Why Natural Gas Companies Love Pennsylvania

I've mentioned in a previous post (PA Is All Fracked Up - Feb. 2, 2013) and in tons of social media comments my disdain for Pennsylvania's lack of a severance tax for natural gas companies based on the volume of gas that they extract and ship to market in PA.  PA's convoluted surrogate for a severance tax is nothing more than corporate welfare to gas companies doing business in PA.

Well extracting natural gas near residences in Washington County, PA.
 (photo credit: State Rep. Jesse White - supportjesse.com)

PA and Alaska are the only two (out of 32) gas-producing states in the country that do not charge gas companies a severance tax based directly on the value of the gas they produce (although Alaska does have a very unique and effective tax system for oil and gas produced in their state).  Instead, we in PA have what Gov. Corbett has decided to call an "impact fee" charged to gas drillers per well rather than based on the volume and market value of the gas produced.  It's a deliberately complicated program that was designed by the governor and his cronies to NOT look or sound like a severance tax in any way, because Corbett took Grover Norquist's Anti-Tax pledge when he ran for office in 2010.  So because of our governor's pledge to a Washington lobbyist, as PA's natural gas production increases, the impact fees paid by the gas companies effectively remain relatively flat.  The Pennsylvania Budget and Policy Center has put out one of the better analyses that I have seen on PA's impact fee.  The PA Budget and Policy Center is a project of the non-profit Keystone Research Center.

If gas companies operating in PA are getting what amounts to a tax break by having avoided a severance tax, you might think that their lower costs of doing business in PA would mean that PA's landowners who have leased their land to drill natural gas wells would be seeing handsome royalty checks. Unfortunately, that is not the case.  A news story I read yesterday from Pittsburgh's Tribune-Review described marketing and transportation fees that gas companies are deducting from the royalty checks sent to landowners.  While these deductions can only be evaluated on a case by case basis to determine whether they are contractually legitimate, the larger question is whether it is legal for these deductions to take the net royalty payments below the state-minimum 12.5%.  These deductions seem like a duplicitous means of paying less than the legal minimum percentage of royalties to landowners who lease their land to gas companies.  If so, it would mean that the gas companies are getting both a break on the severance tax from the state and a break in royalty payments by passing on some of their costs of doing business to landowners.  What Gov. Corbett has created in PA is not a business-friendly climate but rather a climate in which the deck is stacked in favor of businesses with PA residents getting fleeced.

Before I finish, I want to make one more point about the counter-effectiveness of PA's current impact fee system.  By keeping impact fees much cheaper than severance taxes in other states, the price of PA's natural gas is made artificially low.  This artificially cheap natural gas becomes an attractive commodity to export overseas.  That's great news for the U.S. trade deficit, but the net effect is that every cubic foot of PA's natural gas that is shipped overseas is one less cubic foot of gas available domestically to bring us closer to energy independence as a nation. And even though I enjoy paying less for my natural gas right now, we need to critically evaluate claims by Gov. Corbett and the natural gas industry that development of PA's Marcellus Shale gas fields will bring the U.S. closer to energy independence as they have promised.

Opening up the overseas market significantly will increase demand significantly and will drive up the cost of natural gas for U.S. consumers, according to a recent article in Bloomberg Businessweek.  Gas producers are seeking to market U.S. natural gas to overseas markets, because natural gas prices in some countries are three times what U.S. consumers are currently paying.  If the domestic supply of natural gas has to equilibrate with global demand and global prices, the U.S. will remain dependent on our current mix of domestic and foreign oil.  The U.S. crossover to natural gas for vehicles and industry that is currently touted by many will lose it's economic incentive to materialize. We all need to let our state representatives know that PA's current natural gas impact fee system is a sham that needs to be overhauled.

Open Space Preservation: An Ounce of Prevention is Worth a More Than a Pound of Strip Malls

The Back Story
As I've mentioned in other posts, I chair my township's Environmental Advisory Council (EAC).   The seven EAC volunteers are appointed by our township's Board of Commissioners to advise that board on environmental matters affecting the township. The Commissioners usually reject our recommendations for a variety of reasons.  Conventional wisdom would say that our EAC's recommendations are typically at odds with the pro-development sentiments of most of this Board of Commissioners.  I've pointed out in a couple previous posts that, on our board of five commissioners, two are Realtors and a third is CEO of the local Association of Realtors.  And this Board of Commissioners presides over what has been the fastest growing municipality in Pennsylvania for the past 10-15 years.

