To The Editor: Severance Taxes, and the Under-Appreciated Downside of Home Rule

This is a snippet from the 2011 assessment roll for the Town of Smyrna, Chenango County, NY.  (Click it into a new window to see it all clearly.)  The taxable real property shown is not a Downstater's McMansion, or an Upstater's Fourth-Generation Dairy Farm — assessed at nearly $3.6 million, or a full market value of $5.5 million and some change.  Instead, it's the Corey 1, a/k/a the Corey 2H, a natural gas well drilled horizontally in Herkimer sandstone by Norse Energy during the Winter of 2008-2009.  This is a conventional gas well, but I acknowledge it is not an average representative of that group.  State records online from 2010 show it was then the Number 1 producer in Chenango County, and Number 9 statewide. 

Two points on this:

First, I've read some recent belly-aching from certain officials in Ithaca's brainy Tompkins County, complaining about the purportedly uncompensated burden of maybe someday having to add unconventional shale gas wells to this same record-keeping system.  But one can readily see that the civil servants in rustic Chenango County didn't seem to have much trouble adapting.

Second, anti-drillers have long spread the mantra, "There's no severance tax in New York."  But this graphic belies that claim as yet another example of Sneaky Misdirection:  There is a severance tax in New York!  It's derived from a state formula, based on oil and gas production, and efficiently folded into the familiar local property tax system.  As with McMansions and dairy farms, these taxes feed towns, counties, and, in this case, the Sherburne-Earlville School District.  But, no, it's true, they don't feed coffers spent statewide by Albany — which doesn't bother me in the slightest.  So there's your Nugget of Truth in a Gold Field of Opportunity.

Responding to letters on shale gas, from The (Syracuse) Post-Standard, March 29, here and here:

Severance Tax — "Unlike most states, New York does not have a severance tax — levied before extracting..."  Wrong on three levels:  The writer is describing an impact or permitting fee, not a severance tax — which, by definition, is based afterwards on production.  New York already collects permit fees, in line to go higher.  And we already have a local severance tax — in all but name.  Oil and gas wells pay property taxes under a state-supervised formula covering a rolling average of production.  Local governments in productive Marcellus, Utica or Upper Devonian shale zones will spend this money — not unaffected Downstate, or Thruway corridor cities.  It's okay with me if opponents want to argue this tax should go higher, but I won’t stand for their continuing to mislead the public on this point.

Oversight — repeated worries over the sparseness of DEC staffing levels, using a now-outdated forecast for drilling.  The Cuomo Administration has already repeatedly said the costs of regulation will be borne by the regulated, through fees, and that staffing will ramp up over time, paced with drilling, and occasionally suppressing it, if necessary.  Under the current economics of natural gas oversupply, and of New York's plan to lay out the toughest rules in the world, drilling is likely to go much more slowly than some have hoped, and others feared.

Cumulative Impacts.  Of course shale gas has impacts, and, therefore, cumulative impacts.  Claims these haven't even been analyzed are simply not true — based on the DEC's world-class, 1,000-page study.

But the Really Big Cumulative Picture here — to which some in the environmental community now flinch, when it's disruptive to their persuasive motivations — is that all energy sources have impacts.  Shale gas should be analyzed in that context, not as a Stand-Alone Demon.  Much used to be written about coal, but that must be passé now.  Nuclear, renewables, and even conservation — all have impacts.  And what about the unacknowledged 700-Pound Gorilla in the Room?  What are the cumulative, fully externalized impacts of our oil-protective foreign wars?

Water — "Hydrofracking should not go forward until there are workable disposal solutions."  I'm down with that.  But some eyes must glaze over anytime they’ve faced reporting on the solutions that have already evolved.  PA operators now treat and recycle 90 percent of flowback water, simply reusing it on the next frack job.  Zero-discharge treatment enterprises have sprung up — a helluva business opportunity for an unemployed graduate of SUNY ESF.  Frackers are also starting to use alternate hydraulic media that significantly reduce the perceived burdens of water consumption or treatment.

Home Rule.  If towns in suburban Ithaca want to ban alcohol, roosters, gravel mining, and drilling — seems like it’s no skin off my back.  (Except maybe a nagging fear for the freedoms that individual townspeople must surrender to appease over-zealous town boards, and a budding resentment that this sort of NIMBY behavior — all the benefits of the modern world, but none of the burdens — is inherently selfish and anti-community.)

The Big Picture Again:  I'm here in Syracuse, making coffee, running a computer, and I just heard my furnace switch on again.  My kilowatts come by wire — over easements across somebody's private land — from a locality like Oswego County's Scriba that didn't forbid power plants, not even nuclear.  The natural gas I burn was drilled, fracked and piped out of mostly private lands, in distant places where local governments have been wisely restrained from behaving in panicky ways.

At what point does the Mania for Home Rule become an Abuse of Commerce?  Further balkanizing this state so thoughtlessly will eventually throttle benefits to end consumers — to say nothing of my fellow New Yorkers who need jobs, and landowners who need income.

That’s not my community.

Andy Leahy

Blogging and tweeting as:  NY Shale Gas Now