Pa’s Impact Fee Payments Expected to be Lower in 2024

Counties and municipalities across the state of Pennsylvania will receive almost 9% less in impact fees paid by unconventional natural gas well drillers than in 2023, a state agency is forecasting.

The Pennsylvania Independent Fiscal Office recently released its 2024 impact fee estimate, which projects that $163.8 million will be collected, down $15.8 million from the 2023 total of $179.6 million. “The decline in collections is largely due to a significant decrease in new wells that pay the highest fee and help offset reduced collections from older wells,” IFO report states.

The IFO estimates that 320 wells will be drilled in 2024, a drop of 103 from the previous year, due to natural gas operators pulling back on drilling due to continuing low prices.

The 2023 amount was almost $100 million lower than the record $278.9 million in 2022. That inflated amount was largely due to a spike in the price of natural gas to more than $6 per metric million British thermal units (MMBtu) as demand from European countries increased and economic activity surged after the COVID-19 pandemic, triggering the highest fee that operators must pay.

The impact fee was instituted in 2013 as part of Act 13 after the rise of unconventional drilling in the Marcellus and Utica plays in the state. It is based on a formula that takes in the average annual price of natural gas, production amounts, and the age of the well, with new wells being taxed at a higher rate than aging wells. The majority of the money is distributed to counties and municipalities based on the amount of drilling there, with portions going to the Marcellus Legacy Fund to help finance environmental and infrastructure projects, and other amounts used to help fund several state agencies and conservation districts.

A mid-year IFO estimate also predicted lower impact fee revenue. Through June, the price of natural gas was just $2.07 per MMBtu, a 25% decrease from the 2023 average price of $2.74. The IFO predicted gas prices would rise through the remainder of 2024 and they are now hovering around $3 per MMBtu. Still the year-end totals will be the lowest since 2020.

County and local governments need to be aware of the fluctuating nature of the impact fee payments, which are distributed in April based on the previous year’s revenue. Many local governments use the money to help pay for infrastructure, emergency services, and other capital projects.

Western Pennsylvania counties and communities, which are in the heart of the Marcellus shale play, receive large amounts of impact fee revenue yearly. Washington County holds the top spot among counties for impact fee revenue according to the PUC Act 13 website and received $5.5 million in 2023, followed by Susquehanna County in northeastern Pennsylvania at $5.4 million, Bradford County with $4.3 million, and Greene County with $3.8 million. Municipalities within those counties also receive substantial payments.

The drop in the number of wells drilled is also affecting the state Department of Environmental Protection because its Oil and Gas Program depends on new permit application fees for its revenue. A large budget gap is expected, according to the PA Environmental Digest, along with discussions on other potential ways to fund the program.