Impact Fees to Surge in 2021 Due to Rising Prices

After hitting an all-time low in 2020 due to the COVID-19 pandemic, the impact fees collected by the state from natural gas production are estimated to surge in 2021 due to higher prices and increased production. That’s good news for Pennsylvania communities, which are expected to benefit from $129.3 million in disbursements, after receiving just $76.7 million in 2020. The information is contained in a recent report released by the Pennsylvania Independent Fiscal Office (IFO). The impact fee was created by Act 13, which was approved by the state Legislature in 2012.

The total impact fee paid by natural gas companies in 2021 is estimated to be $233.8 million, second only to the $251.8 million collected in 2018, before the pandemic began. While a share goes to counties and municipalities, some of the money also is allocated to the Marcellus Legacy Fund, conservation districts, and state agencies. The IFO attributed much of the increase to rising natural gas prices as the global economy began to recover from the pandemic. Strong demand for natural gas, coupled with restrained production growth, increased the average annual price on the New York Mercantile Exchange to $3.84 per million BTUs, up from $2.08 in 2020. The price of gas is part of the formula used to determine the impact fee, and because it was between $3 and $4.99, the state saw an increase of $10,000 per well over 2020. In addition, an inflationary adjustment was added due to an increase in wells spudded. Total collections were also affected by aging wells, which generally pay lower fees than newly drilled ones. “This impact for 2021 is largely driven by nearly 3,200 wells that entered operating year 11 for the first time, in which they pay half the fee amount that they paid in operating year 10,” the report states. That will reduce the total by $10.4 million. The report also found that the effective tax rate, which is based on fee revenue, production, and gas price, will be just 1.3 percent in 2021, the lowest on record. Pennsylvania does not tax natural gas based on production, as some other states do, instead using the per-well impact fee.

Washington County was the top recipient of impact fees in 2020, at $4.475 million, and Greene County was the fourth highest at $3.396 million. They, along with Pennsylvania’s other counties, are expected to receive significantly more when the impact fees are distributed in April.