Friday, April 3, 2009

Marcellus Shale Gas Play: Part 7

Natural gas is a preferred energy source with a wide variety of uses. The future looks good for the development of the Marcellus Shale in the northeastern United States.

Economic Development
The size of the economic impacts from Marcellus
depend critically on whether the businesses exist
within the Pennsylvania communities to support
ancillary economic activity created by natural gas
exploration and development. The more spending
that occurs outside the community, the less economic
benefit will accrue locally since those dollars will
simply leave the community rather than recirculating
among local businesses.

Similarly, to the extent
nonresidents hold new jobs, the lower the benefit to
the community. The twofold economic development
challenge is thus:

1. Finding ways to help local businesses and workers
compete for the new business opportunities
arising from natural gas.

2. Finding ways to encourage businesses, workers,
and royalty owners to spend their new dollars
locally rather than out of town. New business
start-up and technical assistance should target
business opportunities related to natural gas, and
workforce development training should focus on
the new specialized jobs that will be created (such
as land men who service the wells).

General local business and community development
programs focused on helping local businesses
or downtowns be competitive could similarly help
Pennsylvania communities better compete for the
new spending resulting from the natural gas revenues.

Environmental Impacts
The construction, activity, and existence of natural
gas wells in the community and industry may cause
significant environmental changes to the areas.
These issues should be considered when planning
and enforcing local action to accommodate the
developing gas industry. Possible environmental
concerns that could arise from drilling activity

• Aesthetics and recreation—heightened noise and
the effects of drilling may affect the aesthetics and
recreational value of a resource for both nonconsumptive
(e.g., hiking, birding) and consumptive
(e.g., fishing, hunting) recreational use. This may
affect communities that are promoting natural resource-
based tourism.

• Habitat fragmentation—well sites and associated
infrastructure may fragment Pennsylvania forests.
Fragmentation will decrease habitat quality for
many wildlife species that are dependent on
deep forest habitat; it is also associated with an
increased spread of nonnative and invasive plants,
causing further habitat degradation for native
plants and animals.

• Water impacts—water consumption and
wastewater disposal may affect aquatic resources
both locally and within the larger watershed.

• Timber resources—access roads and pipelines
may cause damage to timber stands, resulting
in loss of forestry income, appraisal, and sale of

• Soil compaction and long-term site fertility—
well sites may compact the soil, affecting the
long-term health and fertility of the area.

Forestry concerns that show effects on forests,
wildlife, ecology, and local natural balance need to
be addressed by DEP, Conservation Districts, and
other associated agencies through regulation and

After drilling has occurred in an area,
proper site restoration is a necessity. The best ways
to restore sites depend on the location and natural
surroundings, making it necessary for officials to
gather information on the pros and cons of different
methods of site restoration. The type and quantity of
vegetation replanted will make a large impact on the
natural ecology and balance.

What Local Officials Can Do
Local government officials concerned about the
impact of Marcellus shale development on their
community need to greatly expand and upgrade their
comprehensive community planning efforts. The fast
pace of gas drilling—and all its related activities—
means that planning must be done on a continuous,
daily basis. Every new well that is drilled causes small
changes in the community. Monthly meetings of the
planning commission are not sufficient to keep up
with these changes.

We also need a new way to think
about how communities plan for gas exploration.
Comprehensive community planning is more
than just the established “comprehensive plan.” A
comprehensive plan, as permitted in the Municipalities
Planning Code, serves as a useful tool for
municipal management by providing a broad, general
framework for common development issues projected
ten to twenty years into the future. This would be
acceptable if things did not change very quickly, but
that is not the case with gas drilling. Few comprehensive
plans were prepared with major natural gas
development in mind, so they are not adequately
prepared to address the potential impacts of the
Marcellus shale formation.

A more comprehensive view must take into
account all the important issues and how they interrelate
to one another. This view involves more
than just land use. Gas drilling brings many new
factors to communities that have not been experienced
previously in many areas of Pennsylvania.

Exploration of the Marcellus shale will generate
large amounts of money from the leasing of land,
construction, trucking, commerce, and housing development.
Some residents will have more money to
spend, but will they spend it in the community and
region? Will they take that capital somewhere else
if there are no places for them to spend their money

New opportunities for business development
should increase with gas drilling, which will require
infrastructure investments in roads, water, and
sewer facilities. Housing needs for gas and related
workers will increase. Will their needs be met with a
temporary variety of housing or is the plan to build
long-term residential areas that will be attractive to
gas industry workers and their families?
There will also be new service, public safety, and other expenses
imposed on local governments that may not be
consistent with tax revenues derived from natural gas
drilling or leasing activities.

