Memo: Marcellus Works Package Asks Taxpayers to Subsidize New Markets for Gas Producers

MEMORANDUM

To: Members of the Pennsylvania House of Representatives

From: Sharon Ward, Director, Pennsylvania Budget and Policy Center

Date: April 17, 2013

Re: Marcellus Works Package, House Bills 301, 305, and 309


House Bills 301, 305, and 309 establish new state tax credit programs to create new customers for the natural gas industry. The programs are funded with General Fund dollars, from taxes paid by all Pennsylvanians, not just the natural gas industry, as the proponents claim.

In total, these three bills authorize $250 million of tax credits over six years to be granted for converting fleets of vehicles and heavy commercial trucks to natural gas, as well as subsidizing the construction of natural gas fueling stations along select Pennsylvania highways. Additional bills in the package have a total six-year cost to the General Fund of $72.5 million.

These credits are in addition to the ones authorized (and paid for) using Act 13 Impact Fee revenues. Act 13 of 2012 operates on the principle that new product development should not be funded with taxpayer dollars; these bills force senior citizens in York and working families in Pottstown to subsidize Chevron, Hess and Royal Dutch Shell. This is the worst form of corporate welfare, with little public benefit.

General Fund Cost in $ millions by tax year
  2013 2014 2015 2016 2017 2018 Total
HB 301 $25 $25 $25 $25     $100
HB 305 $5 $5 $5 $5 $5 $5 $30
HB 309 $30 $30 $30 $30     $120
Total $60 $60 $60 $60 $5 $5 $250

According to the Department of Revenue, tax collections attributable to the natural gas industry have increased by approximately $100 million from 2008 ($191.8 million) to 2012 ($303.1 million). During this same period, Pennsylvania shale gas production increased over 200 times, from 9.8 billion cubic feet to over 2 trillion cubic feet. These three credits would give back over half of the tax benefit the state receives from the growth of the shale gas industry.

When the six additional parts of the Marcellus Works package are added, the total annual cost of these credits will be at $73.5 million in 2013-14, almost as much as the Governor’s proposed increase in the basic education subsidy. Public education is clearly a public responsibility; creating new markets for well-capitalized oil and gas giants is not.

Proponents will argue that the commonwealth subsidizes other alternative fuels. There is a place for government in trying to help infant industries, particularly energy industries, off the ground. The oil and gas industry is not an infant industry – and has plenty of resources to develop its own customer base.

At a time when tax revenues are consistently falling short of estimates and a new budget has to be balanced with likely fewer-than-expected resources, this program is simply unaffordable.