Gas Severance Tax

Date: 2010


Severance Tax
S6610-A/A9710-A (Part A)
Unshackle Upstate, a bipartisan coalition of more than 70 business and trade organizations representing a growing group of 70,000 companies and employing upwards of 1.5 million people, opposes the article VII budget language found in S. 6610-A/A. 9710-A that would establish a 3-percent tax on the market value of natural gas severed from a gas pool in the Marcellus or Utica Shale formations using a horizontal well.
For some areas of Upstate New York, natural gas from the Marcellus and potentially Utica Shale gas pools could provide a much needed economic boost. The County of Broome recently commissioned a study on the potential economic impacts from natural gas production in Broome County.
Assuming that if 2,000 wells might someday be developed in Broome County, drilling expenditures would total $7 billion, generating $7.6 billion in local economic activity. This level of economic activity will support more than 8,100 person-years of employment. If the drilling activity is evenly spaced over a 10-year period, spending at this level would support more than 800 new jobs lasting 10 years.
In addition, drilling activity will create more than $605 million in property tax income in the form of rents, royalties, dividends, and corporate profits in Broome County alone. Finally, gas well drilling activity in Broome County will produce $42.7 million in state and local tax revenues from property taxes, sales and use taxes, and fees for permits and licenses.
If the number of developed gas wells in Broome County reaches 4,000, the impacts effectively double. Drilling expenditures will total $14 billion and total local economic activity will rise to $15.3 billion. Labor income from salaries, wages and benefits will increase by almost $793 million from the creation of more than 16,000 person-years of employment.
There is evidence that production tax placed on natural gas exploration can have a significant effect on drilling activity. A study by Penn State University entitled, "An Emerging Giant: Prospects and Economic Impacts of Developing the Marcellus Natural Gas Play," projected that a similar production tax on natural gas proposed by Gov. Edward Rendell of Pennsylvania would cause a 30 percent drop in drilling activity and an estimated $880 million loss in taxes between now and 2020.
New York is already trailing Pennsylvania in the development of the Marcellus Shale. We don't need to add a severance tax to create additional barriers to positive economic development in New York.