Royal Dutch Shell has proposed a payment plan to Beaver County officials that will allow local entities to collect revenue from the company even if it builds a billion-dollar petrochemical facility on land that the state has ruled is exempt from taxes for 22 years.
Shell's proposed plan to build a massive ethane cracker facility in Potter threatened to deprive the township and school district of revenue, funding that would disappear when the land housing the facility became exempt from state and local taxes.
Under a proposal announced Monday, Shell would pay 110 percent of the amount currently generated in property tax revenue at the site by Horsehead Corp., which manages zinc smelting operations there. That 110 percent translates to about $300,000 for the school district and $44,000 for the township per year. Under state law, those amounts would remain static for the 22 years of Shell's tax exemption.
If the proposal is enacted, Shell would pay a total of $7.6 million to the school district and township over 22 years. Meanwhile, the tax exemptions offered to Shell as part of luring the plant to Pennsylvania -- and passed in Harrisburg as part of legislation earlier this year -- are expected to save the company more than $1 billion.
Shell's proposal seeks to solve a wrinkle that emerged after the company announced in March it had signed a land-option agreement with the Horsehead Corp. to build the petrochemical facility, which would process gas and hydrocarbons extracted from the Marcellus Shale.
The massive tax exemptions that legislators said were needed to outbid West Virginia and Ohio for the plant were going to cripple local budgets by turning their largest property taxpayer into a tax-exempt site, local officials testified at a recent public hearing.
Local officials must sign off on Shell's application to enter the tax exemption plan and must approve the payment plan. Under legislation passed in February, any businesses in the zone would be exempt from state and local property taxes for 15 years, along with a seven-year extension.
An additional tax break of 25 years on ethane purchased for the facility was passed in June.
Central Valley School District stood to lose about $275,000 per year, money now paid by Horsehead. The district has a budget of about $30 million and expects it will have to expand stretched facilities in the coming years as workers and their families move to the area, said district Superintendent Daniel Matsook.
The $40,000 that would be lost by the township represents about 7 percent of its annual budget.
Shell remained relatively mum on the proposal, only issuing a statement saying it "entered into the decision because if the project goes forward, Shell wants to be a strong corporate partner to help revitalize the local and state economies."
The proposed replacement revenue would come as part of a payment-in-lieu-of-taxes program; Shell's 110 percent is the maximum amount allowed by law. Such programs allow an entity to pay a static amount for a designated time frame. UPMC recently entered into a PILOT program this year with South Fayette under its plan to develop an $18.5 million branch of its Children's Hospital of Pittsburgh.
Rep. Jim Christiana, R-Beaver, said he wasn't concerned about inflation causing the revenue value in Shell payments to drop over time.
"I think that over the years, this plant will be an asset to grow our economy and our region, and ultimately bring in more revenue," he said.
Industry experts say the decision to build a petrochemical facility above the Marcellus Shale heralds a new chapter in drilling development, and that spinoff facilities often appear near a cracker plant. The total economic output for the proposed Shell facility is expected to be $4.8 billion per year, according to a recent analysis by the Pennsylvania Economy League of Greater Pittsburgh.
The Horsehead Corp. facility that currently sits at the proposed Shell site is the township's biggest taxpayer, and provides enough in property taxes to fund the volunteer fire department for a year.
The Central Valley School District's boundaries already include other tax-abatement zones in Beaver County created for a Wal-Mart store and a Target store.
As proposed, the revenue program won't be enough to fund all the expansions needed in the district, but it's a start, said Mr. Matsook.
"Obviously, we're excited that we're not going to be losing the money that was on the docket," he said.