Some states unprepared for shale energy boom
CANONSBURG, Pa. -- Aaron Dinnin's last job was as a prison guard. Before that, he was a roofer. Today, the 33-year-old West Virginian works in a shale gas field near his home and earns more money than ever before. "This is the best job I've ever had," he says.
Expansive underground gas and oil fields being tapped in the nation's industrial heartland have brought hopes of prosperity and riches to a region that has been in economic decay for a half-century. The energy find appears richest in formations under many of the poorest parts of Pennsylvania, Ohio, West Virginia, New York and perhaps other adjacent states.
For the nation, a huge energy source near where tens of millions of Americans live is a once-in-a-lifetime development. For the region, the dream is even grander: that cheap energy will make manufacturing competitive again and restore industrial might that's been slipping away for generations.
But the new boom has the states struggling to figure out how to tax and regulate the drilling so the new-found wealth isn't just shipped via pipeline to Louisiana, Oklahoma and Texas.
In the most obvious example: Pennsylvania and New York have no severance tax on oil and gas. Ohio has a tiny one that covers only the cost of regulating the industry.
By contrast, all veteran energy states tax their energy resources heavily and use the money to keep other taxes low. Texas charges a 7.5% severance tax on natural gas and has no income tax. Oklahoma charges 7.1%. Alaska charges 25% to 50%. It has no sales or income tax, writes checks to residents every October ($1,174 per person last year) and has stashed away $41 billion for the future by taxing energy. North Dakota, now enjoying a shale oil boom, charges 5% to 6.5%. Among the new boom states, only West Virginia has a substantial tax — an old natural resources levy, a little above 5%, that applies to oil, gas and coal.
New York, which has taken a go-slow approach, is studying what taxes and environmental regulations should be imposed.
"Some states have just launched into it and are trying to catch up later on environmental regulation," says Joseph Martens, commissioner of environmental conservation in New York. "We've had the advantage of seeing what's happened there and doing it differently."
Earlier this month, Pennsylvania Gov. Tom Corbett, a Republican, signed a law imposing some impact fees on drilling, although the financial effect is unclear. His predecessor, Democrat Ed Rendell, wanted to impose a 5% severance tax. In Ohio, Gov. John Kasich, a Republican, says he's willing to consider an impact fee to help local governments offset costs such as repairing roads.
The problem: The old industrial states have tax laws that date as far back as the 1930s. Legislators then taxed what they knew: land, machines, coal, hourly income. Pennsylvania's property tax applies to coal reserves but never mentions oil or gas. In local income taxes, workers' wages are generally taxed, but the royalties landowners receive for allowing drilling on their property are not. "The conversation is just beginning on how to tax shale," says David Davare, research director of the Pennsylvania School Board Association. "We'll figure it out."
Local economic bonanza
