By Kenneth C. Oldham
INDIANA — The clicking of heels against a hardwood floor fills the high ceilings of the home office of state Rep. Dave Reed, R-Indiana. A narrow walkway leads past a reception area and pamphlets and into Reed’s inner sanctum. Courtroom fashion dominates the room with leather chairs, a sprawling desk and U.S. and Pennsylvania flags.
Here, Reed addressed the severance tax, legislation that proposes to tax the extraction of oil and natural gas in the state, among other issues.
Corporate giants like Chevron Corp. and Exxon Corp. are paying billions to acquire stakes in the Marcellus Shale, a vast natural gas deposit under Pennsylvania and other Appalachian and Northeastern states. Pennsylvania counties such as Indiana must prepare for the natural gas industry rush already underway, developers and environmentalists agree.
In Indiana County, from Jan. 1 to Dec. 8, 2010, nine Marcellus Shale gas wells were permitted, according to the Pennsylvania Department of Environmental Protection.
The proposed severance tax would have generated revenues to address the impacts of Pennsylvania’s timber, oil, coal and, now, natural gas resources.But the tax proposal died in the last session of the state legislature.
“The biggest reason we do not have a severance tax is because there wasn’t an agreement on what to do with the money,” said Reed, an Indiana University of Pennsylvania graduate, in the Nov. 22 interview.
The proposed tax, a levy on nonrenewable resource extraction (coal, oil, natural gas, etc.), was passed Sept. 29 by the state House of Representatives. But the Senate failed to act on the bill.
On Oct. 21, Gov. Ed Rendell declared the tax “dead” for the legislative year.
Reed told the Pittsburgh Tribune-Review that he opposed the bill because the proposed severance tax was too high, it would disrupt job creation, and it would misdirect revenues.
“This bill combines an astronomical tax rate with an unfair revenue distribution plan,” Reed wrote on his website.
On an Oct. 24 edition of “Global Alert,” an award-winning local-news program on WIUP-FM, Reed said the House-passed tax would be the highest in the nation, after factoring in total costs to drill a new well in Pennsylvania.
The proposed severance tax would have been set at 10 percent, or 39 cents per 1,000 cubic feet (Mcf) of gas extracted from the shale deposits miles under ground, according to a series of articles by the Philadelphia Inquirer.
However, the Pennsylvania Budget and Policy Center, a self-described nonpartisan, Harrisburg-based research group studying state spending policies, disagreed with Reed’s assertion about the proposed tax.
Its “Fact Check on Severance Taxes and the Marcellus Shale” reports that “Pennsylvania’s proposed tax is comparable to other gas-producing states.”
If the severance-tax bill had been enacted, the center calculated that Pennsylvania’s effective severance tax rate would be 7.3 percent, after taking into account tax breaks and local property taxes assessed in other states, according to the report.
Wyoming (10.2 percent), New Mexico (8.4 percent) and Montana (7.9 percent) all have effective tax rates that are higher than the proposed Pennsylvania levy, the center concluded.
The center’s numbers are based on a price of $5 per 1,000 Mcf. The price is higher than the U.S. Energy Information Administration predicted natural gas price of $4.90 per Mcf next year.
Nonetheless, Reed did not categorically oppose a severance tax on the IUP radio program.
“A severance tax might be the fairest way to tax the industry,” Reed said. “Most importantly, let’s send the money back to the communities that are actually dealing with the impacts of drilling.”
Outgoing Gov. Rendell said the Senate’s failure to compromise on the severance tax will complicate local governments’ ability to deal with Marcellus Shale drilling impacts, will extend the state’s budget woes and will unnecessarily damage the environment.
A week and half after the WIUP-FM radio program, IUP hosted “Marcellus Shale Week: A Community and University Symposium” from Nov. 3-5.
On Nov. 3 the symposium showed “Gasland,” a documentary film by Josh Fox, a resident of Milanville, Pa., that depicts the impacts of natural gas drilling on citizens. An ensuing panel discussion addressed gas-drilling issues, including the severance tax. Before a crowd in Eberly Auditorium, panelists echoed the argument between Rendell and Reed.
