Natural Gas ‘Impact Fee’ Safety Net Proposed

This year’s state budget process included some enormous obstacles, including a deficit of nearly $3 billion and hundreds of millions of new mandatory cost increases for pensions and human services.

On July 27th, the state Senate took another step to meet our Constitutional obligation and steady a sinking financial ship.  One piece of the $32 billion revenue plan included a proposed severance tax on the state’s natural gas industry, which I have historically opposed. 

In 2012, I voted for the law which created an Impact Fee over vigorous and vocal objections that it would drive the gas industry out of the state.  That law has generated over $1.2 billion in revenues statewide.  Of that amount, $200 million has come back to Bradford, Lycoming, Sullivan, Susquehanna counties and local municipalities.  In my opinion, the Impact Fee has been the most important piece of legislation to benefit rural Pennsylvania in the last 50 years by supplying valuable revenue to communities across our region. 

As the result of companies becoming more efficient with longer well laterals, the revenue generated from the state’s Impact Fee has continually regressed and fell to $173 million this year, dramatically down from $225 million a few years ago.  Longer laterals mean fewer wells and the payment of less Impact Fee funds for local governments.

The proposed severance tax, which I supported in July, establishes a floor of $200 million annually for the Impact Fee with money from the severance tax being used to make up the shortfall.  This floor ensures that counties and municipalities throughout my district will continue to receive impact fee dollars for construction, reconstruction, maintenance and repair of roadways, bridges and public infrastructure; water, storm water and sewer systems, emergency preparedness and public safety, including law enforcement and fire services, hazardous material response, 911, equipment acquisition and other services, as well as for tax reductions or other eligible uses.

Ironically, the same individuals who have criticized me for my vote supporting a severance tax on natural gas – a tax based on volume that is expected to garner $100 million annually – are also insinuating that while a severance tax on the industry is “crippling,” changing contracts and reversing millions of dollars in post-production fees on the industry will have “no impact.”

I’ve introduced legislation to provide more transparency related to deductions and require the auditing of the companies’ records to verify the validity of royalty payments.  These bills have been widely supported by PA Farm Bureau and others.  I have also said that I would support any Constitutional post-production bill should one be sent to the Senate for consideration.  After four years of discussion in the House, no bill of any kind has been sent to the Senate.

In 2013, as Chairman of the Senate Environmental Resources and Energy Committee, I was the first to hold a public hearing on this issue.  I was also the first legislator to ask the Attorney General’s Office to investigate post-production business practices impacting my constituents.  So, I take it very seriously.

Another important component of the Senate approved budget plan includes the modernization and streamlining of the permitting review process for oil, gas and other industries that are administered by the Department of Environmental Protection (DEP).  For the past year, the major complaint I have heard from these industries is the time it takes to obtain permits.  This legislation includes major permitting reforms which wouldn’t have been signed by the Governor if it were not included in conjunction with a severance tax.

Well permits, air permits and erosion and sediment control permits would be “deemed approved” if the Department fails to make a decision within the permit review periods as set by law.  Currently, the Department can deem the permit deficient and bury the permit for several hundred days.  This new provision assures that the Department must make a decision and provides much needed consistency to the industry.  Privately, this is supported by the majority in the industry.

The gas industry has also been very vocal with my office regarding their concerns over the recent general permit revisions (GP5/GP5A), which now require the industry to obtain a new well site air permit before they can begin to develop a pad site.  General permit revisions have no legislative oversight and can be finalized by simply publishing the permit in the Pennsylvania Bulletin.  The Senate plan creates a committee to review the new permits before they are finalized to ensure that our air is protected, but the industry has the flexibility to continue to develop well sites without additional burdensome regulatory constraints.  Again, this is supported by a majority in the industry.

The last major permitting reform is creating a program where third-party licensed professionals will assist the Department in getting through the backlog of permits.  This provision will assist applicants who have pending permits before the Department, whether from industry or land development. 

Every budget is a statement of priorities.  With a nearly $3 billion budget deficit, we had some tough choices to make.  If both Chambers of the Legislature do not act, the state will be functionally bankrupt come September. We can all talk about what we would like to do, but this is what we have to do. We are doing our job and governing is not easy.

State Sen. Gene Yaw represents the 23rd Senatorial District, consisting of Bradford, Lycoming, Sullivan, Susquehanna and Union counties.