counterparts overseas because they have to be more trans-
parent and accountable, Rabe said. “States like North Da-
kota and Colorado started setting funds aside to hire more
staff and started returning money to communities,” he said.
“When you have a severance tax in a particular region, the
state vs. local jurisdiction question emerges. This area hasn’t
been looked at much, but it can be every bit as contentious
as state vs. federal powers.”
State governments work hard to remain the primary re-
source tax collectors from production on nonfederal acreage,
resisting not just federal efforts to impose levies but also lo-
cal initiatives aimed at regulating activity, Rabe said.
When then-Pennsylvania Gov. Tom Corbett (R) signed
a modest community energy development impact fee into
law in early 2012, it included specific conditions communities needed to satisfy before receiving the money, he said.
“That first year, seven such communities didn’t receive impact funds,” he said. Corbett also lost his 2014 reelection bid
to Democrat Tom Wolf, whose campaign platform included
raising the commonwealth’s oil and gas severance tax to help
fund education.
More states also are looking hard at which approaches
have, or have not, worked elsewhere, he said. “So much of
Alaska’s economy is based on citizens receiving their December oil and gas production dividends,” Rabe said. “Those
can’t be touched, so the state’s options are severely limited.
Revenue review delayed
“So much money has come into Alberta’s coffers from oil
sands production and has gone right out again that there’s
little left in its budget,” he said. “That’s why [Premier Rachel
Notley] has begun to talk about establishing a trust fund,
while the oil revenue review she launched has been delayed.”
He noted that Norway’s trust fund, which many state and
national governments consider the most successful, even
mentions pensions, which implies providing assistance to
senior citizens eventually. “In the US, that would be like
partially funding Social Security with oil and gas revenue—
which isn’t going to happen anytime soon,” he said.
Rabe said states also are seeing conflicts-of-interest develop within agencies that both collect severance taxes and
promote oil and gas development. US Interior Sec. Ken
Salazar identified such a conflict within the US Minerals
Management Service during US President Barack Obama’s
first term, and started restructuring the agency by spinning its revenue collection responsibilities off into a new
energy royalties and revenue department elsewhere in the
department.
“Almost with the passing of each month, we see a new
consequence from shale resource development which was
not anticipated,” Rabe said. “Oil trains are a recent dramat-
ic transportation example, with issues that still need to be
worked out.”
He also suggested that federal interest in reducing flaring
Unconventional production
raises unexpected tax
questions, forum told
Nick Snow
Washington Editor
Unconventional oil and gas resource development has raised
unexpected taxation questions that potentially could strain
federal, state, and local government relationships, a public
policy scholar at the Woodrow Wilson Center for International Scholars said.
State governments in particular are considering whether
severance taxes need provisions to set money aside strictly
to help counties and communities cope with development
impacts, or to place a portion in a state-administered investment trust that can’t be raided if plunging commodity prices
reduce revenue, said Barry Rabe, who also is a professor at
the University of Michigan’s Gerald R. Ford School for Public
Policy.
“There are several triggers built deep into tax codes,” he
said in a Sept. 1 presentation hosted by the Wilson Center’s
Canada Institute. “It’s an unexplored area, but I wouldn’t
be surprised to see more of this in the next stage of tax re-
forms—possibly even reverse triggers to reduce a tax if pric-
es fall very far.”
Severance taxes have a history dating back to before the
Civil War, when Texas enacted its first such levy to try and
capture revenue during an economic boom for broader pub-
lic good, Rabe said. They appeal more to Republicans than
Democrats because they usually export the taxation impact
out of state and away from voters, he said.
“States which tend to be Republican tend to have the
highest severance taxes, which often are a substantial portion of their general revenue,” Rabe said. “Texas Gov. Rick
Perry has not had to worry much about education funding
because of the severance tax’s substantial contribution, and
Ohio Gov. John R. Kasich said earlier this year that his state’s
tax needs to be raised because the oil and gas industry there
is getting off too easily,” he noted.
When states have trouble
Since 2008, states where there previously was little if any
oil and gas production had to quickly consider ways to
keep new development from tight shales enabled by hydraulic fracturing and horizontal drilling a blessing instead of a curse, Rabe said. States that have not established
trust funds tend to get into trouble when a severance tax
represents 10-15% of total revenue and commodity prices
plunge, he said.
States’ energy trust funds tend to work better than their