Lawmakers Slow to Understand This Drill

Pittsburgh Post-Gazette
17 June 2010
By Brian O'Neill

Maybe you can figure this one out.

The state government is broke. Again. The red ink reached $1.23 billion at the end of last month, and this could be the eighth straight year our oversized Legislature fails to pass a budget by the June 30 deadline.

We may finally catch a small break, though. Pennsylvania is sitting on a fortune in natural gas. All the other states with natural gas drilling -- Texas, Alaska and Oklahoma prominent among them -- have a gas extraction tax, as does our neighbor, West Virginia.

Some reasonable tax is overdue here in Pennsylvania, so the Legislature is sure to pass one this year, right?

Not on your autographed picture of BP boss Tony Hayward.

I tuned in PCN the other day to watch the state House debate this issue. Gov. Ed Rendell has advocated a 5 percent tax like West Virginia's, which would put us in the middle of the pack among states with an extraction tax.

Democratic leaders upped the proposed tax to 8 percent of the value at the drill site and 8 cents per 1,000 cubic feet extracted. But Republicans were wary of imposing any tax on this so-called "new industry." (News flash: We've been drilling for fossil fuels in Pennsylvania since 1859.)

Some Democrats differed with their leaders, too, on how to structure the tax and how to split the revenue among the state's general fund, its environmental protection arm and local governments. So they kicked the entire tax package back to the Appropriations Committee.

Before they did, though, Democratic Rep. "Teflon Bill" DeWeese, of Greene County, had some fun chiding the Republicans about how the home states of George Bush and Sarah Palin don't have any problem with this kind of tax.

"I have to think if it's good enough for Sarah," Mr. DeWeese said, "it's good enough for us."

Understand, there's no way to balance the budget with this tax alone. You can throw in the cigar tax and the other revenue proposals and, as House Appropriations Committee Chair Dwight Evans of Philadelphia said, lawmakers will still have to make $600 million in cuts.

We're that broke.

John Hanger, the secretary of the Department of Environmental Protection, knows that a reasonable tax here isn't going to discourage any drilling. The state already has issued permits for 3,800 Marcellus Shale gas wells and about 1,800 of them have been drilled. In about four years, Mr. Hanger said, Pennsylvania "will be well north of 10,000 permits and close to that number drilled."

At that point, we'd be producing about 10 percent of the nation's natural gas.

"There's literally a bull's-eye on Pennsylvania around the world," Mr. Hanger said. "That's basically a good thing as long as we're smart about it."

He may be wrong about the bull's-eye being literal, but the biggest players in the field are coming here from overseas. Royal Dutch Shell PLC, Europe's largest oil company, is buying East Resources, a gas driller based in Marshall, for $4.7 billion.

Profits from drilling here will go off-shore and certainly out of state, but right now gas drilled here is being delivered untaxed to New York City via pipelines, while gas consumers here are paying the taxes to Texas, Oklahoma and the rest, Mr. Hanger said.

"We can't be chumps and we can't be played for chumps about it," he said. "This industry is laughing all the way to the bank."

This gas boom arrived quickly. Pennsylvania issued its first Marcellus Shale permit in 2005 but drilling didn't pick up momentum until 2008. Many didn't notice at all until a couple of gas well mishaps in Clearfield County and Moundsville, W.Va., attracted attention this month. Of course, BP's disastrous operation in the Gulf of Mexico also has reminded everyone that billion-dollar drilling operations have their downsides.

Sen. Jim Ferlo, D-Highland Park, wants a one-year moratorium on all new Marcellus Shale drilling -- and a severance tax on wells already drilled because tens of millions of dollars already have been lost.

Balancing the budget is, actually, the least of the reasons for this tax. Pennsylvania has seen 4,000 miles of streams destroyed by coal mines. Those companies are long gone and "the bill is passed to the taxpayer or Mother Nature," Mr. Hanger said.

We can't repeat such mistakes. Oversight needs to grow to keep up with the drilling boom. "There's no such thing as zero-impact drilling," Mr. Hanger said.

Up-front money is key. Because if there's any lesson to learn from oil-scarred beaches of the Gulf, it's that when strict oversight doesn't come until after an accident, it's already too late.

Brian O'Neill: boneill@post-gazette.com or 412-263-1947.