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Marcellus Shale Costing More Time Than Money, Report Finds

Marcellus Shale development is not bringing much money into local governments, but also not taking much money out of local governments, according to a recent study of two prolific Pennsylvania counties.

By analyzing government tax collection and drilling information, and interviewing both municipal officials and natural gas companies in Susquehanna and Washington counties, a pair of professors from Pennsylvania State University (Penn State) found that "gas development activity did not appear to have a consistent and measurable impact on local government costs and revenues in these two counties."

That conclusion might be surprising, but it doesn't mean shale development isn't impacting local governments now and won't be a financial burden or boon in the future, said Timothy W. Kelsey, a professor of agricultural economics; and Michael Jacobson, an associate professor of forest resources.

"It is likely that the impacts of Marcellus Shale development on local governments will change as the play continues. This analysis focused on data through 2009 -- still relatively early in the development of the play," they wrote. "In addition, as the scale of development increases, it is very possible that local governments will need to start providing new services that they currently do not support."

The study compiled information on 15 of the 40 municipalities in Susquehanna County in northeastern Pennsylvania and 26 of the 66 municipalities in Washington County in southwestern Pennsylvania between 2001 and 2009, a period covering the recent boom and the seven years leading up to it. The two counties are among the most prolific in the Marcellus. Since the start of 2009, operators have drilled 234 horizontal shale wells in Susquehanna County and 372 horizontal shale wells in Washington County.

While shale development is significantly changing the workload for municipal officials, it isn't costing them additional money, the study found. That's because the costs are either covered from outside government, shuffled internally from other sources or avoided by having employees handle more work.

For instance, while most officials pointed to road damage as their biggest issue on the local level, many also told the professors that natural gas companies proactively paid to repair local roads. That help isn't always helpful, though. While one township reported that industry repaired more than one-third of its roads; another said that hasty repairs already needed additional work, the report found.

The biggest issue isn't so much money, but time, the report found. Several officials said they spent several hours each day on development-related issues, from constituent concerns, to coordinating with industry, to bonding roads and police work. "In most cases, there is no additional compensation (or cost) for spending time on these activities; instead, it means the supervisors have less time to spend on other important local government functions," the professors wrote.

But officials also said they haven't seen enough additional revenues to support additional hires.

While some Washington County municipalities reported higher earned income tax revenues, presumably from the corporate offices and gas processing plants in the area, Susquehanna County municipalities said they hadn't seen any bump, despite an increase in natural gas industry jobs. And while Pennsylvania townships get a cut of the realty transfer tax levied against real estate transactions, officials told the researchers that uncertainty about property values in terms of mineral rights is stalling some property deals and a slow real estate market in general is stalling many more.

But officials said companies do offer "in-kind contributions" to local nonprofits and community groups.

Those conclusions add perspective to two previous Penn State reports. The first found that development-heavy counties contributed higher tax revenues to the state, but the new report shows that those increases aren't translating to the local level (see Shale Daily, March 2). The second found that businesses in prolific shale counties saw a bump in sales (see Shale Daily, June 29).

State lawmakers came close to passing an impact fee on developers this summer, but ultimately failed to get the idea by Gov. Tom Corbett (see Shale Daily, June 30). The Marcellus Shale Advisory Commission recommended that Corbett back an impact fee to cover strictly local concerns (see Shale Daily, July 25; July 19). Corbett said he might support a fee to help cap abandoned wells (see Shale Daily, Aug. 8).

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