Friday, April 3, 2009

Marcellus Shale Gas Play: Part 6

Money. Who profits and who suffers? There is no question that this shale gas development with generate revenue for everyone, from individuals to local, state and federal governments. The answer to the question of who benefits and who suffers lies in how that money is managed. Governments are notorious for being wasteful; but that is wholly another issue.

Due to Pennsylvania’s local tax structure, the revenue
impacts of Marcellus shale on Pennsylvania local
governments and taxpayers will likely be relatively
small compared to the cost and service impacts.
Natural gas exploration and drilling by itself will
provide relatively little new tax revenues to local
jurisdictions in Pennsylvania since natural gas is not

subject to local taxation in the Commonwealth. Neither
lease nor royalty income in Pennsylvania is subject to local
income taxes, nor do Pennsylvania
local jurisdictions benefit directly from higher local
retail sales since they lack authority to levy a local
sales tax.

Greater employment owing to natural gas activity
will of course increase local earned income taxes,
but because earned income taxes generally go to the
jurisdiction where taxpayers live rather than where
they work, the specific jurisdictions facing higher
service costs due to the Marcellus may not be those
who receive higher earned income tax revenues. Most
Pennsylvanians do not work in the same municipality
where they live and there is little reason to expect
new natural gas workers to be any different.

Real property tax collections will increase some
due to new building construction associated with the
Marcellus; but, because reassessment is typically
infrequent in Pennsylvania counties, rising real
property values due to Marcellus will not have an
immediate impact on property tax collections. Under
current law natural gas will not significantly increase
the local tax base, and thus will not significantly
increase local tax revenues.

Tax collections by the state government will
increase in Pennsylvania through the corporate income
tax and sales tax, but these collections will have little
direct benefit to the local jurisdictions, which will face
higher service costs due to natural gas exploration.
In other words, local jurisdictions with natural gas
wells very likely will face higher demands for services
and thus higher costs, and yet receive little new
revenues to pay for those services. The result could be
higher local taxes (paid for by everyone, not just those
directly benefiting from lease or royalty revenues)
or cuts in other services.

Because Pennsylvania law
limits municipalities’ and counties’ abilities to employ
land-use planning tools to influence the location
of natural gas drilling activities, local governments
will have little ability to prevent or affect drilling in
locations, which will significantly affect local service
costs and taxes.

It is important to recognize that school districts
and the county and municipal governments that own
land leased for natural gas extraction may receive
significant revenues from leasing and royalties, so
they will receive some benefits. Yet the amount they
receive will not relate directly to the overall costs they
may experience across their jurisdiction.

In addition,
some may be tempted to use these windfalls for
basic operations (keeping taxes low in the years the
monies are received) rather than to use the monies
for capital expenditures and other investments in
their communities’ future. The natural gas money
provides a great opportunity for local jurisdictions to
improve infrastructure, such as by creating parks or
other investments to be enjoyed by current and future

Clean and Green Act
Under Pennsylvania law, county governments
administer the Clean and Green program, which
provides preferential tax assessments for eligible
farm- and forestland. County governments have some
discretion in how they interpret the law, which at the
time of this writing is silent about whether leasing
land for natural gas drilling makes the land ineligible
for Clean and Green (and, if so, whether the rollback
is on the entire enrolled parcel or only on the acreage
directly affected by the drilling).

County commissioners
and assessment offices need to carefully think
about how they will treat such land and the impact of
that decision on landowners, neighbors, taxpayers,
Clean and Green land, and gas leasing activity.
In Harrisburg there currently is policy discussion
about whether to revise the Clean and Green Act to
provide more clarity on issues of interpretation. For
more information, visit the Pennsylvania Department
of Agriculture Web site,

The potential impact of the increased drilling associated
with the Marcellus shale extends beyond the
wells, pipelines, and other natural-gas-related sites
and equipment. The economic and social changes a
region will experience once the industry has established
itself in the area may lead to stress on local
infrastructure, such as increases in road traffic, school
enrollment, and housing needs.

Obtaining seismic data also generates revenue for landowners.

Access Roads
Once a well site is chosen and established, private
access roads will be built to enable the necessary
large equipment and trucks to reach and service that
particular well. In addition to these newly constructed
roadways to the well pad, the initial preparation to
begin drilling and producing gas delivers a considerable
amount of heavy traffic to surrounding local

It is important to remember, however, that
after site construction, the wells will still generate
consistent truck traffic and road use. Holding tanks
on site for water by-products created during drilling
must be emptied at least once, if not several times,
per week and will be hauled to treatment or injection
facilities. Since wells produce year-round, road use
and truck traffic on both access and local roads will
be occurring year-round.

Compressors are used to increase the gas pressure
from the wells before being shipped to market and can
produce significant amounts of unwanted noise. Since
compressors run nonstop, this can create concerns for
local officials who handle noise disturbances. Some
well sites will house the compressors in buildings to
decrease the output of noise, which can improve the
problem but also results in the creation of permanent
structures on site.

Any gas produced from wells is valueless unless it
reaches market. Pipelines are necessary for moving
the gas and are laid to travel from the site out to
central gathering points where the lines continue
transporting larger quantities of gas from numerous
wells to market. The pipeline construction affects
environmental and aesthetic aspects of the area and
generates additional construction sites and associated

Pipelines should be acknowledged as permanent
infrastructure of the gas industry and their
construction should be strategic and efficient.
Local officials need to concern themselves with
influencing pipeline construction in hopes of minimizing
potentially unnecessary lines. Excessive lines
across local landscapes could result from poorly
planned or disjointed networks of pipelines.
Pipelines are needed to collect the gas and move it to the end-users.

Population Change and Impacts on the
Housing, Schools, Crime

As indicated by the experience in Texas and
Wyoming, it is important for local officials to prepare
for the population changes that may occur due to
the Marcellus. As noted in the studies conducted in
similar circumstances across the country, some of
the major associated changes in the community will
likely be:

• The need for adequate housing stock. If an inadequate
amount of housing is an issue, the influx of
workers will not live in the community, therefore
affecting the large array of possible economic
benefits for local business and government.

• Impacts on schools and service industries will
change the dynamic of the community as well,
seeing student population increases, higher
government infrastructure expenses, etc.

• An increase in crime, particularly nonviolent
crimes such as driving under the influence and
drug violations.

• Social tension or animosity between “newcomers”
and “old timers,” or between residents gaining
personally from natural gas and others in the
community who feel they are not benefitting.

• Local officials should reevaluate their comprehensive
plan, official map, and other planning
tools they use in their communities to cater to or
prepare for these changes. In addition, education
and communication can be important tools to deal
with potential changes in the social fabric of the

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