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8/3/2019 "The Economic Consequences of Marcellus Shale Gas Extraction: Key Issues" CaRDI Report on the Marcellus Shale

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CARDI REPORTS/ISSUE NUMBER 14/SEPTEMBER 2011

CaRDI ReportsISSUE NUMBER 14/SEPTEMBER 2011

CaRDI is a Multidisciplinary Social Sciences Institute of Cornell Universitywww.cardi.cornell.edu

The Economic Consequences ofMarcellus Shale Gas Extraction: Key IssuesA Research Project sponsored by theCornell University Department o City & Regional Planning

Department o Development Sociology

Cornell University


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ii CARDI REPORTS/ISSUE NUMBER 14/SEPTEMBER 2011

The Economic Consequences ofMarcellus Shale Gas Extraction: Key Issues

A Research Project sponsored by the

Cornell University Department o City & Regional Planning

by Susan Christopherson, Professor, Department of City & Regional Planning, Cornell University

CaRDI ReportsISSUE NUMBER 14/SEPTEMBER 2011

CaRDI is a Multidisciplinary Social Sciences Institute of Cornell University

www.cardi.cornell.edu

CaRDI Reports is a publication o Cornell Universitys Community & Regional Development Institute (CaRDI), edited by

Robin M. Blakely-Armitage. CaRDI publications are ree or public reproduction with proper accreditation.

For more inormation on CaRDI, our program areas, and past publications, please visit: www.cardi.cornell.edu.

Cornell University is an equal opportunity afrmative action educator and employer.


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CARDI REPORTS/ISSUE NUMBER 14/SEPTEMBER 2011 ii

Table o Contents

Introduction ......................................................................................................................................................................... 1

Acknowledgements .............................................................................................................................................................. 3

Te Boom-Bust Cycle o Shale Gas Extraction Economies. ................................................................................................... 4By Susan Christopherson and Ned Rightor

Te Economic Impact o Marcellus Shale Gas Drilling. What Have We Learned? What are the Limitations?..................... 5By David Kay

A Framework or Assessing Water Resource Impacts rom Shale Gas Drilling. .................................................................... 7By Susan Riha & Brian G. Rahm

Natural Gas Drilling in the Marcellus Shale: Potential Impacts on the ourism Economy o the Southern ier................. 8By Andrew Rumbach

Workorce Development Challenges in the Natural Gas Industry. ..................................................................................... 10By Jerey Jacquet

What Happens When Something Goes Wrong?Dealing with public health issues that come with hydraulic racturing..................................................................................... 12By Amanda Wilson and Lydia Morken

Hammer Down: A Municipal Guide to Protecting Local Roads in New York State. ........................................................... 14By C.J. Randall

Marcellus Shale: Te Case or Severance axes. ............................................................................................................................... 16By Sara Lepori


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IntroductionNew York and Pennsylvania have a long history o naturalgas extraction, including in the Marcellus Shale. Drilling isoccurring currently in both states. Recent public concernsabout shale gas drilling have revolved primarily around aspecic technology -- high volume hydraulic racturing(HVHF or racking). Hydro-racking uses millions o

gallons o water inused with chemicals in a drilling processthat ractures shale along bores drilled horizontally as well as

vertically to extract gas rom ormations deep underground.Te concerns with this technology have ocused particularlyon its potential eects on water supplies and quality. Tisis the central issue addressed in the Supplemental GenericEnvironmental Impact Statement (SGEIS) being developedby the New York State Department o EnvironmentalConservation. But the dra SGEIS, released in 2009,takes as a given that, while environmental considerationsare important, exploitation o this new natural gas assetwill produce signicant economic benets or New Yorkseconomy, reduce natural gas costs to state residents

and industries, and provide or long-term economicdevelopment. Media coverage o issues surrounding shalegas development has tended to reinorce this assumption.

Natural resource extraction industries typically play onlya small role in state economies; their employment impact istiny compared to industries such as retail or health servicesOn the other hand, these industries have major impacts onthe regions where production takes place. Shale gas drillingbrings an economic boom to the regions that experienceit. As drilling companies move into a community, localexpenditures rise on everything rom auto parts to pizza andbeer. New jobs are created in hotels and retail. Landownersreceive royalty payments and have extra spending moneyin their pockets. Tis increased economic activity is eagerlyanticipated in many parts o Pennsylvania and New York,especially in light o the great recession. o ully assessthe economic eects o shale gas drilling, however, policymakers and citizens need inormation on a wide range oquestions: Who will get the jobs that are created? Whatabout severance taxes? What are the costs o shale gasdrilling to the public? How will the costs and benets bedistributed? How will other regional industries be aected?Where will the royalty money be spent? How long will theboom last, and what happens when it ends?

During the past year, a group o researchers centered

at Cornell University undertook research to try to answersome o these questions, examining both the short-term(economic impact) and long-term (economic development)consequences o shale gas drilling and production. Ourspecic goal was to go beyond the narrow models thathave been used to predict the economic impact o shale gasdrilling, and to look at three issues:

1. How will the pace and scale o shale gas drilling aectthe short-term and long-term economic consequencesor counties in the Marcellus Shale gas play? What are

the implications or job creation, in the short term andin the long term?

2. What costs do communities ace in conjunctionwith shale gas drilling? What are the likely to be thecumulative eects o shale gas drilling and productionnot only rom the drilling process itsel, but also rom

the industrial inrastructure required to transport andstore the gas and to service the wells? How will thesecosts be aected by the pace and scale o drilling?

3. What evidence is there to tell us about the longer-termconsequences o developing an economy dependent onnatural resource extraction, and particularly naturagas extraction? What will happen aer the boom-bustcycle o drilling ends? How will other key industries beaected?

