Category: News || By

A plan devised by McKeesport officials for revenue-sharing of Marcellus-shale gas royalties and taxes is getting a serious look from members of the state General Assembly.

The proposal released last week by Mayor Jim Brewster would benefit all of the state's nearly 2,600 townships, boroughs and cities to some degree.

Additional help is specifically targeted at struggling municipalities with stagnant tax bases (such as those in the Mon Valley) or which have a high percentage of tax-exempt, non-profit properties (such as Pittsburgh).

Brewster's plan also calls for any taxes collected on natural gas production to be shared between the state and local governments, with cities, townships and boroughs receiving shares based on their population.

City council last week unanimously endorsed the proposal. Brewster was headed to Harrisburg today to present copies of the plan to the Pennsylvania League of Cities.

. . .

"It's on the right track," State Rep. Marc Gergely of White Oak told the Almanac last week. "I liken it to how in Alaska, all of the residents receive a stipend from oil production. This is a common-sense approach."

Along with fellow Democratic legislator state Rep. Bill Kortz of Dravosburg, Gergely is promising to draft a bill adopting many of the suggestions in the proposal.

Draft legislation could be introduced by April, Gergely said, with public hearings to follow. "What we need to do now is take the mayor's proposal and turn it into legislative language," he said.

. . .

Written by Brewster with assistance from city Solicitor J. Jason Elash and city Administrator Dennis Pittman, the proposal suggests Pennsylvania share with its 2,572 cities, boroughs and townships half of any royalties collected from Marcellus shale gas wells drilled on state-owned land, along with half of any taxes collected from natural gas extraction.

"I would not get caught up in our expectations of how the money will be divided," the mayor said last week, but added "we worked pretty hard on this to make it in-depth enough to show people that we were serious."

The proposal comes less than a month after Gov. Ed Rendell asked the state General Assembly to enact a tax on natural-gas extraction beginning July 1.

. . .
Rendell asked for a so-called severance tax identical to one levied in neighboring West Virginia --- 5 percent at the well-head, plus another 4.7 cents for every 1,000 cubic feet of gas extracted.

Rendell's administration estimates such a tax would generate almost $161 million in the first year, according to published reports.

But a similar plan to tax natural gas extraction was blocked last year by the Republican-controlled state Senate, and energy firms have already voiced their objections this time, vowing to fight any future levies.

. . .

Brewster's plan notes wryly that Pennsylvania is the only one of the top 15 natural-gas producing states that doesn't have an extraction tax.

Since Pennsylvania currently imports 75 percent of the natural gas it uses, state residents are effectively paying the tax already to 14 other states, the plan says, suggesting "this makes no sense."

Under the Brewster plan, about $80 million of the money collected from a natural-gas extraction tax would be divvied up among Pennsylvania's local governments, with shares based on their population size.

. . .

Also to be divvied up among boroughs, townships and cities would be any royalties collected by the state for allowing gas companies to drill on state-owned property, such as game lands and forests.

Nearly 700,000 acres of the state's 2.1 million acres of forest land are already being leased to drillers. The state is asking drillers to pay $2,000 per acre for drilling rights, plus royalties of 18 percent on the volume of the gas extracted.

The state expects to collect $60 million in royalties from gas drilling during this fiscal year. Under Brewster's plan, $30 million of that would be divided amongst local communities.

. . .

The Brewster plan suggests that $15 million of the royalty pool be distributed equally to all of the 2,572 municipalities "as stakeholders in state-owned property."

Additional shares of the remaining $15 million would then be distributed to communities that:

• Host natural-gas drilling facilities;


• Are in Act 47 "distressed" status, including Pittsburgh, Braddock, Clairton, Duquesne, Rankin and 14 other municipalities;


• Have under-funded municipal pension plans; and


• Need tax relief because of non-profit, tax-exempt properties such as universities and hospitals.

. . .

Precedent for such a tax sharing arrangement exists already in the state's Liquid Fuels Fund. Each year, counties, boroughs, townships and cities receive shares of the state's taxes and franchise fees on oil and gasoline and use the money for road maintenance.

"We're not trying to reinvent the wheel," Gergely said. "We have to find ways to make this work. There does have to be revenue sharing, and everyone (in the legislature) should be in receipt" of Brewster's proposal.

In 2002, the U.S. Geological Survey estimated that 1.9 trillion cubic feet of natural gas is trapped in the Marcellus shale under Pennsylvania.

Combined with the state's proximity to major East Coast population centers, the state is poised for a "new gold rush" as "tens of thousands of wells" are drilled, Gergely said.

"It's a new natural resource that's never been tapped," he said. "We have to find ways to make this work."

You are previewing your comment. Be sure to click on 'Post Comment' to store it.