Impact Fee Payments to Rise in 2025

A recent Pennsylvania Independent Fiscal Office report gave an early Christmas gift to counties and municipalities across the state, forecasting that impact fees paid by unconventional natural gas well drillers will rise by 46% in 2025.

The IFO recently released its 2025 impact fee estimate, which projects that $240 million will be collected, up substantially from last year’s total of $164.4 million. The 2025 figure is expected to end two years of decline due to low prices and a decrease in new wells being drilled.

The IFO estimates that 450 new unconventional wells will be drilled in 2025, an increase of 141 from 320 in 2024. The IFO attributes the jump in revenue to an increase in the price of natural gas and consequently in well drilling. The average fee per well paid to the state was $19,056, a 41% increase from the previous year. The price of natural gas increased to $3.43, more than the $3 threshhold at which operators pay a higher fee under the schedule.

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. The impact fees will be paid in April 2026 based on 2025’s final results.

In the past few years, the amount of impact fees distributed has been a roller coaster due to the aftermath of the COVID-19 pandemic and geopolitical tensions. Impact fees reached an all-time high in 2022 at $278.9 million as economic activity surged after the pandemic ended and demand from European countries increased.  That led to a spike in natural gas prices to more than $6 per MMBtu, triggering the highest fee that operators must pay. That was followed by a significant dropoff to $179.6 million in 2023, and $164.6 million in 2024.

County and local governments will welcome the higher payments but need to stay mindful about the volatile nature of the impact fee when budgeting. 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, followed by Susquehanna, Bradford and Greene counties. Municipalities within those counties also receive substantial payments.