Our research ocused on Pennsylvania, where MarcelluHVHF drilling has already begun, and on New York, whichis considering how to regulate HVHF. Many states in

the U.S. have shale gas plays where HVHF is being usedhowever, and we can learn rom their experiences aboutwhat to expect, both in the short term and in the longerterm.

Because our goal was to answer complicated how andwhy questions, we used multiple methods including casestudies, interviews, and descriptive statistics. Some o thedata we gathered prompted us to ask, and enabled us toanswer, questions about how the pace and scale o drillingcould aect economic impacts. Overall, we wanted ourresearch to inorm the discussion o critical policy issuesand to provide citizens and policy makers with a rameworkor thinking about shale gas drilling and the questions itraises or long-term economic development in the Marcellusregions o Pennsylvania and New York.

Tis report presents executive summaries o the ndingso research conducted in conjunction with the project romMay 2010 to August 2011. (For a more in-depth picture oneach topic, please download the complete working papersand policy bries posted at http://www.greenchoices.cornelledu/development/marcellus/policy.cm.)

SusanChristophersonandNedRightorlayoutthefactorsthat drive the boom-bust cycle characteristic o naturalgas drilling, and their implications or the economic

consequences o Marcellus shale gas extraction. David Kay emphasizes whywe need to pay attentionto the assumptions that underpin the models that havebeen used to project jobs and taxes in Pennsylvania andNew York.

SusanRihaandBrianRahm tackle thewater resourceregulatory issues attending HVHF; their work makes thecritical point that signicant environmental dangers wil


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2 CARDI REPORTS/ISSUE NUMBER 14/SEPTEMBER 2011

occur beyond the well site, and will have to be addressedboth at the regional and at the state level.

AndyRumbachlooksatthepossiblecrowdingoutoftourism in drilling regions, and how to ameliorate theimpact o drilling to retain a diversied economy.

JereyJacquetexploreswhatkindofpubliceortswillbe needed to capture (short-term) drilling and (long-

term) gas production jobs or local citizens in the parts oNew York and Pennsylvania where natural gas jobs maydominate the local economy.

AmandaWilsonandLydiaMorken takea lookatoneimportant area where regulation and public resourcesare needed to meet the challenges o shale gas extraction:public health monitoring and services.

CJRandallexaminesanother importantareaofpubliccosts rom drilling, that o damage to local roads.

And nally, Sara Lepori looksat how severance taxesin shale gas producing states have been used to pay orshort-term public sector costs during the drilling boom,and protect long-term economic development prospects

in drilling regions.

Susan Christopherson, Ph.DProject Director


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AcknowledgementsWe are grateul or the nancial support and personalguidance o Philip R.S. Johnson, Senior Program Ocer orthe Environment Program at the Heinz Endowments, ando Park Foundation Executive Director Jon M. Jensen andProgram Associate Amy B. Panek, who together made thisproject possible. We are likewise grateul or the support othe Academic Venture Fund o the Cornell Atkinson Centeror a Sustainable Future or our work on monitoring air andwater quality in Marcellus Shale drilling regions, and or agrant rom the Appalachian Regional Commission to theSouthern ier Central Regional Planning and DevelopmentBoard that underwrote a companion study on potentialimpacts o shale gas extraction on the tourism economyo the Southern ier, ably administered by SCRPDBExecutive Director Marcia D. Weber.

More people than we can possibly name here contributedtheir knowledge and insights to our understanding o thiscomplex and multi-aceted topic, and we would like to thank

the many public ocials, industry executives, researchers,technical experts, cooperative extension agents, communityleaders, advocates, and interested citizens o New York andPennsylvania who helped us in our eorts.

Tose at Cornell University who contributed to both thesubstance and, crucially, the administration o this project

include Katia Balassiano, Brett Chedzoy, Kristen Ford, omFrank, George Frantz, Al George, Danielle HautenemiCharlie Kruzansky, Susan Reed Lewis, Katie Lopez, HeidiMouillesseaux-Kunzman, Zoe Nelson, Alexis Saba, SarahSmith, Mort Sosna, Rich Stedman, Je ester, Paula Willsieand especially, Rod Howe and Robin Blakely-Armitage atCaRDI.

Ten theres our intrepid research team. Not only the leadauthors mentioned above, but City & Regional PlanningDepartment Chair Kieran Donaghy, Isaac Argentineauom Knipe, Vivien Li, Jack Lowe, Javier Perez Burgos, SamScoppettone, David West, and the members o the Spring2011 CRP Workshop on the Marcellus Shale all contributedmightily to this project.

Finally, we would like to acknowledge in particular themembers o the New York State Legislature who shared withus their thoughts and concerns: Aileen Gunther, Membero the Assembly, 98th District; Barbara Lion, Member o

the Assembly, 125th

District; Donna Lupardo, Membero the Assembly, 126th District; and William Parmentormer Member o the Assembly, 150th District. In NewYork, the necessary legislative action, authorizations, andappropriations to meet the challenges that we have identiednow lies with them and their colleagues.


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The Boom-Bust Cycle o Shale Gas Extraction EconomiesSusan Christopherson and Ned Rightor

their subcontractors in a shale play requires an analysiso the costs and delivery rates o well operations, marginso commercial protability, and corporate nancial andcompetitive relationships.

For those living in the Marcellus Shale region, oil andgas industry assessments o the commercial viability owells and how to best exploit the resource have importantconsequences. For example, in the Barnett and Haynesvilleshale plays, high initial production rates dropped o rapidly.What that means or shale gas dependent local economies isthat the bust may come sooner than they expected, withadverse implications or tax revenues and jobs. Industryinvestment advisors are cautious about the long-termproductivity o all U.S. natural gas plays.

But because the Marcellus Play is large and geologicallycomplex, the play as a whole is likely to have natural gasdrilling and production over an extended period o time.