“The reason that the industry is opposed to the severance tax is because there are other taxes in Pennsylvania that these other states do not have,” said Paul Hart, president of Hart Resource Technologies Inc. and Pennsylvania Brine Treatment Inc. of Creekside, Pa., companies that specialize in handling the fluids used in a controversial drilling technique dubbed hydraulic fracturing.
In New York state, a temporary moratorium on “fracking” was approved on Nov. 29 by a General Assembly motivated by safety concerns, including the potential risk of groundwater pollution.
Hart’s assertion was countered by Myron Arnowitt, Pennsylvania state director of Clean Water Action, a national charitable organization headquartered in Washington, D.C.
“Our organization and many other environmental organizations see the severance tax as an important way to fund some of these environmental programs within the state,” said Arnowitt.
However, the state Department of Environmental Protection, which polices the state’s oil and natural gas-industries, has seen its budget cut by 60 percent since 2000, according to Clean Water Action.
Arnowitt said natural gas production adds environmental and infrastructure costs to communities affected by drilling. And he expressed skepticism about the lobbying effort waged by the natural gas industry.
“It seems odd that the gas industry has focused so much on making political donations in Pennsylvania just when the severance tax is being discussed,” Arnowitt said.
— By Kenneth C. Oldham, a senior majoring in journalism at Indiana University of Pennsylvania, is from Windber.
Sidebar: Industry campaign contributions in Indiana County
The following numbers reflect natural-gas-industry campaign contributions to local representatives from January 2001 to April 2010, as reported by MarcellusMoney.org, a non-profit headquartered in Philadelphia. The project is a collaboration of Pennsylvania Common Cause and Conservation Voters of Pennsylvania.
The figures do not reflect the amount of the money spent by the natural gas industry during the November 2010 midterm elections.
State Rep. Dave Reed — $57,042
Reed was the recipient of the largest amount of natural-gas-industry campaign contributions during the period.
- S.W. Jack Drilling Co. (The longtime Indiana-based company recently liquidated its assets.) — $30,992.33
- CNX (CONSOL Energy Inc.) — $8,700
- Snyder Brothers Inc. — $8,000
Sen. Don White — $47,975
White was one of the legislature’s top 10 recipients of natural gas industry donations
- Snyder Brothers Inc. — $19,325
- CNX (CONSOL Energy Inc.) — $5,500
- Dominion — $4,700
During the fall election campaign, state reports show that more than $500,000 was donated by the natural gas industry to Pennsylvania candidates between September and November 2010, according to philly.com.
According to statistics compiled by the Pennsylvania Budget and Policy Center, natural gas industry contributions to Pennsylvania candidates have skyrocketed — to $690,567 in 2009 from $147,377 in 2005, an increase of 369 percent.
Sidebar: Impact fee — a tax alternative
After the November 2010 elections, Pennsylvania Republicans announced support for an impact fee, as opposed to a severance tax, at a Nov. 3 news conference. State Rep. Dave Reed, R-Indiana, who joined the news conference, addressed the impact fee during a Nov. 22 interview in his Indiana district office.
“The big difference between a severance tax and an impact fee is that the fee would stay locally,” Reed said.
The severance tax passed by the state House of Representatives last year would have apportioned 40 percent of revenues to Pennsylvania’s state general fund and 60 percent to state environmental programs and local municipalities, according to the Philadelphia Inquirer.
“What we want to do with the impact fee is allow the local counties/municipalities some flexibility in dealing with some of the environmental issues number one, but also some of the infrastructure issues that come along with the industry,” said Reed.
In the case of an impact fee, the state would give localities the ability to collect a fee on drilling within their borders, according to Reed.
Reed said details about the fee — such as rates and frequency — were not yet available.
However, environmentalists such as PennFuture President Jan Jarrett disagreed with the effectiveness of a local impact fee.
“Local officials lack jurisdiction over waterways and state roads that can be impacted by drilling,” said Jarrett in a Nov. 23 newspaper article. “So an impact fee would have limited reach.”
Sidebar: Oil and gas industry environmental violations in Indiana County
Following are recent local natural-gas-drilling-related violations, as reported annually by the state Department of Environmental Protection.
