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Pennsylvania Faces Looming Budget Crisis Amid Fossil Fuel Decline, Tax Gaps, IEEFA Says

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Pennsylvania is facing a looming budget crisis, with the structural decline of the state's fossil fuel industry and its decision to not collect enough tax revenue from the sector significantly contributing to the financial problems, according to an analysis by the Institute for Energy Economics and Financial Analysis published Tuesday.

"The state's coal industry is declining, its petrochemical sector is stagnant, and its natural gas business has been a mixed bag, at best. Despite the paltry returns, Pennsylvania has given massive tax credits to the fossil fuel industry," IEEFA analysts said.

According to IEEFA, the state needs to consider revising its tax policy on natural resource extraction to ensure the industry contributes in line with the policy's goals.

Pennsylvania, which does not impose a severance tax on natural gas, unlike most other producing states, could raise more revenue by changing how it values gas extraction.

Current fees and levies in Pennsylvania are relatively generous compared with those in other producing states, and revenues from producers account for a very small share of the state's budget. Pennsylvania's impact fees, levied mainly on horizontally drilled natural gas wells, account for just 0.3% of total state tax revenues, a minuscule figure compared with other states.

According to Trey Cowan, an energy finance analyst at IEEFA and co-author of the report, Pennsylvania has a strong legacy of energy innovation and is a leader in energy production. Maintaining this position will require an understanding of the limits of the fossil fuel industry's future role, with job creation and tax revenue growth unlikely to be major drivers for the sector, he added.

"Ensuring that the ongoing transition is just should be central to policymakers' agendas. This begins with an honest assessment of where the state's fossil fuel sector has been and where it is trending," analysts said.

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