While individual counties and municipalities within theregion experience short-term booms and busts, the regionas a whole will be industrialized to support drilling activity,and the storage and transportation o natural gas, oryears to come. Counties where drilling-related revenueswere never realized or have ended may still be impactedby this regional industrialization: truck trac, gas storageacilities, compressor plants, and pipelines.Te cumulativeeect o these seemingly contradictory impacts -- a serieso localized short-term boom-bust cycles coupled withregional long-term industrialization o lie and landscape-- needs to be taken into account when anticipatingwhat shale gas extraction will do to communities, theirrevenues, and the regional labor market, as well as to theenvironment.Eective planning to moderate the speed atwhich extraction occurs, and a commitment to invest theshort-term inusion o private and tax revenue in longer-term economic development, maymitigate the eects o theboom-bust cycle.

Susan Christopherson is a Professor in the Department of City

and Regional Planning at Cornell University. She is an EconomicGeographer, who has led a series of policy research projects to develop,

analyze or evaluate strategies for economic development and jobcreation in New York State. Ned Rightoris President of New

Economy Dynamics LLC, a research and consulting rm focused onworkforce development and economic development projects throughoutthe northeast. Their complete report is available for download at http://

greenchoices.cornell.edu/development/marcellus/policy.cfm.

Te extraction o non-renewable natural resources such asnatural gas is characterized by a boom-bust cycle, in whicha rapid increase in economic activity is ollowed by a rapiddecrease. Te rapid increase occurs when drilling crews and

other gas-related businesses move into a region to extractthe resource. During this period, the local population growsand jobs in construction, retail and services increase, thoughbecause the natural gas extraction industry is capital ratherthan labor intensive, drilling activity itsel will producerelatively ew jobs or locals. Costs to communities alsorise signicantly, or everything rom road maintenanceand public saety to schools. When drilling ceases becausethe commercially recoverable resource is depleted, thereis an economic bust -- population and jobs depart theregion, and ewer people are le to support the boomtowninrastructure.

In the case o high volume hydraulic racturing orMarcellus shale gas, the pace and scale o drilling willdetermine the duration o the boom period in the cycle.And because the public costs are greater with more rapidboom-bust cycles, communities and states anticipating thiskind o economic pattern need to understand what willinfuence the pace and scale o drilling.

Tere are two ways to orecast the pace and scale odrilling in a shale gas play. Te rst is based on what is

geologically and technologically possible: an analysis ototal potential natural gas reserves and the capacity oexisting or anticipated technologies. Te other is based onbusiness dynamics in the energy industry, and looks at whatare the likely strategies o energy rms in response to theirprot opportunities in particular shale plays and overall.An understanding o the choices made by operators and


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The Economic Impact o Marcellus Shale Gas Drilling:

What Have We Learned? What are the Limitations?David Kay

Fourth: we review the long-term economic prospectsor regions dependent on natural resource extraction

industries. In particular, we consider the relevance osubstantial research that points to the possibility odiminished long-term economic prospects or regions orcommunities that become overly dependent on naturaresource extraction industries.

Te amount o natural gas expected to be extractedand sold to consumers each year has the most infuenceon the results o all o the economic impact studies wereview. In some studies, this quantity is a calculation basedon drilling rates and sales actually observed in the recentpast. In others, it is an assumption or projection into theuture. However, even in more mature shale gas elds in

southern and western states, only the early stages o a ulldevelopment cycle have been observed. Te Marcellus playis in the initial phase o exploration and production. Tusassumptions or observations supporting the estimates outure drilling rates still involve signicant uncertainty, arecontroversial, and deserve intense scrutiny. At this point, nosingle perspective can be said to have a lock on the rightestimate o the number o wells that will be drilled, theultimate recovery rates o shale gas, or uture gas prices.

Te assumptions made about who has claims on therevenue streams generated by gas production are nearlyas important as those about the rate o development o theplay as a whole. Particularly critical or regional economic

impact analyses are:1. how drilling revenues will be split between people and

businesses located inside the region versus outside theregion; and

2. or money that does enter the region, the share thatwill go to landowners versus the share that will go todrilling related businesses.

Current estimates o these proportions are not stronglysupported and will, in any event, evolve over time.

We conclude that existing evidence about the Marcellusshale gas operations is inadequate to make condenpredictions about the numbers o jobs that will be createdbusiness expansion, or revenue generation.

Gas development is already directing new money intothe Marcellus region, and the prospects or substantiashort-term economic gain or some local businesses and

For several years, the prospects or energy developmentrom gas deposits in tight shale ormations have riveted the

attention o natural gas industry boosters and detractorsacross the US. In southern and western shale-rich states,the shi towards shale gas production is denitivelyunderway, i yet in its early stages. In New York in themiddle o 2011, unconventional shale gas drilling remainson hold as debates over the pros and cons o a nascent21st Century gas rush are ercely engaged. In New York aswell as in Pennsylvania, where shale gas drilling has onlyrecently begun, the extensive Marcellus Shale ormation isat the center o policy attention. Few natural resource issueshave moved rom obscurity to center stage in so dramatic aashion and within such a short time rame.

Extractive natural resource development has requently

been described as transormative to regions that experienceit. Many citizens believe that the uture o New Yorkseconomy, environment, character, and quality o lie are atstake because o the geographic breadth o the Marcellusnatural gas play and the anticipated scale and pace oits development. Environmental issues, especially thoseinvolving water, are currently being intensively scrutinized.However, in this brie we ocus our attention on the economy.Our primary goal is to review the existing research into thelikely economic implications o shale gas development, andto raise questions about what policy makers need to know.

We highlight our key issues that have not been adequatelyaddressed by existing economic impact models but which

are critical to understanding the economic consequences oshale gas drilling.

