FROM:           State Rep. Mike Hanna, D-Clinton/Centre, and

State Rep. Rick Mirabito, D-Lycoming

DATE:            July 16, 2009

Working to protect Pennsylvanians during natural gas extraction

We would like to share our thoughts in response to Rep. Garth Everett’s recent comments regarding natural gas drilling in the Commonwealth. We firmly believe that we should move forward with extraction of natural gas in the Marcellus Shale, but that we move cautiously.

We have the opportunity and ability to ensure that our communities, and the Commonwealth, are protected during the extraction of natural gas. We need to be sure we have learned from past mistakes made during the development of our coal resources  and put provisions in place that protect our land, water, roads and environment. We have the ability to do that if we don’t rush into development.

Rep. Everett suggests a "full steam ahead" approach, which we feel would be irresponsible and jeopardize the one chance we have to protect our water supply, the environment, property rights and roads by making sure we have proper legislation in place BEFORE the rush of extraction begins. We need to make sure we are protecting ourselves and future generations from any and all possible negative effects. 

The first way to protect ourselves is to put legislation in place that would pay for costs associated with extracting natural resources. The costs (consumption of water and road damage being the most obvious) associated with extracting natural resources, particularly natural gas, is staggering.

We believe the best way to ensure these costs are paid for fairly is to impose taxes on natural gas extraction. We have co-sponsored legislation (House Bill 10) that would allow local counties to assess the value of natural gas, oil or coal production for property tax purposes. This tax would be paid by the developer or driller and NOT the property owners. Royalties from any resource extracted are NOT subject to this tax. This makes the companies earning the profits responsible for paying the costs associated with extracting it. 

Before Dec. 19, 2002, these resources were taxed at the local level similar to the way coal and other mineral resources are assessed. However, the Pennsylvania Supreme Court decided in Independent Oil and Gas Association of Pennsylvania, et al v. Board of Assessment Appeals of Fayette County that the General Assembly had not clearly recognized gas and oil as a taxable interest. House Bill 10 would correct that court decision.

In addition to the legislation, we also support a severance tax. Severance taxes are excise taxes on natural resources "severed" from the earth. They are measured by the quantity or value of the resource removed or produced. House Bill 1489 would institute a severance tax on natural gas produced within this state. The tax would be assessed at a rate of 5 percent of the gross value of the gas at the wellhead plus 4.7 cents on each 1,000 cubic feet.

Every other state that has natural resources, such as gas, oil and coal bed methane, has imposed a severance tax to help offset the cost of extraction. These states include California, Texas, West Virginia, New Mexico, Ohio and Colorado.

When Pennsylvania consumers purchase natural gas from any other state, we are paying this severance tax to the state from which the gas is being supplied. House Bill 1489 would allow Pennsylvania to charge this same tax all other natural resource-supplying states charge to offset costs of extraction.

To give an example of the costs associated with extracting natural gas, the state Department of Environmental Protection has created 37 new positions -- at the request of the industry -- to work on Marcellus Shale permitting, drilling and water issues. There are also costs associated with heavy road use, road repairs and traffic control as the drilling rigs and water trucks move into an area. A severance tax can help pay these costs to all communities, even those who may not have natural gas under their land but will be impacted by this development.

We support legislation that would return some revenue collected from an imposed severance tax to local municipalities, cities and counties to help reimburse communities for the above mentioned costs associated with Marcellus Shale gas extraction.

Finally, new legislation recently passed the House to address property enrolled in the Pennsylvania Farmland and Forest Land Assessment Law, also known as Clean and Green, which provides for preferential assessment for land devoted to agricultural use, agricultural reserve use, or forest reserve use, valued for tax purposes. When land already enrolled in the program is converted to other uses, it is subject to certain penalties, called "roll-back taxes."

House Bill 1394 would specifically address and annul roll-back taxes if land enrolled in the program is leased or otherwise devoted to the exploration for the removal of oil, gas, or coal bed methane and the development of facilities related to these activities. The bill awaits action by the state Senate. 

We also want to make it clear that the Commonwealth is moving forward with the process of extraction. DEP has issued 23 natural gas permits in Clinton County and 38 in Lycoming County. Drilling has begun in both counties. In 2009, the state Department of Conservation and Natural Resources entered into leases of state land, and we certainly need to allow the environmental experts to determine what state-owned lands are appropriate for drilling and NOT mandate any leasing of state property, as proposed by Rep. Mario Civera.

We are moving forward -- we just need to be sure we take every precaution to protect ourselves and our environment in this process.