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Herbein Blog

19 Aug
2012

August Energy Advisor: Upcoming Gas Drilling Impact Fees

Pennsylvania residents and agencies are still grappling with the painful budget cuts that are part of the approved 2012-2013 budget. However, a bright light for some Pennsylvania counties and municipalities is the collection of Marcellus Shale Drilling Impact fees, slated to begin in September.

PA Budget

Governor Tom Corbett signed the 2012-13 budget just fifteen minutes before the deadline on June 30, 2012. The new budget amounted to $27.66 billion in expenditures, an amount below 2008-09 spending levels and 1.5% less than last year’s budget. The new budget slashed funding in areas that hit close to home for many residents, leaving many municipalities and counties scrambling to cover cuts. Areas that saw big reductions include:

  • Classroom Education – 9.6%
  • Higher Education – 15.9%
  • Environmental – 20.4%
  • Community & Economic – 18.9%
  • Labor & Industry 13.5%

Marcellus Shale Impact Fees

Marcellus Shale Drilling Impact fees, put in place when Act 13 was passed in February, are expected to approach $180 million. The commonwealth is slated to begin collection this September with the Act setting guidelines for distribution. $23 million will be allocated to state agencies and, of the remaining amount, 40% will go to statewide initiatives and 60% to counties and municipalities. The $23 million to be taken off the top is set to help offset cuts in the state budget spending with the following distribution:

  • $6 million to the Department of Environmental Protection
  • $1 million each to the Public Utility Commission, Fish and Boat Commission, and Rail Freight Assistance
  • $750k each to the Pennsylvania Emergency Management Agency and the Office of State Fire Commissioner
  • $2.5 million to conservation districts
  • $10 million to Natural Gas Vehicle Incentives. (See prior e-blast on natural gas vehicle conversion) http://www.herbein.com/may-energy-advisor-converting-your-vehicle-to-natural-gas/)

40% of the remaining fees will be put in to the Marcellus Legacy Fund to be used for a variety of projects including bridge repair, parks and recreation, water & sewage and the environment. The final 60% will be split and distributed to counties and municipalities based partly on the number of wells:

  • 36% to counties with wells
  • 37% to municipalities with wells
  • 27% to all municipalities in counties with wells

The budget cuts have left many Pennsylvanians calling for impact fees to be used to cover budget cuts. However, Act 13 restricts how counties and municipalities may spend their portion of the 60%. Impact fees can only be used to improve:

  • Drinking & Wastewater
  • Road Maintenance
  • Social Services
  • Emergency Response
  • Environmental Programs
  • Tax Reductions
  • Affordable Housing

While the impact fees may assist localities with crumbling roads and infrastructure, it still leaves large gaps in areas like education. Here’s how several Southwestern PA counties expect to use their portion of the Impact fees.

  • Butler County stands to receive around $714,000 in impact fee revenues with a $190 million county budget. Commissioner Chairman, William L. McCarrier, has said he hopes the fees will help replace what the governor cut from the budget in allowed areas.
  • Westmoreland County expects over $1.2 million with a $300 million county budget.
  • The county will decide how to spend its portion of impact fees through 5 public meetings.
  • Greene County is expected to receive over $3 million with an annual budget of $25 million. Commissioner Chairman, Pam Snyder, said the funds will most likely be used for infrastructure repairs and other needs resulting from the shale industry.
  • Washington Co. is in line for the greatest share locally – roughly $4.5 million with an annual budget of $150 million. Commissioner, Larry Maggi, stated the impact fee funds could be used to repair bridges, water and sewers lines, and pay for the county’s conservation district. At this time the exact use is not definite.

Even with the impact fees slated to continue for the next 10 years, many municipalities are upset with the tax rate, zoning provisions, distribution methods, and restrictions placed on impact fee revenues. Currently seven municipalities have filed a lawsuit against the Commonwealth – accusing Act 13 of stripping municipalities of their constitutional rights. The lawsuit has yet to make its way through the court system but the municipalities achieved a small victory on July 26, with zoning provisions of Act 13 ruled unconstitutional. With the approved budget in place and restrictions on the spending of impact fee revenues currently set, local municipalities face challenges in determining which areas need to be cut in accordance with the new budget.

For additional information please contact the author, Alex J. Patterson at ajpatterson@herbein.com.

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