First:weexamineexistinginput-output-basedstudiesofthe economic impacts o shale gas operations, ocusing onthose that have been reerenced in New York States stillevolving environmental impact assessment documents.Because these studies involve projections based onmodels, we look careully at several central assumptionsthat aect model results.

Second:wediscussthemostcriticalfactorthatwillaectthe regional and local economy the uncertain pace,scale and geographic pattern o drilling operations, andthe associated need to better understand oil and gascompany decisions about where, when and how manywells to drill.

ird: we highlight the need to better understandthe economic behavior o landowners who receivea signicant raction o gas company local spendingthrough leasing bonuses and royalties.


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property owners are real. Many economic developmentopportunities will also arise.

On the other hand, mixed economic results are alsooccurring even in the short run. Te rising tide is notlikely to li all boats: there will be losing communities, andindividuals who are displaced or le behind. Moreover, theexperience o many economies based on extractive industries

warns us that short-term gains requently ail to translateinto lasting, community-wide economic development. Mostalarmingly, a growing body o credible research evidence inrecent decades shows that resource dependent communitiescan and oen do end up worse o than they would havebeen without exploiting their extractive reserves. When theeconomic waters recede, the fotsam le behind can lookmore like the aermath o a food than o a rising tide.

In the end, it seems clear that neither riches nor ruin areinevitable. Te academic consensus is that the quality opolicy and governance makes an important dierence to therealization o an extractive industrys long-term economicdevelopment potential. Te prospects or positive economic

impacts in the short run should not blind policy makersto the potential or long term harm to overall economicdevelopment, especially when responsible, proactivepolicies may reduce and even reverse that risk.

David Kay is a staff economist and Senior Extension Associatewith the Community and Regional Development Institute in the

Department of Development Sociology at Cornell University. Thecomplete report is available for download at http://greenchoices.cornell.

edu/development/marcellus/policy.cfm.


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A Framework or Assessing Water Resource Impacts rom Shale Gas DrillingSusan Riha & Brian G. Rahm

importance and diering causes so that proper measurescan be taken to avoid or mitigate negative consequencesMaking a distinction between surace and subsuraceimpacts is also necessary to determine whether or not

current and proposed regulations adequately address various gas extraction related activities, and who shouldhave the responsibility or regulating those activitiesIdentiying clear roles or local, state and ederal agenciesmay help avoid lapses in critical oversight.

More specically, we make the ollowing suggestionswith respect to public policy and shale gas regulation inNew York State:

A water withdrawal permitting system, with datacollection and management unctionality similar to thaemployed by the Susquehanna River Basin Commissionshould be established state-wide. (NY State legislation on

this issue is pending.) Useofprivateindustrialtreatmentfacilities(ratherthan

municipal acilities) or highly concentrated and complexwaste waters such as fowback and produced water.

Stringenton-sitecontainmentpracticestoaddresswateresource impacts associated with spills and leaks.

Afastandtransparentreporting systemto ensurethaunplanned events trigger eective responses romemergency and regulatory personnel.

Testingofprivatedrinkingwaterwellspreandpostgasdrilling to establish any link between drinking waterquality and drilling related impacts.

General Stormwater SPDES permit requirements andor other enorceable requirements or containmentmonitoring, and compliance measures that take intoaccount the unique phasing and layout o shale gasoperations.

Unortunately, gas extraction related events that havenegative consequences or water resources will occur. NewYork has an opportunity to plan or mitigation o theseimpacts now. It also has an obligation to communicate toresidents both the inherent risks o gas development andthe allocation o responsibility or its regulation. Workingtogether, industry and regulators can manage the range o

possible negative impacts on water resources associatedwith shale gas drilling, and develop transparent monitoringand reporting systems that assure the public that shale gasdrilling is occurring in a manner that protects our citizens.

For more inormation, please visit the New York State WaterResources Institute online at http://wri.eas.cornell.edu/

Susan Riha is Director o the New York State Water Resources Institute

at Cornell University.

Brian G. Rahm is a postdoctoral research associate, also with the NYS

Water Resources Institute.

Illustration byLaura Buerkle

Recovering natural gas in the Marcellus Shale currentlyinvolves withdrawing large volumes o surace water, usinglarge quantities o chemicals in close proximity to suraceand ground water, disposing o waste water, and preventing

gas and other ormation fuids rom entering potablegroundwater during drilling and hydraulic racturing. Wepresent a ramework or organizing and assessing theseimpacts on water resources that identies (1) impacts thatare certain, which can be planned or, as well as (2) impactsthat are uncertain (accidents), which must be addressedthrough risk assessment, preventative practices, andreporting and monitoring structures. Te Water ResourcesInstitute ramework can be used to help stakeholders betterunderstand the wide range o events associated with shalegas drilling that will, or could potentially, impact waterresources.

Distinguishing between certain and uncertain events isimportant rom both a public policy and communications

perspective:

Certain events (those that are planned, such aswaterwithdrawal and waste disposal) can be managed andregulated to minimize or avoid impairments to suraceand groundwater, and also to control and monitor thescale and pace o development.

Uncertain events (spills and leaks, contaminantmigration) can be minimized by targeted regulation,encouragement o preventative management practices,establishment o timely and accurate reportingguidelines, and emergency response planning.

Distinguishing between surace and subsurace impactsis also useul. Surace impacts, which encompass a widerange o activities occurring at various locations, are morecommon than subsurace impacts, and are likely to representa more signicant threat to environmental water resources.Subsurace impacts associated with ailures in cementing,casing and pressure management have received signicantpublic attention and scrutiny, but are likely to pose relativelyew and site-specic threats to water resource quality ascompared to surace impacts.

