severance taxes or simply to tap the industry as a new source of revenue to address state budget woes – should be strongly resisted. Transitioning to a new business tax system does open the door to impose some sort of tax on the new industry to ease that transformation to help balance the budget. But the point of tax reform is to broaden the base to lower tax rates on all business and most important to generate jobs and income.

The way forward is straightforward: Overhaul Pennsylvania’s business tax system to make all businesses in the commonwealth – natural gas and other mining entities, goods and service producers alike – more competitive. Capital moves to where it can be best put to use. Lower tax rates applied across all lines of business activities will increase after-tax returns throughout the commonwealth.

If Marcellus Shale cannot compete without subsidies, then now is the time to reassess the outlook for this sector. But with convincing data, it appears this industry will continue to generate tax revenue and income across the state for years to come — if it is allowed to flourish. The best way for Marcellus Shale to become a cash cow for state coffers is to let it reach its maximum potential.

Timothy Kearney is an assistant professor of business at Misericordia University in Dallas Township, and is a former senior managing director of Bear Stearns & Co.

Copyright: Times Leader

Major projects can languish because money paid by drillers may be used only in certain ways.

RAMIT PLUSHNICK-MASTI Associated Press

BEAUMONT, Texas — Advances in drilling have helped American towns and cities strike natural gas, and just in time, it would appear. With many facing cash crunches, the millions of dollars they’re reaping in royalties could go toward saving public services, jobs and badly needed road projects.

Not so fast. Because of restrictions built into deeds and federal grants, municipalities can’t use most of to their newfound wealth to plug budget shortfalls.

And so, while elected officials struggle to make ends meet, the money sits there, close enough to smell but just out of reach.

“There are street projects we’d like to move forward with, the designs are in place, but because of federal rules we’re not in a position to utilize the funds,” said Kyle Hayes, city manager of Beaumont, Texas, a refinery town that has made millions on gas drilling at the airport. “Right now, it’s just sitting there — $35.3 million.”

The rules differ slightly depending on whether they’re dictated by a government agency, such as the Federal Aviation Administration, or by a charitable foundation or individual during a deed transfer. But the bottom line is the same: Revenues made from gas drilling often have to be reinvested into the area where the minerals were extracted.

With new technologies and drilling techniques making once out-of-reach gas reserves accessible, the problem is expanding and currently affects about a dozen airports, including several in Texas and Louisiana, and at least one in Pennsylvania, said Lynn Lunsford, an FAA spokesman.

“The FAA has been reevaluating this policy in light of these windfalls,” Lunsford said.

The FAA tied a reinvestment clause to the grants it gives out to ensure that money made at airports — for example from leasing stores or renting hangar space — gets reinvested there to help fund maintenance and improvements, Lunsford explained. The clause only became a problem recently with the millions made from natural gas extraction on airport properties.

Beaumont — a Southeast Texas refinery city of just over 110,000 residents — has made more than $35 million in the past 10 months from gas royalty checks. But because of the reinvestment clause, that money has to go back into its tiny airport, which handles no more than 18,000 flights annually and has 39 private hangars for single-engine planes.

“I couldn’t spend that much money if I tore everything down and rebuilt it,” said Brenda Beadle, Beaumont’s capital projects manager.

Fort Worth, a growing city of more than 720,000 west of Dallas, sits smack in “the honey hole” of the Barnett Shale, as Mayor Michael Moncrief likes to say. The geologic formation, like others that crisscross the nation and world, has long been known to contain rich natural gas reserves that were out of reach until new drilling methods made them accessible about five years ago.

Fort Worth, one of the first cities to enjoy the riches of new natural gas drilling, has made more than $89.5 million in the last 10 years from gas royalties, leases and bonuses from drilling in parks, golf courses and the major airport.

That money would cover the city’s $72 million budget shortfall, which forced the closure of public pools and nearly shut down libraries. But only about $15 million of it was unrestricted, the rest has to be reinvested in areas where the money was made.

Pittsburgh is trying to arrange a deal with the FAA before signing a lease with a gas company to extract money from its airport, which sits on the lucrative Marcellus Shale.

Cash-strapped Allegheny County owns the airport land and its mineral rights, said county spokesman Kevin Evanto.

“Since county taxpayers purchased the land, we would like a significant amount of any revenues generated by gas drilling to benefit county taxpayers,” he said.

Copyright: Times Leader

By DONALD GILLILAND, The Patriot-News

March 28, 2010, 7:38PM

CHRISTINE BAKER, The Patriot-News, 2009A towering gas-drilling rig stood on the Susquehanna County property of Jim Grimsley. Dimock Twp. farmers in Susquehanna County are signing leases with natural gas companies like Cabot Oil & Gas to drill into Marcellus Shale so they can pump out gas.

