Penn State study shows more modest economic impact from shale gas
By Laura Legere (Staff Writer)
Published: August 30, 2011
•Penn State study shows more modest economic impact from
A new Penn State study of the economic impacts of the Marcellus Shale has found that Pennsylvania natural gas development in 2009 created roughly half the jobs and economic activity reported in earlier, industry-financed studies.
The more modest findings were reported Monday by researchers at the Pennsylvania College of Technology and Penn State Cooperative Extension.
The study, which examined not only how much money Marcellus Shale drillers spend on wages, leasing and royalty payments in Pennsylvania but also where and how those dollars are spent, found that "a significant portion" of the money left the community where the land was leased or was not spent in the year it was earned. Previous economic studies did not consider those factors and instead "assumed that all the dollars accrue to Pennsylvania households and are spent like normal income," the authors wrote.
Because of that, the number of jobs supported by the industry - about 23,000 in 2009 - is smaller than earlier estimates, Penn State researchers wrote. The total economic activity generated by the industry that year is also smaller: $3.1 billion.
A 2010 study by other Penn State researchers and funded by the Marcellus Shale Coalition estimated that the industry supported about 44,000 jobs and generated more than $7.17 billion in economic activity in 2009.
"Our results confirm that where leasing and royalty dollars are going significantly influences the estimated overall impacts," said Timothy Kelsey, Ph.D., a professor of agricultural economics at Penn State and a lead author of the study.
Although the authors noted that mineral rights ownership is often separate from surface ownership and is nearly impossible to study, they looked at property ownership in counties with Marcellus activity and found that only about half the land is owned by residents who also live in those counties. A quarter is owned by Pennsylvania residents who live elsewhere in the state, about 8 percent is owned by residents of other states and about 17 percent is publicly owned.
"This would imply that a large portion of the economic benefits immediately leaves the communities being impacted by drilling," Dr. Kelsey said.
The Penn State researchers detailed other notable findings, including:
- Landowners save or invest about 55 percent of leasing bonus payments and about 66 percent of royalty payments instead of spending them immediately, according to surveys.
- 28 percent of business in Bradford and Washington counties that responded to surveys said their sales had increased because of the gas development and only 3 percent reported a decline in sales.
- And only 18 percent of municipalities directly experiencing drilling activities in the most active Marcellus counties said their tax revenues had increased, while 26 percent of the local governments indicated that their costs had increased.
"This confirms that considering both revenues and costs is critical for having a complete understanding of the impacts of Marcellus Shale," the authors wrote. "These findings from local officials contrast with prior economic studies which predicted that there would be large local tax impacts, but which did not verify what is actually occurring."
David Kay, a senior extension associate with Cornell University's Community and Rural Development Institute who has studied past Marcellus economic impact studies, called the new report "the most careful study of the issue that's been done to date" using a common analytical tool called an input-output model.
The researchers did "a lot of empirical, on-the-ground survey work," he said. "They still had to make a lot of assumptions, but they had to make many fewer assumptions than were made in many of the other studies."
Kathryn Klaber, president of the Marcellus Shale Coalition, pointed to the study's shortcomings, calling it "far from complete and based on years-old data," but said it "illustrates the Marcellus Shale's growing economic strength."
Sharon Ward, director of the liberal-leaning Pennsylvania Budget and Policy Center, welcomed the report, which she said "offers a better assessment of the economic effects and contemplates the uncompensated costs to paint a fuller picture of the role of gas drilling to the state's economy."
She added that although the report does not address the issue of a statewide drilling tax - a tax the center supports - it "makes the case" for such a tax by alluding to "a lack of direct revenue to local governments, plus human, health, and environment impacts."
"The report makes clear that gas drilling brings additional wealth to leaseholders," she said, "but that it also brings additional headaches, and costs, to municipal officials struggling with gas-related impacts for which many receive no offsetting tax income."
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