Both surace and subsurace impacts warrant seriousattention rom all stakeholders. It is important or policymakers and regulators to understand their relative


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Natural Gas Drilling in the Marcellus Shale:

Potential Impacts on the Tourism Economy o the Southern TierAndrew Rumbach

$1,181 per household. Tough the tourism sector creates asignicant number o jobs in the SC region, it is likely that

the value o gas drilling, measured simply by jobs createdand wages generated, will exceed the value o tourism inthe short term. It is also likely that many tourism relatedbusinesses, including hotels, restaurants, and shopping

venues, would benet rom the infux o gas workers. Teseobservations come with two major caveats, however. First,tourism brings many non-monetary benets to the SCregion and its communities. Second, whereas many tourismrelated businesses are locally owned and operated and arethus part o a long-term economic development trajectoryor the region, the employment boom in gas drilling willbe relatively short-term and non-local.

One o the central questions conronting the tourism

industry is whether drilling will permanently damage thecareully developed brand o the region. Individual impactsare unlikely to have serious and long-term consequences,but without mitigation, cumulatively they could dosubstantial damage to the tourism sector. Examples o suchimpacts include strains on the available supply and pricingo hotel/motel rooms, shortalls in the collection o room(occupancy) taxes, visual impacts (including wells, drillingpads, compressor stations, equipment depots, etc.), vastlyincreased truck and vehicle trac, potential degradation owaterways, orests and open space, and strains on the laborsupply that the tourism sector draws rom. All told, theregions ability to attract tourists could be damaged in the

long-term i the perception o the region as an industriallandscape outlasts the employment and monetary benetso gas drilling.

Te pace and scale o gas drilling will be a crucialdeterminant o the overall impact on the tourism economyin the Southern ier. Nearly every negative impact o drillinglisted above could be more or less disruptive depending onthe pace and scale o drilling; ewer permits per year meana lower volume o truck trac on primary and secondaryroads, ewer visual impacts and less chance o multiple rigsin view-sheds, an increased but not overwhelming demandon hotel rooms and short-term accommodations, ewerpressures placed on the local labor supply, and so on.

Municipal and County governments have manytools at their disposal to help mitigate the impacts o gasdevelopment. Municipalities can regulate many o theindustrial developments associated with gas drillingthrough comprehensive planning and zoning or during

While much o the debate over gas drilling in the MarcellusShale ocuses on the potential environmental impacts,

there is also concern that gas extraction will create aboom-bust economic development pattern seen in manyresource rich regions and countries. Shale gas drilling instates like Wyoming, exas, and Pennsylvania has hadserious economic consequences or adjacent industrieslike agriculture and tourism because o the widespreadindustrial activity that accompanies drilling. Tis reportexamines the potential impacts o gas drilling on the tourismindustry in the three-county region served by the New YorkSouthern ier Central Regional Planning and DevelopmentBoard (SC).1 ourism is an important and diverse sectoro the economy o the Southern ier, and understandingthe potential impacts o gas drilling on the tourism industry

is important or business owners, elected ocials, andplanners concerned with economic development in theregion. Tis paper addresses three major questions: 1) Whatis the value o the tourism sector to the economy o the SCregion? 2) In what ways might gas drilling in the MarcellusShale impact the tourism economy, now and into theuture? 3) I gas drilling could potentially harm the tourismsector, what policies or strategies might help to mitigatethose negative impacts? It is based on published reports,news articles, and studies related to gas drilling, empiricaldata rom ederal and state agencies, and interviews withpublic ocials, gas drilling experts, business owners andoperators, civic organizations, advocacy groups, and other

local stakeholders.Te SC region has a diverse range o tourism assets, both

urban and rural in character. Te tourism brand o theSouthern ier is very much intertwined with agriculture;rolling hills, scenic armlands, rural vistas, and viticultureall contribute to drawing tourists . Supporting and growingthe tourism sector is a key component o economicdevelopment strategies or the counties in the SC regionover the next several decades. In 2008, visitors spent morethan $239 million in the SC region across a diverse rangeo sectors. Te tourism and travel sector accounted or 3,335direct jobs and nearly $66 million in labor income in the SCregion that year. When indirect and induced employmentis considered, the tourism sector was responsible or 4,691

jobs and $113.5 million in labor income.2 In addition, thetravel and tourism sector generated nearly $16 millionin state taxes and $15 million in local taxes, or a totalo almost $31 million in tax revenue -- a tax benet o


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the site planning process. Tese regulations might addressthe location, size, appearance, or operation o gas related

inrastructure, buildings and sites, and should be developedand passed with the intention o mitigating the impacts ogas development on tourism and other adjacent industries.Te ull study makes additional recommendations that localand county governments take a proactive stance towardsdrilling and its attendant impacts by conducting truck tracimpact studies, making adjustments to the county room taxlaws, and taking common-sense steps in site design andoperations to reduce the visual impacts o drilling activities.Prepared byAndrew Rumbach or the Southern ier Central Regional

Planning and Development Board, with support rom the Appalachian

Regional Commission. Andrew Rumbach is an Assistant Proessor in

the Department o Urban and Regional Planning at the University oHawaii. Te complete report is available or download at http://www.

stcplanning.org/index.asp?pageId=195.

1 STC serves Chemung, Schuyler, and Steuben Counties in upstate New York.2 Employment numbers or the tourism and travel industries exclude wine production and

vineyards. Wine and wine tourism is an emerging industry in the STC region, however, and

employment in the industry is largely driven by tourism dollars. According to the New York

State Department o Labor, 18 rms in the STC region were classied as wineries in 2010

and employed 275 people. An additional 8 rms were classied as grape vineyards and

employed 63 people.


