The legislative debate in Harrisburg, Pa., over a Marcellus Shale gas drilling tax or fee continues to heat up – over Governor Corbett's objections. Last week, a new study of the impact of a drilling tax was released by Penn State College of Agricultural Sciences.
The study used existing state tax information for an objective analysis of drilling's impact on local economies and state tax collection. It's summarized in a four-page booklet titled "State Tax Implications of Marcellus Shale: What the Pennsylvania Data Say in 2010".
Although it's still early in the natural gas drilling process, the analysis indicates that Marcellus Shale development is already generating positive economic activity in affected communities according to the study's co-author Timothy Kelsey, Extension ag economist and state program leader for economic and community development.
Sales tax collections indicate retail sales are booming in Marcellus counties. State sales tax collections were up an average of 11% in counties with major Marcellus activity. Collections dropped by more than 6% in counties without any Marcellus.
State tax revenues are only one side of finances, cautions Kelsey. "So this analysis only considers half of the issue." Impact of drilling on state and local government costs is the other half. "So it's too early to understand the overall impact.
"And, the analysis doesn't indicate the impact of Marcellus development on local government and school district tax collections. Royalty and leasing income is exempt from the local earned income tax, and local jurisdictions cannot levy sales taxes."
The data clearly shows higher personal tax collections and higher sales tax collections. Realty tax incomes [from land sales] in drilling counties are decreasing, but less than in non-drilling counties.
Yes, dollars are being spent in those communities. But Kelsey points out, "You don't know if it's a net gain or a net loss." Local governments are incurring increased highway repair and maintenance, greater administrative demands, changing human service needs, plus greater demands on law enforcement and the courts.
Local governments don't have the option of a sales tax. Personal income tax increases seen in the study are largely the result of leasing and royalty income. Both are exempted from earned-income tax.
"So we know that state revenues are going up. But we don't know if local tax revenues are increasing or decreasing as a result of the activity." And he concludes: "That's a huge caveat."
Single copies of the four-page report, "State Tax Implications of Marcellus Shale", are available free through county Penn State Extension offices or are downloadable from the web at http://pubs.cas.psu.edu/FreePubs/pdfs/ua468.pdf.