Oil and natural gas-industries racked up 43 violations in Indiana County from Jan.1 to Oct. 29, a decrease of 49 percent in comparison with 2009, according to state Department of Environmental Protection statistics.
The reduction is not necessarily a result of increased regulatory vigilance. In 2008-09, the DEP’s budget was $217.5 million; in 2009-10, its budget fell to $159 million, a reduction of 27 percent, according to an analysis by the Pennsylvania Budget and Policy Center.
And the cutting continues in the current budget year. For 2010-11, the DEP’s budget is $145.2 million, a 9 percent reduction from the previous fiscal year, according to the governor’s budget office.
Despite the cuts, enforcement continues. Five of the 43 violations affected water in Indiana County, including four “discharge of pollutional material to waters of commonwealth” violations and one “improper casing to protect fresh groundwater.”
Reed said that the fines and penalties need to be increased for these companies.
“They are obviously not at a level where it deters it from happening,” said Reed.
Oil and natural gas-industries recorded 84 violations with 24 of them affecting water in Indiana County in 2009, according to DEP statistics.
Seventeen offenses included water pollution and two “failure to notify DEP of pollution” incidents.
For the two years through October 2010, there were 127 violations with 29 affecting water in Indiana County from Jan. 1, 2009 to Oct. 29, 2010, according to the DEP statistics. Several of the companies recorded violations in both 2009 and 2010. The totals are below.
Repeat offenders, in Indiana County some of which have no official websites, include the following:
BLX Inc.: three violations
Consol Gas Co./CNX Gas: four violations
EXCO Resources PA Inc.: four violations
Penn View Exploration Corp.: 16 violations
Phillips Exploration Inc.: 23 violations
William McIntire Coal, Oil & Gas: 11 violations
XTO Energy Inc.: six violations
Other companies such as Wilmoth Interests Inc. of Marion Center, Pa., recorded 14 violations in 2009 and zero in 2010. Four violations in 2009 were related to water pollution.
Sidebar: To get involved
To get involved in the Marcellus Shale tax issue, contact Indiana County’s state legislative delegation:
Rep. Dave Reed, R-Indiana
550 Philadelphia St.
Indiana, Pa. 15701
Phone: (724) 465-0220
Fax: (724) 465-0221
Hours: Mon., Tues, Thurs., Fri., 8:30 – 4:30 p.m., Wed. 8:30 – 6:30 p.m.
Sen. Don White, R-Indiana
618 Philadelphia St.
Indiana, Pa. 15701
Phone: (724) 357-0151
Sidebar: For more information
For more information on Marcellus Shale drilling issues, contact the following sources:
Pennsylvania Department of Environmental Protection
Oil and Gas Management Program
Southwest Regional Office
400 Waterfront Drive
Pittsburgh, Pa. 15222-4745
Phone: (412) 442-4024
Fax: (412) 442-4328
The Marcellus Shale Coalition
4000 Town Center Boulevard
Canonsburg, Pa. 15317
Phone: (724) 745-0100
Fax: (724) 745-0600
Citizens for Pennsylvania’s Future (PennFuture)
425 6th Avenue Ste. 2770
Pittsburgh, Pa. 15219
Phone: (412) 258-6680
Fax: (412) 258-6685
Email: Jan Jarrett, President and CEO, email@example.com
Heather Sage, Vice President, firstname.lastname@example.org
Jeanne K. Clark, Director of Communications, PennFuturePress@aol.com
The Pennsylvania Budget and Policy Center
412 North 3rd Street
Harrisburg, Pa. 17101
Phone:(717) 255-7156 (office)
Phone (mobile): (717) 602-7667
Clean Water Action
100 Fifth Avenue, #1108
Pittsburgh, Pa. 15222
Phone: (412) 765-3053
Common Cause Pennsylvania
101 S. Second Street, Suite 3
Harrisburg, Pa. 17101
Phone: (717) 232-9951
Fax: (717) 232-9952
Conservation Voters of Pennsylvania
P.O. Box 2125
Philadelphia, Pa. 19103
Hart Resource Technologies
5035 Route 110
P.O. Box 232
Creekside, Pa. 15732
Phone: (724) 349-8600
Fax: (724) 349-8601