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Workorce Development Challenges in the Natural Gas Industry

Jefrey Jacquet

SummaryTousands o (mostly) short-term and (some) long-term

jobs will be created as natural gas extraction takes place

in the Marcellus Shale, presenting both employmentopportunities and workorce development challenges.Tese jobs ound primarily on crews needed during thedrilling and completion process are not or everyone;they require a diverse skill set and a rigorous work ethic.In Pennsylvania, the industry has thus ar relied on out-o-town workers or many o these hard-to-ll roles, butover time will replace a portion o these workers with localemployees -- i they are available. A similar pattern is likelyto be repeated in New York.

Key Points Job creation is primarily dependent on the pace and

scale o drilling, which has proven to be very dicult topredict.

AstudybyPennsylvaniasMarcellusShaleEducationandraining Center (MSEC) ound that about 98% o jobsare concerned with developing the gas well, and are notneeded aer the well has been drilled, while 2% o the

jobs are concerned with the long-term production ogas. I production lasts 20-30 years, and i many wellsare drilled in a region, those production jobs can stillamount to a sizeable workorce.

emajorityofjobsdonotrequire advanced skills ortraining, but they do require a basic orientation to theindustry and its technologies and terminology, as wellas experience with the work conditions and schedulesrequired.

e industry is largely comprised of an array ofindependent contractors and subcontractors, and lacks astandardized training curriculum.

Development o the Marcellus Shale will be signicantlymore industrial in nature, technologically advanced,and labor intensive than the shallow natural gas drillingtraditionally carried out in New York State and Pennsylvania.

Clearing and constructing a natural gas well site,drilling and casing the well, perorming the hydro-

racturing process, and constructing the associated pipelineinrastructure are all considered part o the Drilling Phase.Tese jobs include the roughnecks who work on drillingrigs, excavation crews, CDL (tractor-trailer) drivers,heavy equipment operators, hydro-racturing equipmentoperators, and semi-skilled general laborers.

Aer this work is perormed, the number o workersneeded to keep producing gas or the remainder o thelie o the well -- the Production Phase -- is much smaller.

MSEC ound that approximately one worker is needed tomonitor and maintain 6 wells under production. However,occupations associated with the production phase tend to be

less labor intensive, more location specic, less hazardous andmore specialized than drilling phase occupations, while stillproviding excellent wages and benets. Tese include welloperators (or well tenders), instrumentation technicians,pipetting and welding technicians, production engineers,and oce sta (although most oce-based occupations areound in regional or corporate headquarters, and are nothired in the communities where drilling takes place).

While comprising less than 5% o the total workorce, jobsassociated with the Production Phase will remain local andpredictable, and these jobs will be required even i drillingceases completely. Most o these occupations require eitherexperience or vocational education that makes employees

well suited or on-the-job training.

A Complex Workorce Training OpportunitySo, while a number o studies have projected impressivelevels o job creation, the actual job picture will be muchmore complicated. In general, local residents will ndrelatively ewer opportunities or accessible and stableemployment in the short term, although opportunities maygrow over time. In Western states, employment statisticshave shown natural gas industry employment increasing inlocal areas despite declining natural gas activity, refecting

jobs that have become more local to the area over time.Te complicated chain o contractors and subcontractors

upon which the gas industry relies leaves hiring practicesand training programs largely uncoordinated. Manycompanies will provide on-the-job training to their workers either in- house or via private training rms but theocus o training remains largely company specic. Tereis not yet a recognized curriculum standard or either thedrilling or production phase jobs in the industry.

I they are realistic about the prospects or drilling phasevs. production phase jobs, local workorce training programscan help to lter in local employees that are well-suited tothe industry, provide them with a basic orientation to theskills required, and steer these workers towards gas industry

occupations that are sae, well-paying, and will keep themin the region or the long term. A concerted eort tomatch local workers with high quality jobs will rst requiresignicant investment in local educational institutions(community colleges, high schools, and other trainingprograms) to provide workorce education, technical, andtrade programs to local workers interested in these types o

jobs. Examples o such workorce training programs existin other gas producing regions, including those underwayin Pennsylvania, while some smaller initiatives are beinginvestigated in New York State.


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CARDI REPORTS/ISSUE NUMBER 14/SEPTEMBER 2011 1

Te majority o programs are one to two years and oeran array o introductory classes in areas such as welding,electrical work and instrumentation, with the content

specically tailored to gas industry applications. Animportant component to these programs is typically a GasIndustry 101 class that introduces students to the culture,terminology and equipment in the drilling industry, andthe schedules and working conditions involved, whichserves to screen out potential employees who nd theseunappealing. Tey provide a basic orientation to the typeso jobs available in natural gas drilling and production,and such rudimentary skills as saety practices, welding,and instrumentation. Such an orientation positions localworkers as pre-tted or entry-level positions and on-the-

job training provided by the gas industry.

Jefrey Jacquet is a natural resource sociologist, and has provided social

and economic impact assessment o natural gas development since 2005.

Te complete report is available or download at http://greenchoices.

cornell.edu/development/marcellus/policy.cm.


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What Happens When Something Goes Wrong?

Dealing with public health issues that come with hydraulic racturing

Amanda Wilson and Lydia Morken

on the ground who rst respond to and report those issues,or who provide care or secondary public health impacts.Jurisdiction over any HVHF-related environmental healthissue will depend on the level o government at which a

relevant regulation is in place (e.g. i a municipal regulationpertains, a municipal agency responds; i a State regulationpertains, a State agency responds), the language in the nalSGEIS, the nature o the problem, or the level o threat itposes to health and saety. But at this point, most CHDshave not made provisions or potential environmental issuesbeyond water well complaints, nor or possible secondaryhealth impacts.

What Do County Health Departments Tell Us?We interviewed Countylevel ocials that typically handlewater well issues in seven Southern ier counties: Broome,Chemung, Chenango, Sullivan, ioga, Schuyler, and

ompkins.5 Counties dier in how they handle these issues;depending on the county, water well issues are investigatedby an Environmental Health Division (EHD), a WatershedProtection Agency, a Water Resources Specialist, or a CodeEnorcement Ocer. We asked the responsible agency howtheir CHD anticipates handling complaints; whether theyhave the capacity and expertise to manage drilling-relatedhealth complaints; and whether protocols exist or handling

various other public health impacts.

