The People of America's Oil and Natural Gas Indusry

The Impact of Impact Fees

Mark Green

Mark Green
Posted May 18, 2015

Sometimes, amid the back and forth of discussions over energy policy, it’s helpful to talk about the real-world impacts of various policy choices.  

Right now in Pennsylvania, there's a vigorous debate going on over a proposed natural gas severance tax that would supersede the state’s existing impact fee -- vigorous because the impact fee has been good for the commonwealth, very good.

It’s been so good that some question the wisdom of swapping the impact fee for a severance tax – especially given a recent study showing that the net effect likely would be less energy development, resulting in billions in economic losses and nearly 18,000 fewer jobs supported by 2025. We’ve likened it to the proverbial folly of killing the golden egg-laying goose.

So, if the current impact fee has been good for Pennsylvania, can we be more specific? Yes. First the overview. Here’s the state’s chart showing annual revenues generated by the impact fee since its inception:

overview 

Impact fee revenues have grown from more than $204 million in 2011 to nearly $226 million in 2013, the most recent data year. Altogether, that’s more than $630 million from 2011 through 2013. The collected revenues are distributed like this:

  • About $25.5 million is sent to state agencies to offset the statewide impact of drilling. A portion of that goes to the state’s Marcellus Legacy Fund, which funds competitive grants, environmental initiatives and infrastructure projects.
  • 60 percent of the remainder goes to the Unconventional Gas Well Fund, distributed to counties and municipalities with wells for specific uses under the law, including public infrastructure; water, storm water and sewer systems and environmental programs such as trails and parks.
  • 40 percent to the Marcellus Legacy Fund – about 15 percent of which is distributed to all counties regardless of whether the county has wells, to be used for various environmental initiatives.


Let’s look at how counties and municipalities spent impact fee revenues received in 2013. The chart below breaks down county allocations of about $45 million:

counties

The largest share, more than $21 million, went to capital reserve funds, typically used to finance large building projects. Nearly $8 million was allocated to emergency preparedness and public safety. Another $5 million was earmarked for public infrastructure construction. Here’s how municipalities allocated about $77 million in 2013:

municipalities

Nearly $33 million went to public infrastructure construction while about $19.7 million was allocated to municipalities’ capital reserve funds. Other spending included allocations for storm water/sewage systems, emergency preparedness/public safety, housing and social services.

No question, the impact fee has been good for local quality-of-life spending and services, positively affecting the lives of regular people all over the state.

Likewise, energy development – especially natural gas production – has been good for Pennsylvania, supporting about 339,000 jobs or 4.7 percent of the state’s total employment, while contributing about $34.7 billion to the state’s economy and supporting at least 1,347 businesses spread all across the state’s 18 congressional districts.

The question for Pennsylvanians going forward is whether the new tax proposal is worth possibly reducing energy investment and energy activity – resulting in the effects estimated in the study cited above.

Stephanie Catarino Wissman, executive director of the Associated Petroleum Industries of Pennsylvania, during a recent conference call with reporters:

“Taxing a highly productive industry that supports thousands of jobs and generates billions in economic output and millions in tax revenues has negative economic consequences for the Commonwealth of Pennsylvania. Safe, responsible natural gas development has been good for the state economy, good for local economies and good for Pennsylvanians. We want to keep it that way. Pennsylvanian jobs matter. State lawmakers should reject the severance tax so that the benefits of energy development continue to flow.”

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.