With the excessive growth in population and associated loss of farmland over the past 20+ years, lots of residents are up in arms about any new developments that are approved in our township.  The two biggest concerns are increased traffic and loss of open space.  This open space provided a semi-rural feel to our 22 square-mile township that was present when many of the 31,000 current residents either moved here or grew up here.  But there is noticeably less undeveloped open space remaining.

The Status Quo

Allen Distribution warehouse (photo credit: allendistribution.com)

Many of the residential, warehouse, and commercial strip mall developments that we now have or have been approved and are waiting to be built were once some of the most fertile farmland in Pennsylvania.  As owners of family farms neared retirement age, with no children interested in continuing in the family business, farmers understandably sold their land to developers eager to build bedroom communities in close proximity to I-78 and less than half an hour from the New Jersey border.  So should we try to gerrymander the current zoning map to stop the remaining farmers, who are our neighbors, from cashing in on their nest egg?  That would be pretty un-neighborly, probably illegal, and not likely to happen under the current Board of Commissioners.

Part of a contentious, 700-acre project that recently saw over 600 acres rezoned from Agricultural Preservation to combinations of Light Industrial, Commercial, and Residential. This owner was not a mom & pop farmer; he is a corporate farmer with a long history of paving fertile farm fields to build warehouses. photo credit:  Morning Call (mcall.com).

How to Be Proactive
Rather than risking an adversarial relationship with our remaining farmers, whether they are mom & pop farmers or industrial operations, it seems like a more reasonable option might be for the township to purchase key tracts of remaining farmland and other open space, at market value, to prevent additional traffic from gridlocking us and prevent paving over our remaining green fields with more asphalt.  Sounds great, but it also sounds costly.

Our township currently has no property tax.  Until sometime in the 1980s, we had a property tax.  But it was eliminated, because the township was receiving so much fee revenue from developers building new housing developments.  In addition to development fee revenue, the township assesses residents a 1% earned income tax.  With an earned income tax, retirees and others on limited incomes aren’t saddled with paying a tax on what might be their only significant asset. And although the township has a reserve fund of several million dollars, that fund would not last long if we use it to buy up open space properties.

Therefore, our EAC has proposed that the township hold a referendum for residents to decide whether to institute an Open Space Tax to raise funds for the township to purchase some of the remaining open space in the township.  Voters in forward-thinking municipalities in Pennsylvania have been authorizing this sort of thing for the past two decades to preserve open space.  Some municipalities have done it by borrowing paid for by bonds, and others have done it by taxing.  Most Open Space Taxes are an earned income tax (0.25% is the most common rate).  And many Open Space Earned Income Taxes are capped at five-years, after which they would have to be re-authorized by voters.  Our Board of Commissioners’ Budget & Finance Committee has not rejected our proposal yet.  Instead, they requested us to provide a report on all available financing options so that they can make a more informed recommendation to the full Board of Commissioners.

This should not be a difficult decision for our commissioners.  We are asking them to authorize a referendum to let the voters decide.  That way, no politician has to be worried about publicly voting for a new tax.  If our commissioners authorize the referendum, our residents can decide if open space is important enough to pay an additional modest tax for a limited time to fund buying land for preservation before developers buy it. Preserving our open space will preserve our property values (assuming that excessive traffic and suburban sprawl have negative impacts on real estate values).  And our remaining farmers can still cash in on their farmland nest egg to fund their retirements.  Sounds logical, like a win-win.  Stay tuned.

Home. (photo credit: GoogleEarth)

Save the Salmon: How Pebble Mine is Poised to Suck the Life Out of Bristol Bay

(photo credit: wildsalmoncenter.org)

I've been intending for the past several months to write a blog post about the looming crisis in Bristol Bay, Alaska.  The synopsis sounds like a classic Hollywood script pitting Native Americans and mom & pop commercial fishermen against an aggressive and well-connected mining company that sees Bristol Bay as an obstacle in their quest for mineral wealth.