Pennsylvania lawmakers should learn from history and from Dr. Seuss, said Robert F. Davey
Jr., a retired forester with 38 years of experience in Penn’s Woods.

The state’s forests were decimated by rampant logging in the 19th century and a number of its streams were polluted by unrestricted mining, Davey said. He compared those scenarios to “The Lorax” by Seuss, the tale of a species of trees being nearly wiped out, with only one seed remaining.

Davey said lawmakers should be careful when profiting from the Marcellus gas boom “so that future generations won’t be saddled with mistakes we made because of a myopic view of natural-resource limitations or outright greed.”

He was one of several conservation leaders who testified this month before the state House Majority Policy Committee in support of a five-year moratorium on additional leasing of state forest land for drilling in the Marcellus Shale.

The moratorium, proposed by Rep. Greg Vitali, D-Delaware County, would also require studies of the impact of drilling on public lands. The bill, House Bill 2235, was voted out of committee Wednesday morning with two Republicans supporting it.

With the state facing another budget crisis, money lies at the heart of the debate over leasing more public land.

Advocates, including Gov. Ed Rendell, want to repeat last year’s profitable lease offer, which generated $128 million, twice what officials had hoped. Opponents said the state is moving too fast for a quick buck without fully weighing the implications.

“It’s become apparent that this administration intends to press for new oil and gas leasing to bankroll their spending priorities,” said Rick Carlson, a former policy director for the Department of Conservation and Natural Resources.

“I’m not real crazy about how we’re making these decisions,” said Rep. Garth Everett, R-Lycoming County, one of the two Republicans voting for the moratorium bill Wednesday. “These are long-term, far-reaching decisions, and we make them as knee-jerk budget reactions.”

Everett said he thinks a five-year moratorium is too long, “but I think we need to move this discussion forward.”

Many of his fellow Republicans emphasize the economic value of the Marcellus boom to depressed areas of the state.

“Another word for moratorium is delay, and in our part of the state, we need the jobs,” said Rep. Martin Causer, R-McKean County, whose district includes Cameron and Potter counties, where more than half of the land is owned by the state.

“I recognize the issues,” Causer said. “But I think we can do it properly.”

Some Democrats prefer a moratorium on leasing and a new tax on the gas extracted.

“The alternative to leasing more state forest land is simple: Raise new revenues elsewhere,” said John Quigley, the acting secretary of conservation and natural resources.

Rendell has said he supports an extraction tax on Marcellus gas, but Senate Republicans have said they oppose it.

The budget passed by the House last week includes $112 million in projected revenue from new gas leases next year but does not include an extraction tax.

Nine Marcellus wells have been drilled on state forest land thus far, but some lawmakers predict the number could rise into the thousands.

Everett said he’d “like to see us take a little bit of a timeout and have the Legislative Budget and Finance Committee do a study of the financial and environmental impacts of all the land we’re leasing already.”

Nearly 700,000 acres of state forest land is leased for drilling, according to the Department of Conservation and Natural Resources. And there’s not much left that would be appropriate to open up, Quigley said.

Quigley testified last week that all of the remaining land is “environmentally sensitive,” including wild areas, old-growth forest, wetlands, areas with endangered species and land with high tourism value.

“There may be pockets here and there” that might be available, said Chris Novak, a department spokeswoman.

Seneca Resources Corp., the highest bidder for two of the most recent leases, would be “likely to participate” in another, said Nancy Taylor, a company spokeswoman.

Seneca Resources and other gas companies oppose the moratorium.

But the issue may be more significant to legislators and conservationists than it is to the gas industry. The companies are aware there is little remaining land that the state is willing to offer; some of the best was included in the last offering, and a moratorium on state leases would have no impact on drilling on private land, which accounts for about 90 percent of Marcellus activity.

There may be bigger issues there.

Matthew B. Royer, a staff lawyer for the Pennsylvania office of the Chesapeake Bay Foundation, blasted the Department of Environmental Protection’s “expedited review process,” which stripped authority from local conservation districts, saying it now “consists simply of making sure all the paperwork is in the permit application.”

Last September, the Chesapeake Bay Foundation appealed three permits approved by the DEP under the new process, alleging no technical review of plans was conducted, plans went through wetlands with no effort to avoid impacts, and permits were approved within two to four days.

The DEP subsequently revoked the permits, noting technical deficiencies.

“It should not take the efforts of a third-party conservation organization to track weekly Pennsylvania Bulletin notices, travel to Williamsport to review permit files, and file notices of appeal before the Environmental Hearing Board just to ensure that careful environmental review of Marcellus Shale permits is happening,” Royer said.

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