What is the Issue?

As New Yorks Department o Environmental Conservation(DEC) works towards the nal Supplementary GenericEnvironmental Impact Statement (SGEIS) or high volumehydraulic racturing (HVHF) o the Marcellus Shale,counties are anticipating the potential impacts gas drillingwill bring. County Health Departments (CHDs) representthe ront line in responding to concerns about public healthimpacts and nuisance issues and will be the primaryresponder and investigator o water well complaints.1 Willcounties and their CHDs be able to ulll this role oncedrilling begins? o answer that question, we surveyedCHDs in areas expected to experience drilling. We alsospoke with current and ormer employees o the DEC, New

Yorks Department o Health (DOH), the New York StateAssociation o County Health Ocials (NYSACHO), andthe Conerence o Environmental Health Directors (CEHD)to get their perspectives on the issue.

What is the Role o County Health Departments?CHDs perorm a broad range o unctions rom leadpoisoning prevention to restaurant inspections to privatewater well support. In the Preliminary Revised DraSGEIS, DEC proposes that county health departmentsretain responsibility or initial response to most water wellcomplaints, reerring them to the [DEC] when causes otherthan those related to drilling have been ruled out.2 CHDs,

the DEC, and the DOH are responsible or water wellcomplaints (see able 1), but exactly how the agencies will

jointly investigate cases remains unclear.3

How CHDs are to respond to other HVHF-related publichealth complaints is also unclear. DMN indicates that:Investigation o water well complaints is the only roleor CHDs [sic] discussed in the GEIS and SGEIS.4 WhileCHDs may or may not have regulatory jurisdiction overother environmental health issues, they are oen the troops

Abbreviations o Agencies Cited

DEC NY Dept o Environmental ConservationDMN DECs Division o Mineral Resources

DOH NY Dept o Health

CHD County Health Dept

EHD Environmental Health Division

NYSACHO NYS Association o County Health Ocials

CEHD Conerence o Environmental Health Directors

Agency Responsibility

CHDs Primary role in initial complaint response; conrm wellcontamination and determine cause

Secondaryroleincomplaintfollow-up

DECs Division o Mineral Resources (DMN) Secondaryroleininitialcomplaintresponse Primaryroleincomplaintfollow-uponceCHDndscontamination

to be HVHF-related

DOH AssistCHDsininvestigationsofcomplaints


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Most ocials said that they lack the sta capacity, and

in some cases the expertise, to handle an infux o calls andinvestigations. Most CHDs have the sense that the issue isout o their hands and are in wait-and-see mode. Somesaid they would like to plan ahead but lack time or resources,and do not know what to expect in terms o complaint

volume. Some are looking or answers rom the additionalsocioeconomic sections o the SGEIS to be released.

No additional resources have been identied or CHDs,and it is unclear how they will be able to respond to newpublic and environmental health concerns. Members othe CEHD have been meeting quarterly with DOH sta toaddress potential demands. But any support or the countiesrom the DEC, DOH, or other state-level sources will not be

delineated in the nal SGEIS, and instead must be broughtabout through a Memorandum o Understanding (MOU),a grant program, or legislation.

What Could Help County Health Departments RespondMore Efectively?In a letter to the New York State Association o County HealthOcers (NYSACHO), the CEHD states: Te impactedcounties WILL see a substantial increase in workload, andsimply CANNO handle it without appropriate undingor sta, analytical support, etc.6 A list o key requests andconcerns rom CHDs and the CEHD includes:

1. A Statewide MOU.CEHD advocates A statewide Memorandum oUnderstanding (MOU) between NYSDEC, NYSDOH,and the local health departments or investigating waterwell complaints.7 Tis MOU would outline the role andactivities o all agencies involved, and would replace a 1985MOU between the DEC and three counties (Allegany,Cattaraugus, and Chautauqua).

2. Response Resources.CEHD recommends that additional unding or oversightshould be derived rom the gas companies via permit

ees, with a mechanism to transer unds rom NYSDEC toNYSDOH and [local health departments].8 No mechanismcurrently exists to redistribute permit ees to DOH or CHDs;to do so will require legislation. Article 6 reimbursementsrom the State or environmental health programs classiedas optional by NYSDOH were eliminated rom the 2011-2012 budget.9 As CEHD urges, State Aid unding dedicatedto addressing individual water issues needs to be continuedand enhanced.10

3. Representation and Involvement.CEHD also requests a role in the gas permitting processled by DMN. Additionally, involved counties urge the

appointment o DOH, county, and CHD representatives to

DECs new Hydraulic Fracturing Advisory Panel, ormed todevelop recommendations to avoid and mitigate impactsto local governments and communities.11

4. Notication.DEC recommends that the (drilling) operator, at its ownexpense, sample and test all residential water wells in the

vicinity prior to, during, and up to a year aer drilling andhydraulic racturing or natural gas, and that the test resultsbe supplied to the well owner.12 CEHD recommends thaCHDs also receive those results or environmental healthmonitoring.

ConclusionCounty Health Departments (CHDs) are the ront linein responding to public and environmental health issueswhether or not the SGEIS designates them as the primaryresponse agency. Te requests by CEHD outlined aboverepresent the minimum level o resources and authority theywill need to adequately protect public and environmentahealth when HVHF drilling begins in the state.

Amanda Wilson andLydia Morken are Masters in Regional Planning

candidates in the Department o City and Regional Planning at Cornel

University.

