After setting record high figures in 2018, counties and municipalities should expect significantly less from 2019’s impact fee payments.
Impact fees, created by Pennsylvania’s Act 13, are funds collected from unconventional natural gas operators and distributed to the state, counties, and municipalities, as well as the Marcellus Legacy Fund, to counteract the impact of the industry in the area. They are calculated using a formula that takes many factors into account but largely relies on the age of a well and the price of natural gas.
An unprecedented $251.8 million in impact fees was distributed to affected counties and municipalities in 2018, a total driven by an increase in new wells, consistent prices, a judicial decision that changed production thresholds required to be exempt from the fee, and an influx of late payments from previous years. That trend did not continue in 2019, with total disbursements of $200.3 million, falling by approximately $51.5 from the previous year.
The fall was to be expected. Gas price volatility was a problem in 2019 and continues today. According to the state Public Utility Commission, gas prices in 2019 averaged $2.63 per MMBtu (million British Thermal Units), nearly a half dollar down from 2018’s $3.09 per MMBtu average. Though natural gas production numbers continued on their growth trend, counts for newly spudded wells (the wells that produce the most impact fee revenue) fell for 2019, which contributed to lower total collections.
The $200.3 million for 2019 will be distributed among the state, counties, local municipalities, and the Marcellus Legacy Fund, as mentioned previously. Washington County will receive the largest payment, with roughly $6.6 million, and Greene County’s Center Township will receive the most of any municipality, with a payment of roughly $1.14 million. The Marcellus Legacy Fund, which was also created by Act 13, is a fund “to provide for the distribution of unconventional gas well impact fees to counties, municipalities and commonwealth agencies”, in the form of grants in addition to any direct Impact Fee monies a county or municipality may be bringing in.
Two producers topped the list in impact fee payments - Range Resources and EQT, paying $26.5 million and $21.3 million, respectively. The other $152.5 million was paid by a collection of five other producers with smaller, though significant, footprints in the Commonwealth.
Per the Act itself, there are thirteen categories in which entities receiving impact fee revenues must spend the money. These categories are broad but focus on the idea of remediating negative effects of the industry within a locality. For example, in 2018, nearly half of the fee revenue spent by municipalities was on public infrastructure and construction projects. Counties in 2018 saved nearly half of their revenues, placing the money in their respective capital reserve funds. However, it has been the case that some municipal governments had used or continue to use these funds to balance their budgets. This is a very problematic practice, especially for financially sensitive municipalities, given the variability in payment size, as seen when comparing 2018 and 2019. This downward trend in Impact Fee collections is being projected to continue, amplifying the importance of counties and municipalities to budget accordingly.