Natural gas industry’s benefits to Pa. debated

As Gov. Tom Corbett continues to oppose a direct tax on companies that drill for natural gas, two assessments of how much Pennsylvania’s natural gas industry currently contributes to state coffers come to two very different conclusions.

The two reports released within the last week come at a time when state Sen. Joe Scarnati has proposed a $10,000 “impact fee” on each individual gas well. That revenue would go to communities where drilling takes place rather than the state’s general fund.

Other state lawmakers, such as Rep. Greg Vitali, continue to push for a direct tax on the amount of gas the industry extracts from the underground rock formation known as the Marcellus Shale.

“These are huge, profitable companies and they pay these taxes in other states and they ought to be paying them in Pennsylvania,” Vitali said.

Pennsylvania remains the only state that does not tax natural gas industry directly.

In the meantime, industry representatives claim the companies already contribute in the form of permits, wages, sales and corporate taxes.

But a report put out last week by the liberal-leaning Pennsylvania Budget and Policy Center says the industry overestimates its contributions. The report says the gas industry benefits from loopholes that reduce corporate income tax. Furthermore, 85 percent of natural gas companies in the state paid no corporate taxes in 2008, according to the report claims.

On Monday, the state Department of Revenue responded with a release of its own. The state’s numbers contradict the think tank’s calculations and instead, back up industry claims.

While the Pennsylvania Budget and Policy Center reports that the natural gas industry paid only about $40 million in business taxes in 2008, the state reports revenues of more than $1 billion since 2006.

Why the gap? Because the state analysis casts a wider net, and looks at a longer time period. On the other hand, the policy center looks just at corporate taxes paid by the industry in one year.

The Department of Revenue calculations include income and sales taxes that result from drilling. The state report also counts taxes paid by companies that support the industry, such as those that lay pipes or produce sand.

Stephen Mullin, vice president of the consulting firm Econsult, said that when considering costs versus benefits, the state’s assessment is more appropriate.

“I do think that the appropriate thing from the state’s point of view is to look at all of the revenues and all the employment that is generated directly or indirectly by drilling activity,” Mullin said.

The problem with both reports, Mullin added, is that neither one attempts to calculate the costs of drilling.

Robert Inman, a professor at the Wharton School of the University of Pennsylvania, said all the focus on what the industry currently does and does not do may be irrelevant. Inman says the state should get a slice of the industry’s profits.

His solution would be to “design a good tax to extract and share in the profits earned by those particular gas locations and direct the revenue to other worthy state activities.”

As long as the tax does not make drilling unprofitable for the industry, Inman said, the energy companies are here to stay.