The proposed Pebble Mine would be located on state lands in southwestern Alaska and, if built, would be the largest gold and copper mine in the world.  What is at stake is the water quality of the nearby Bristol Bay.  A recently released research report from the University of Alaska placed the annual value of the Bristol Bay commercial salmon fishery at $1.5 billion, making Bristol Bay the most valuable wild salmon fishery in the world. The same report also valued the direct annual income for Americans working in the Bristol Bay salmon industry at $580 million. Bristol Bay's salmon industry supports 7,800 full-time jobs, 12,000 seasonal jobs, and creates a positive ripple across the country when one considers the multiplier effects of distribution and retailing in grocery stores, restaurants, warehousing services, etc.

Native Alaskan drying salmon.
(photo credit: renewableresourcescoalition.org)

Aside from the dollar signs that swim around the Bristol Bay controversy, there is also a less flashy aspect to what is at stake.  There are thousands of Yupik Eskimo, Aleut and Athabaskan tribal members currently living in the Bristol Bay region and whose ancestors have been fishing these waters for thousands of years.  These Native Alaskans are subsistence fishermen, with wild salmon comprising an average of about 52 percent of their families' diets.  So it is not only sockeye salmon that rely on the clean water in Bristol Bay and its tributaries. 

Native Alaskan eating salmon. (photo credit: nrdconline.org)

As part of their review of the proposed mining operation, the EPA prepared an extensive scientific review, the Bristol Bay Watershed Assessment, detailing the potential impacts of large-scale mining in the Bristol Bay, Alaska, region.

The mining company, the Pebble Partnership, is playing a high-stakes political game which, if they win, will have tragic adverse impacts on critical wildlife habitat in a region that relies on fishing and hunting tourism in addition to relying on the sockeye salmon fishery itself.  The EPA's Assessment found that even without a catastrophic spill or a series of harmful smaller spills, up to 87 miles of salmon streams and up to 4,300 acres of salmon habitat would be likely be destroyed by the proposed mining operation. Now try to wrap your head around this nugget:  the scale of the proposed mining operations would mean that up to 10 billion tons of toxic mine waste must be stored, treated, and monitored "in perpetuity."

Come on.  Who thinks for one minute that Pebble Partnership's investors would actually forgo a dime of profit to stash away billions of dollars to store, treat, and monitor their mining waste in perpetuity?   The U.S. Office of Surface Mining estimates that there are currently about 400,000 acres of abandoned mine lands in the United States.  “Abandoned” means that these former mine lands are waiting for federal tax dollars to become available to clean them up, because the mining companies that made the mess packed up and left, often shifting assets and filing for bankruptcy to avoid liability for the reclamation. The mining industry simply does not have an acceptable track record of sticking around to clean up after themselves.

Salmon spawning run. (photo credit: treehugger.com)

  As a Licensed Professional Geologist, I am acutely aware of the unavoidable adverse effects on surface water of even just a modest mining operation.  There is no doubt in my mind that the proposed Pebble Mine would irreversibly harm an economically important salmon fishery and the thousands of people whose livelihood depends on the health of that fishery.

The EPA holds a wild card in the form of the Clean Water Act.  The EPA can invoke the Clean Water Act to restrict inappropriate development activities such as the proposed Pebble Mine.   And the EPA is accepting public comment on their Bristol Bay Watershed Assessment until May 31.

So here it is, at the 11th hour.  This is my blog post in which I beg anyone reading to submit a comment to the EPA asking them to invoke the power of the Clean Water Act to prevent wholesale, large scale, irreversible damage to Bristol Bay's water quality and to give a break to all of the wildlife and people who rely on Bristol Bay's ecosystem for their survival.

Regardless of how far from Alaska you might live, our collective voices can be heard by the EPA:  Save Bristol Bay.  Here is a link that you can use to email your comment directly to the EPA on this critical situation:

http://takeaction.savebristolbay.org/savebristolbay/issues/alert/?alertid=62627501

(photo credit: counterpunch.org)