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Commonwealth Foundation


Principles Must Lead Shale Fee Proposal

by Matthew Brouillette,
President
 

Before sound could travel from Gov. Corbett's lips to Pennsylvanians' ears, special interest groups and tax-and-spend politicians unwisely laid waste his plan to protect job growth and stave off family budget-crushing tax hikes through a non-punitive natural gas drilling impact fee.

While many justify imposing a unique tax upon the industry out of unsubstantiated fears of environmental disaster, others understand the true impact of drilling. These impacts irrefutably include creating tens of thousands of new jobs, rescuing despairing landowners from foreclosure, and generating fortunes for farmers, laborers, and businesses during a punishing recession.

To be sure, Gov. Corbett's plan could yield to improvements. But as the delicate balance between caving to fracking fears and embracing facts weighs heavily upon some legislators, they should not be so quick to dismiss his proposal.

By making it optional for counties to impose additional fees on natural gas job creators, Gov. Corbett keeps his pledge to voters to not raise taxes, while ensuring the natural gas industry continues to pay for its impacts on local government. This allows each county to assess the true impact of gas drilling and charge an appropriate fee.

Moreover, the plan provides appropriate parameters for the legislative discussion over the coming weeks. As the General Assembly considers the proposal, legislators should strongly consider adhering to some key principles before crafting a final bill.

First, any business should pay the cost for government they use - natural gas drillers should be no exception. If a business is not paying for its negative impacts on the environment and/or infrastructure, it is appropriate to charge a fee to pay for the government's cost to remediate the problem. Since drilling's impact on government does not increase if a gas well is more profitable, a "fee" should not be tied to production.

Next, any fee should be directly related to uncompensated costs of government. A new fee should not extract additional revenue for unrelated government purposes or subsidies. For example, Growing Greener, a taxpayer subsidized environmental program, is not directly related to remediating problems caused by the natural gas industry and thus should not be funded by a fee.

Moreover, any fee rate should be established in the context of what businesses are already paying in taxes, fees and contributions to local communities and the state, thus setting the fee rate at a level that only covers those uncompensated costs of government.

Furthermore, any fee should be imposed at the county or municipal level, not at the state level. This ensures competition between local governments, discourages excessive fee rates and reduces the threat of cross-subsidization and redistribution of fee revenues to unrelated purposes.

Finally, before imposing a new fee, elected officials should consider if current local taxes and fees need to be revised to cover any uncompensated costs of government. For example, is it necessary and appropriate to adjust local hotel and emergency services taxes to better address the influx of large numbers of workers into sparsely populated areas of Pennsylvania? Or, are there other fee mechanisms that can be more directly tied to government services being provided to gas drillers?

While the governor's proposal adheres to many of these key principles, legislative and regulatory improvements can be made to ensure we encourage the economic opportunity of natural gas exploration and extraction while holding the industry accountable.

Without a principles-based approach, it won't be the drillers paying the cost, rather they will be passed onto and borne by Pennsylvania laborers, landowners, families, consumers and small businesses who least can afford such lost opportunities.

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Matthew J. Brouillette is the president and CEO of the Commonwealth Foundation (www.commonwealthfoundation.org), Pennsylvanians free-market think tank.


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