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Marcellus Benefits Slim for Pennsylvania Schools, Report Finds

Aside from those that have leased lands for development, Pennsylvania school districts do not seem to be benefiting much financially from Marcellus Shale activity, according to a recent report from Pennsylvania State University.

While the state and local governments have collected more than $1 billion in taxes from shale development, "the current structure of school funding in Pennsylvania means that in most instances schools will likely not see significant economic benefits as a result of local activity associated with the Marcellus shale natural gas industry," the report concluded.

The question of local taxes for school districts is an issue because Pennsylvania school districts draw more than half of their revenues from local sources, the eighth highest rate in the country. And because of the rural nature of shale country, Marcellus activity to date has tended to take place in and around the poorer school districts across Pennsylvania.

For instance, school districts collect 98% of their tax revenues from the real estate tax and the earned income tax, but oil and gas reserves don't count toward property tax valuations and royalties and lease payments don't count toward earned income. Additionally, the districts can't tax the salaries of Marcellus Shale workers from other districts (or states).

Although school districts can't tax royalties and lease payments, that "unearned income" goes toward measuring the wealth of a district for the purpose of distributing state aid. So while those districts might not be able to collect more tax revenue despite the additional wealth within their borders, they could see a corresponding decline in state aid.

School districts also are not earmarked to get any revenues from the recently approved impact fee on drilling meant to help local governments offset the cost of development without imposing additional taxes (see Shale Daily, Feb. 15).

On the flip side, the report found that Marcellus activity does not appear to be increasing student enrollment or special education spending. In fact, both figures declined slightly as the number of wells in a district increased.

The report, though, does not consider the potential costs of transportation challenges or recruitment problems as the cost of living increases in drilling communities, but suggests that both issues would be worth studying in the future.

But the tax structure in Pennsylvania could indirectly help residents in school districts, the researchers found.

A 2006 law gives voters the option to collect school district revenues from personal income taxes instead of the earned income tax. While the district would have to adjust the tax rates to make the switch revenue neutral, it would shift more of the tax burden onto residents collecting significant unearned income, such as royalties and lease payments.

While districts can generate revenue by leasing land for development, the researchers suggested that district weigh the decision carefully and only use the revenues for capital improvements rather than operating expenses or tax reductions.

The report was written by agricultural economics professor Timothy Kelsey, education professor William Hartman and associate education professor Kai Schafft, with help from a graduate student and an undergraduate student.

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