Frackers Find Good Friend in Gov. Corbett

What sort of imagery runs through your mind as you gaze across the endless expanse of North Dakota? Perhaps miles of snow-covered prairie land punctuated by barbed-wire fences, like in the movie "Fargo."

Blink one time and this is what you might see: Flocks of job-seekers converging on a state flush with enough cash to pursue job-creating public works programs; a state poised to make significant cuts in its property tax. That sure beats snow-covered prairies.

North Dakota's budget surplus has ballooned to $1.6 billion, the result of tax collections from a prosperous energy economy. Specifically, the state has cashed in on the type of natural gas exploration called hydraulic fracturing, or fracking, by imposing an 11.5 percent severance tax on drillers. North Dakota's unemployment rate is 3.0 percent.

Now, let's adjust our gaze to Pennsylvania, and see what's booming there. It seems that after months of vacillation, Gov. Tom Corbett agreed to release $45 million to Philadelphia's public school so that they could rehired 80 counselors who had been laid off in another budget crisis. Since becoming governor, Corbett has presided over $1 billion in cuts to public education. Those barbed wire fences are looking mighty good right now.

Some call Pennsylvania the Saudi Arabia of natural gas. The state sits on top of a large shale gas formation called the Marcellus Shale. The extraction of natural gas from this shale is done by the same process of hydraulic fracturing as they do in North Dakota. Fracking's threat to the environment is palpable, and battle lines have been drawn. New York State instituted a four-year moratorium on hydraulic fracturing; Vermont banned it outright. On the other hand, the US is set to be the largest energy producer in the world by 2020, and a net exporter of natural gas...with big-time consequences for our national security and state budgets. So where does that leave Pennsylvania's state budget?

Pennsylvania was the only state with abundant energy resources in 2012 that did not tax natural gas producers...despite the fact that it has issued over 10,000 drilling permits (it denied a mere 36). The decision not to tax was at first due to a couple of scholarly studies that forecasted that natural gas drillers would shun the state if taxes were imposed. it was later revealed that the 2009 study was funded by the Marcellus Shale Coalition (more about them later), the drilling industry trade group. A 2012 study was similarly tainted.

With our state bogged down by industry lobbyists and research with questionable results, other energy-producing states moved swiftly to get a fair return of their natural resources. At total of 28 states (and counting) passed laws to impose a severance tax...a tax based on the volume or value of natural gas production.

By 2012 Pennsylvania has still not found the political will to pass a severance tax. (Even conservative Texas got its severance tax: 7.5 percent on natural gas and 4.6 percent on oil, which brought the state $2.7 billion in revenue in 2011.) Gov. Corbett, who took office in the 2010 Republican wave election, nixed his predecessor's (Ed Rendell's) five percent severance tax proposal. But the Great Recession slowed federal dollars...folks were yelling about truck at drilling sites with out-of-state plates...something had to be done.

The legislature came up with a solution: an "impact fee" on natural gas drillers. It's not really a  tax, you see...it's a fee. Corbett was delighted: "I reminded many people that companies were already paying taxes...corporate and sales taxes...their employees pay their income taxes." The Pennsylvania Budget and Public Policy Center tried to explain the fee part: "The impact fee generates revenue based on the number of wells drilled, the number of years since the well was drilled, and the price of natural gas...rather than the value of gas production." You got that?

So here is where the rubber hits the road. The impact fee generated for Pennsylvania's coffers and estimated $202 million in 2011 and $204 million in 2012. Had the Corbett administration simply adopted the severance tax formula of neighboring West Virginia, our state would be reaping an estimated $532 million in yearly shale gas production by 2014. A modest 4 percent severance tax would bring in $1.2 billion annually by 2019-20, three times as much as the $382 million that would be generated by the impact fee. That's a lot of school books.

To this day, Gov. Corbett, who's running for reelection in 2014, remains combatively opposed to a severance tax. Maybe one reason lies in all of that money the oil and gas industry has given Corbett over the years: $1,042,116 for his campaign for governor, and $361,207 while he was attorney general, according to the Center for American Progress. Corbett has a natural ally in the Marcellus Shale Coalition, which predictably issued a press release in mid-October stating that "new energy taxes will reduce development in Pennsylvania, and more capital--not less--will be directed to other states." Jon Geeting of Keystone Politics countered that succinctly: "If it's profitable to drill, gas companies will drill. If it's not, they wont. Severance taxes don't appear to be reducing investment in every other state. [Emphasis mine.]

Pennsylvania's fortunes for getting sufficient funding for education, infrastructure and other priorities through a fair tax on natural gas fracking may have been sealed last week by a report on the prospects of the Pennsylvania governors race. The highly-influential Rothenberg Report, which handicaps every political contest in the country, has changed its appraisal of the 2014 race from "toss up" to "leans Democrat." As our vice president would say, that's a big fracking deal.

--By Andrew Goutman