Drilling economics divides struggling communities

Date: April 17, 2011

Sunday, April 17, 2011

Rolling hills and wide-open meadows attracted JoAnne Wagner to Mt. Pleasant, a Washington County community about 25 miles from Pittsburgh. That was in 2005.

Today, the Marcellus shale gas boom has swept in more than 100 wells, pipelines, waste water ponds, trucks and bitter debates between those who profit from drilling leases and those who don’t.

The 35-square-mile township founded in 1788 is a study in the growing debate over whether state officials should empower municipalities to impose an “impact fee” on energy companies to compensate for tax money spent on attorney fees, police salaries, road work, inspections and other costs associated with hosting the drillers.

“There are so many impacts, and it’s so far-reaching,” said Wagner, 45, who does not oppose natural gas drilling.

“What’s going on and the way industry is behaving here is pitting neighbor against neighbor,” she said. “This community used to be tight-knit and not willing to grow. For years people didn’t have public water because people didn’t want development to come in.”

A car dealership, volunteer fire company, tavern and a few small shops break up the line of two-story homes along much of Route 50 in Hickory, Mt. Pleasant’s main drag. On a tree-lined drive near Fort Cherry School District’s campus, Wagner said her biggest concern is that natural gas extraction operations near the school that her two children attend could pollute the air. She said the township can’t afford air-monitoring equipment.

State law gives most municipalities two options to tax natural gas drilling companies as well as other businesses: property taxes if the firm owns the land, and earned-income taxes from workers if they live where they work.

Calculating the direct costs is difficult, said Timothy Kelsey, a professor of agricultural economics at Penn State University, who has studied shale-related costs and the industry’s tax revenue impact.

“In the long run, costs will become clear, but before that, how do you set (a fee) fairly?” Kelsey said.

The question could ultimately affect a municipality’s financial stability, say bond industry watchers.

It would be harmful if they can’t “keep up with needed infrastructure repairs or upgrades or cannot adequately fund other public services,” said Tom Kozlik, an analyst with financial services firm Janney Montgomery Scott of Philadelphia.

Many rural roads weren’t intended to accommodate heavy truck use, Kozlik noted in a March report.

Mt. Pleasant Police Chief Lou McQuillan said he received training to inspect and cite overweight trucks but there isn’t room in the township’s budget of roughly $1 million to buy a $10,000 scale.

He leaves the truck monitoring to state police. Three state officers spent nine-hour shifts Wednesday to Friday patrolling I-70 East and I-79 South in Washington County for overweight trucks. Police said the “predominant” source of inspections on I-79 were trucks from drilling sites.

During a crackdown March 14-15 known as “Operation FracNET,” state police focused on trucks carrying waste water from natural gas drilling sites.

In Allegheny, Fayette, Greene and Washington counties, state police conducted 194 truck inspections, placed 26 vehicles and one driver out of service and issued 72 traffic citations.

Statewide, police inspected 731 commercial trucks, took 131 of them out of service for violations and issued 421 citations. Faulty brakes and improper exterior lighting were the most common violations.

There are other concerns, McQuillan said. When fire erupted at 5:15 a.m. March 1 from a tank at a MarkWest Liberty Midstream Resources compressor station, McQuillan spent eight hours on scene.

He was the only one of the township’s three officers on duty.

“I can see what a burden this is, and we’re just one municipality,” Wagner said. “Now multiply that by all the municipalities in the state (with drilling).”

Newly elected Republican Gov. Tom Corbett said he recognizes the higher costs and is seeking a way to address them, though he has provided no specifics. He doesn’t want an “impact fee” to be routed through the Legislature where “it goes from one fund to the other,” he said.

Corbett opposes a statewide severance tax on gas extraction, but his openness to an impact fee prompted Democrats to criticize him for flip-flopping on a campaign promise not to raise taxes. Corbett’s staff has said the fee wouldn’t violate the governor’s pledge because municipalities, not the state, would impose the fee.

It could pay for more than just road repair, Corbett said.

“The impact can be schools — schools that are growing in that area. The impact can be to the social services network,” he said.

There are signs Marcellus shale drilling is benefiting portions of Pennsylvania’s economy.

Sales tax collections in Pennsylvania counties with 150 or more gas wells increased 11 percent from July 2007 to July 2010, according to the report from Kelsey, the professor. Counties with fewer than 150 wells saw a 3.1 percent decline; those with none had a 6.5 percent drop. The state average was a 3.7 percent decrease.

Matt Pitzarella, a spokesman for Range Resources in Cecil, said that’s an example of the “unprecedented economic impacts of shale gas development” in the state.

He noted an uptick this year in weekly wages in Washington County and an almost 50 percent increase in the number of Pennsylvania mining and logging industry jobs from 2007 to 2011, according to the Bureau of Labor Statistics.

The Marcellus Shale Coalition, an industry group, has warned that if a tax or fee is too high, it could drive energy companies away and hurt job growth. It’s open to the concept of compensating municipalities.

“If there are incurred costs of local governments from the development of this industry, we certainly want to make those municipalities whole that are hosting this industry,” said Kathryn Klaber, president of the coalition.

Mary Dalbo, 87, of Cecil said she was eager to lease 370 acres in Cecil, Chartiers and Findlay to Range Resources. Her profits will pay for her four great-grandchildren to attend college.

“(Range) put better roads in than the ones that they destroyed,” said Dalbo, who opposes an impact fee and rules that limit landowners’ rights.

Donald Gennuso, manager of Cecil, said municipalities that host drilling operations bring some costs on themselves when they go beyond what the state requires to satisfy nervous residents who want more scrutiny of gas extraction plans.

Since 2009, Cecil has spent $60,000 on lawyer fees related to oil and gas issues.

“Lawyers are making all the trouble,” Dalbo said. “… Why can’t the township supervisors think for themselves?”

Dencil Backus, 64, of Mt. Pleasant keeps close watch on a drilling site 200 feet from the edge of his rolling fields. A wild-game camera he set up in 2009 snaps photos every hour; he has saved thousands.

If a severance tax isn’t possible, a local fee on drillers might suffice, he said. He’s mainly concerned that shale fracturing will contaminate a spring that supplies water to the home he shares with his wife, Patricia.

“It doesn’t matter how it gets there, if it gets into the aquifer and the water, we’re dead,” he said.

Read more: Drilling economics divides struggling communities – Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/s_732702.html#ixzz1OSrEvEgL

Read more: Drilling economics divides struggling communities – Pittsburgh Tribune-Reviewhttp://www.pittsburghlive.com/x/pittsburghtrib/s_732702.html#ixzz1OSrC2mw2


Joe Price
Attorney Joe Price is a seasoned Trial Lawyer serving Northeast, Central and Southeast Pennsylvania for the past forty (40) years. He has handled serious personal injury cases in courts throughout the Federal system including New Jersey and New York. Attorney Price is A.V. Rated by Martindale Hubble. He is Board Certified in Civil Practice by the National Board of Trial Advocacy since 1996.