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Where There's Drilling in Pennsylvania, Tax Dollars Follow

Early indications point to natural gas development having a positive impact on state tax collections in counties in Pennsylvania's Marcellus Shale region, according to an analysis by Pennsylvania State University researchers.

"Because it's still early in the development of Marcellus Shale, there's a lot we can't know yet about its long-term economic impact," said agricultural economics professor Timothy Kelsey, who co-authored the new study. "However, state tax collection information gathered by the Pennsylvania Department of Revenue can provide insight into the short-run economic and tax implications of gas development."

"Marcellus Shale and Local Collection of State Taxes: What the 2011 Pennsylvania Tax Data Say," was published by the university's Center for Economic and Community Development within the College of Agricultural Sciences. The report, which updates a similar analysis done last year using 2010 data, looked at county-level state tax collections from 2007 to 2011 and analyzed the information in the context of local natural gas activity.

"The data continue to show distinct differences between counties with Marcellus Shale gas drilling and those without," Kelsey noted. He and co-author Charles Costanzo, an undergraduate student, used information obtained from the Pennsylvania Department of Environmental Protection and categorized the state counties based on the number of Marcellus Shale gas wells drilled during the study years. Changes in state tax collections within each county were calculated, and the average change within each category also was calculated.

The data suggested that "significant effects are seen in state sales tax collections, which reflect the level of retail activity in a county," according to the report. The data indicate sales tax collections in counties with more Marcellus development continued to outperform collections in counties with less or no Marcellus activity.

"For example, sales tax collections in counties with 150 or more Marcellus wells drilled between 2007 and 2011 rose an average of nearly 24% during those years, compared to an average decrease of about 5% in counties with no Marcellus activity," Kelsey said. "Sales tax collections dropped in only three of the 23 counties with more than 10 Marcellus wells, compared to decreases in 22 of the 32 counties with no Marcellus Shale drilling."

The increases were particularly dramatic in big producing counties: Bradford (50.8%), Greene (31.4%) and Susquehanna (27.4%), which are three of the top six counties in the number of Marcellus gas wells. "The data support anecdotes we hear about Marcellus development increasing local retail activity," said Kelsey.

State realty transfer taxes, a 1% levy on the sale of real estate, also were examined. Changes in this revenue may result from changes in the average value of properties sold, changes in the number of transactions, or a combination of both factors. Collections from 2007 to 2011 fell across Pennsylvania, in part because of the national collapse in housing. However, counties with Marcellus drilling activity "appeared to be somewhat buffered from the housing downturn, generally exceeding the statewide average," according to the report's authors.

Counties with 150 or more Marcellus gas wells, on average, saw state realty transfer tax collections rise by an average of 4.3%, compared to an average 33.4% decline in counties with no Marcellus drilling.

"The data suggest that collections in the counties without Marcellus Shale drilling on average continued to decline over these years, while the collections in high-activity Marcellus counties were trending in the opposite direction," Kelsey noted.

Also examined were state personal income tax collections between 2007 and 2009, which was the last year for which data were available. The Pennsylvania Department of Revenue reports data by taxpayers' county of residence, and filings do not reflect workers' commutes into a county or whose legal residence is out of state. However, a similar trend emerged, according to the report.

Total taxable income where there was the most Marcellus activity -- 90 or more wells -- jumped on average by 6.3% during the period, compared with an average county-level decline of 5.5% statewide.

"The average rise in income in high-activity Marcellus counties was fueled by increases in salaries and wages (3.3%); rights, royalties and patents (441.5%), which reflects gas lease and royalty payments; and net profits (1.4%)," according to the report. "However, counties with fewer than 90 Marcellus wells through 2009 saw decreases in both personal income and in the amount of state income tax collected."

Even with increased income in those counties with a lot of gas development, the impact of Marcellus activity on the total amount of state personal income tax collected "appears relatively small," the researchers noted. For instance, the counties with 90 or more wells accounted for only 2.8% of total personal income tax collection in 2009.

"The total combined increase in state income tax collections in these counties was about $533,000 in 2009, which is a good thing, especially during tight economic times," Kelsey said. "But these county-level changes are relatively small compared to the $9.1 billion in personal income taxes collected statewide that same year."

Economic activity in the drilling-heavy counties is affected by more than just gas development; drilling by itself doesn't account for all of the changes and differences between counties, the authors noted. In some cases, a wide variation existed between counties within the same levels of drilling activity, and what occurred in any given county may have differed from the averages.

"It's important to note that this analysis does not include impacts on other state revenues -- such as permit fees and the liquid-fuels tax -- nor does it address the costs of Marcellus development, such as the demands on state agencies, public services or the environment," Kelsey said. "In addition, the report does not shed light on the impact of Marcellus development on local government and school district tax collections, since royalty and leasing income is exempt from the local earned income tax, and local municipalities can't impose sales taxes."

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