To address these complex issues, the comprehensive
planning undertaken by municipalities and
counties should have four components:

1. Taxation and municipal finance: a component to
examine tax revenues and expenditures related
to gas exploration and project future financial
resources needed for municipal and county operations,
and school districts in the region.

2. Public investment: for examining and developing
a plan on how municipalities, counties, and
school districts can use their assets and facilities
to generate revenues from drilling, transmission,
water, and wastewater activities related to gas

3. Comprehensive land use: a plan to incorporate
natural gas development as a new and distinctive
land use and provide for economic development,
new commercial and residential activity, and
improvements to the local transportation system.

4. Municipal management: a component of planning
to provide personnel that will keep track of
mining activities, carry out inspections, anticipate
production changes, and encourage workforce
development to supply skilled workers. Since gas
exploration is regional in scope, the management
process needs to be carried out jointly by affected
municipalities, counties, and school districts, as
well as the private sector.

The vast economic and social impacts related
to exploration of the Marcellus shale deposit call
for new thinking. Sound, innovative, continuous
comprehensive planning is needed for Pennsylvania
municipalities to maximize the long-term benefits
from Marcellus shale development while minimizing
potential negative impacts.

The experience of some local governments
with the gas companies has been very positive, and
many companies have shown a desire to conduct
themselves appropriately within the community.
The companies are investing millions of dollars into
drilling and pipeline construction with plans to remain
in the drilling areas for years. The length of these
relationships demands a certain level of cooperation
between parties, and jeopardizing the ability of the
companies to operate would be detrimental to a
productive and beneficial relationship. It is important
for municipal officials to ensure good communication
and collaboration, with a method for quickly and
easily addressing problems if they occur.

Areas to Consider
Road Bonding

The Commonwealth can prohibit the use of and
impose size or weight restrictions on highways and
bridges under its jurisdiction in accordance with
Department of Transportation regulations. Trucks
considered heavy haulers must pay for the road
damages that they create; thus, bonding is necessary.

No vehicles in excess of the size or weight
limitations specified are allowed on Pennsylvania
highways unless the department or local authority
grants a waiver. Local authorities that post size or
weight restrictions, either in accordance with the
size, weight, and load chapter or that differ from that
chapter, must comply with the department regulations.
Posting and bonding municipal roads is
authorized in the state vehicle code.

The PennDOT
Bureau of Maintenance and Operations is in charge
of municipal road posting and bonding information.
You can also find codes for the authorization to use
bridges posted owing to condition of the bridge and
to use highways posted because of traffic conditions.

Some of the key provisions of road bonding include:

• Posting: a road must be posted with a weight
limit before a bond can be required of a hauler.
The steps taken to establish a weight limit include
(1) completing an engineering and traffic study
that supports the need for a weight restriction;
(2) passing an ordinance identifying the road
segment and setting the weight restriction; (3)
advertising the posting two times in a general
circulation newspaper at least five days prior
to actual posting; (4) contacting known heavy
haulers who are using the road about executing a
maintenance agreement; and (5) erecting standard
signs showing the weight limit.

• Excess maintenance agreement: after posting a
road, the local government enters into an excess
maintenance agreement with each hauler who will
be operating overweight vehicles on that road.
This agreement allows the local government to
shift responsibility for repairing road damages
on a pro rata basis to the haulers who damage the
road. Note that haulers are only responsible for
damage they cause in excess of normal wear and
tear on the road.

• Permits: driving an overweight vehicle on posted
roads generally requires a permit. The type of
permit depends on the number of vehicles, the
number of posted roads used, and the amount of
use. Permits are issued only after an excess maintenance
agreement has been signed.

• Inspections and monitoring: before overweight
hauling begins, the local government inspects the
road to determine its condition. The hauler who
pays for this service has the right to be present.
After hauling begins, the local government is
responsible for monitoring the condition of the
road and notifying the hauler of any necessary
repairs. If the local government is responsible for
making the repairs under the excess maintenance
agreement, the local government bills the hauler
for the costs.

