Morning Must Read: PA Senator Proposing 5% Natural Gas Severance Tax

State Senator Vincent Hughes of Philadelphia will unveil a plan today to assess a 5% severance tax on natural gas drilling in Pennsylvania. He told the Philadelphia Daily News that his plan will generate more than $1 billion for education by 2020:

According to Hughes, the tax would generate about $720 million in 2014-15, of which $375 million would go to schools. More than half of that would go toward local school districts, $195 million would be directed to economic development and $150 million would go to environmental uses in the first year. As natural-gas revenues rise, so would the money for education, but the amount for economic development and the environment would remain flat.

As I wrote Monday, Pennsylvania currently assesses a fee on Marcellus Shale gas wells that has the lowest extraction tax rate among 11 states examined recently by the Independent Fiscal Office — despite, as the Daily News notes, the fact that Pennsylvania is the second-largest gas-producing state in the country based on preliminary 2013 data.

And as guest bloggers Parth Vaishnav and Nathaniel Horner wrote Wednesday, replacing the state's drilling impact fee with a 5% severance tax would have little effect on drillers' internal rate of return, making it very unlikely to inhibit new drilling.

Now we just need the state Legislature and Governor to take the right steps to make it happen.


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