Large Declines Expected for 2020 PA Impact Fee Collections

In early January, the Pennsylvania Independent Fiscal Office (PA IFO) released its impact fee estimate for 2020. Total impact fee revenues are expected to be $144.85 million, representing a 28% decrease from 2019’s revenue of $200.37 million.

This decline marks a record low of revenues generated since the initial imposition of the impact fee in 2011 and beats the previous record low of $173 million in 2016. This decline reflects the overall difficult year the upstream oil and gas industry has experienced with 2020. 

Imposed on unconventional natural gas wells, impact fees are determined by a schedule based on type of well, the well’s operating year, and the price of natural gas. Lower pricing places fees into lower brackets. The large drop in revenues from 2019 is primarily driven by the sharp decline in natural gas prices in March 2020 due to the ongoing COVID-19 pandemic. The average price in 2020 fell to $2.08/MMBtu compared to 2019’s average of $2.63/MMBtu. As pricing fell below $2.25, fees were charged per the lowest bracket, representing a decrease of $5,000 per well. In addition, as pricing drops, the incentive to drill and operate new wells declines, which further drove a decrease in impact fees generated. 

Who does this drop in revenue impact? Fees are disbursed to the counties where natural gas drilling and production occurs, to help municipalities in the repair of affected infrastructure and other side effects of operations. Although upstream industry players will incur lower fees, the counties and municipalities in which those players operate will take the hit. Fees allocated to these counties are expected to fall from $109.2 million to $75.9 million. The state’s allocation of fees is expected to remain unchanged, with $10.5 million and $7.9 million allocated to commonwealth agencies and conservation districts, respectively. Additional details can be found on the PA IFO’s website.