• Security (bonding): haulers generally must provide
security to ensure payment for any road repairs for
which they are responsible under the agreement.
This security is usually a performance bond, a
standby letter of credit, or a certified bank check.
The regulations specify the amount of security that
may be required for unpaved roads ($6,000 per
linear mile) and paved roads ($12,500 per linear
mile) in cases wherein the hauler agrees not to
downgrade the road. When the local government
and the hauler agree that the road type can be
downgraded during hauling and restored after
hauling ceases, the amount of security required is
$50,000 per linear mile. If the hauler uses several
roads for only a short time or makes relatively few
trips, the rates per mile may be replaced with a flat
rate of $10,000. By following these rules, local
officials can assure taxpayers that they will not
have to pay for road repairs caused by overweight

Local governments considering road bonding or
posting weight limits on bridges should carefully
consider potential impacts on other road users since
they may unintentionally affect others. Bridge weight
limits, for example, could make it difficult for milk
trucks or feed trucks to reach farms, hurting those

For more about road bonding, see PennDot
publication 221: Posting and Bonding Procedures for
Municipal Highways, which may be purchased from
the PennDOT store.
Zoning and Subdivision and Land Development

At the time of the writing of this publication,
Pennsylvania’s Oil and Gas Act and the Municipalities
Planning Code restrict the ability of local
governments to zone or permit drilling, so zoning
has limited usefulness to influence where and when
drilling occurs. Yet zoning and subdivision and land
development ordinances remain a vitally important
tool for influencing the potential secondary effects
of natural gas activity, such as from possible new
residents, housing, supporting businesses, patterns
of development, and the other spinoff impacts. Much
of the economic opportunity (and challenge) from
Marcellus will be these secondary effects, which can
be influenced and regulated through zoning and other
land-use tools.

Capital Budgeting
Capital budgeting is a powerful but often underutilized
tool of Pennsylvania local governments. By
planning future expenditure needs for infrastructure
and other capital expenses, such as road maintenance
and repair, trucks, and equipment, capital budgets
allow the local government to ensure it has the funds
in hand to pay for upcoming needs. This includes a
schedule of setting funds aside for future needs and
anticipating spending for future needs in current
budget decisions.

Local Natural Gas Task Force
Given the localized nature of many of these impacts,
a local, comprehensive, and proactive approach can
help ensure that a wide range of the community’s
interests are represented—and importantly—
taken into account when decisions are made. One
important way to meet this challenge is to create a
local task force or a similar organized effort to guide
community discussions, information gathering, and
decision making. Members should reflect the broad
community, including businesses, the chamber of
commerce, nonprofits, schools, local government,
and citizens, among others. Such a task force can
ensure that regular communication occurs among
local governments, the business sector, real estate,
workforce development, academics, service
providers, and citizens, and that the community is
able to be proactive about the opportunities.

As of this publication, several counties in Pennsylvania
have already formed local task forces to
address gas exploration and development issues in
their communities. Several counties in Texas helped
pioneer this approach to responding to the natural gas
opportunities and challenges and have found it useful.
For a more in-depth discussion of ways to build a
successful local strategy, see the Penn State publication
“Creating and Fostering a Local Task Force”
available from

Leasing Municipal Land
Many Pennsylvania local governments themselves
will have the opportunity to lease their own land, such
as parks, open space, reservoirs, and other municipal
property, and may receive substantial royalty
income in the future. If a local government has this
opportunity, it is vital to take care during the leasing

As with landowners, Penn State Cooperative
Extension’s Marcellus Education Team recommends
talking with several companies and with an attorney
familiar with leasing issues because the typical
contract offered by the companies may not adequately
protect or represent municipal interests and likely
will require some amendments written by an attorney.

Those issues may include the ability to jointly approve
the location of access roads, drilling pad locations, and
how land is cleared (and disposal of the trees).
Site restoration is another postdrilling issue that
local officials should try to address. Restoration is
a requirement for all drilling sites and is regulated
by DEP. However, it is important for local officials
to talk with gas companies about the specifications
of each site’s restoration to ensure that the recreated
habitat is appropriate for the area. Site restoration
should be conducted in accordance to the surrounding
ecology of the well site so that local wildlife is
provided the proper vegetation species and coverage
for their environment.

It is also critical for local officials to carefully
consider how leasing and royalty income will be used.
It may be tempting to use the funds to cover current
operating expenses, reducing taxes in the short run.
But the dollars result from the sale of a capital asset,
so they should be used for capital expenditures that
benefit more than just current residents; the gas being
sold also is owned by future generations of residents,
who also should benefit from the sale. Good fiscal
management suggests viewing these dollars as a
way to invest in the future of the jurisdiction, such as
building infrastructure or purchasing land and other
assets that benefit current and future residents; in
other words, use the windfall gains to improve the
community for the long run, not just for the period
when the gas is flowing.

Looking Ahead
Marcellus shale is providing many Pennsylvania
communities a significant opportunity for strong
economic development and improvements in the
quality of life.
Along with these strong opportunities,
major challenges will need to be addressed directly.
The role of local officials should be to help balance
these challenges and benefits to ensure the focus is
not just short-term gain. They must constantly keep
in mind how to use this opportunity to improve
the community for the long run so that when the
Marcellus play is over, the community has improved
and is poised for the future. ■

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