1 CEHD letter NYSACHO, April 2011, page 2

2 2011 Preliminary Revised Drat SGEIS, Page 8-4

3 See Table 8.1 o 2011 Preliminary Revised Drat SGEIS and Table 15.1 o the 1992 GEIS

4 Personal communication with DECs DMN, August 1, 2011

5 Because Steuben and Delaware Counties do not have an EHD and reer environmenta

health concerns to a New York Department o Health (DOH) District Oce, they were no

interviewed.

6 CEHD letter to NYSACHO, April 2011, page 2 (emphasis in the original)

7 CEHD letter to DEC, Dec 2009, page 5

8 CEHD letter to NYSACHO, April 2011, pages 1-2

9

New York State Association o Counties and the New York State County ExecutivesAssociation, Enacted 2011-12 New York State Budget County Impact Summary, May

19, 2011, http://www.nysac.org/legislative-action/documents/11_12State_Budget

UPDATEDSummary.pd

10 CEHD letter to NYSACHO, April 2011, page 2

11 DEC, http://www.dec.ny.gov/press/75416.html

12 2011 Preliminary Revised Drat SGEIS, page 7-46


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Hammer Down: A Municipal Guide to Protecting Local Roads in New York StateC.J. Randall

Sign a Road Use Agreement (RUA) at the time opermitting, requiring that the operator (drillingcompany) oset the predicted loss o useul lie or the

roads they will use at current reconstruction prices(estimated cost: $1,000-$3,000 or draing). Develop and implement a haul route management

system to keep heavy trucks o the most vulnerableroads (estimated cost: $3,000-$9,000).

Enorce load zoning, ranging rom routine patrols tohigh-intensity, multi-agency enorcement sweeps.

A comprehensive trafc impact studyA thorough study weighs dierent criteria to classiy agiven road into one o six structural classes, enablingmunicipalities to judge when that roads condition threatens

public saety or the passage o critical operators such asemergency vehicles. It determines the total number o wheelloads o various magnitudes and repetitions the road canbear, describes the roads visual condition, and identiesthe materials used to construct the road and their useulliespans.

Variations in temperature change the stability o a road,and heavy truck trac during the spring reeze-and-thawcycle can wreak havoc. est in May and again in August/September to collect a ull range o data i possible; i not,test between June and October.

Document baseline road conditionsake a video and photographic inventory o current roadconditions, logging speed and where ootage begins andends geographically. Gather measurements o road length,width, pavement thickness, and sight distance.

Road Use Agreements (RUAs)Some RUAs are complex documents conceived rom a tracimpact study; others are simple contracts established yearsago. A comprehensive RUA includes trigger clauses thatrequire developers to submit haul routes to a town beorea permit is issued, eectively connecting the RUA to roaduse. In New York, any RUA between a municipality and anoperator should be placed on le with the NYS Departmento Conservation as recommended in the SGEIS.

Haul route managementHeavy road use by Marcellus drillers lies at the legalconfuence o the New York State Municipal Home RuleLaw,1 the Vehicle and rac Law,2 and the EnvironmentalConservation Law (ECL),3 a circumstance with no clearprecedent. Te statutory language o ECL-23 authorizeslocal governments to establish reasonable road regulations.Load zoning is permitted provided that the route providesaccess to all state routes entering or leaving town.4 o belegally deensible, load limits must be based on a structural

What is the Issue?Dust, noise, and road damage rom industry truck travelare major citizen complaints in regions where shale gas is

extracted via high-volume, horizontal hydraulic racturing(hydroracking). A typical Marcellus Shale well requires5.6 million gallons o water, delivered and removed bytruck. Te initial drilling phase accounts or hal o theestimated 625 to 1148 truckloads o water, additives, anddrilling or racturing equipment required or each wellsite. Unlike state highways and county primary roads, localroads are generally not built to stringent guidelines, andwill not handle that volume o trucks or the weight thosetrucks typically carry. Local road quality management isimperative, and also provides a way that municipalities canmanage the pace and scale o drilling.

Road Impacts and CostsRoad access and maintenance are critical to shale gasexploration. At the same time, drilling communities areseriously aected by the attendant road damage. Localroads have neither the width nor depth to handle sustainedpummeling by heavy trucks; sinkholes, 6 to 10 o rutting,and complete road ailures are not uncommon. Te impacto 1000 extra trucks per year on a county primary road usesup 0.13% o that roads liespan, but the impact o thosesame trucks on a town road consumes 2% o that roads lie.

For example, damage rom drilling trucks inPennDO District 3-0 (Bradord, Columbia, Lycoming,Northumberland, Snyder, Sullivan, ioga, and Union

Counties) has been sustained and severe, and the Districthas had to post weight limits on 1500 miles o road since thestart o Marcellus drilling. Overall, more than 4000 roadshave been posted in Pennsylvania. Yet bond security costsor overweight truck travel on a posted road there thenancial incentive or a company to repair road damage are limited to a maximum o $6,000 per mile or unpavedroads and $12,500 per mile or paved roads. Tis is adequateto cover only 10- 20% o the damage; road reconstructioncan easily exceed $100,000 per mile. Additional public costsor protecting roads -- pre-bonding surveys, road conditionsurveys, new data collection systems, and posting roads --are also signicant.

Best PracticesTe ollowing is a set o best practices drawn rom theexperience o other states and shale plays:

Conduct a comprehensive trafc impact studywith theassistance o a trac engineering rm to clearly deneroad structural classes (estimated cost: $3,000-$6,500).

Document baseline road conditions and calculate the value o remaining road lie (estimated cost: $1,000-$5,000).


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evaluation rather than determined arbitrarily by weight.Municipalities may not pass ordinances that impose a tax oree or the use o public roads[5], but comprehensive RUAs

that link capacity o the road to permitting or high-impact,high-requency truck trac may be implemented with theexpressed intent o public saety and preservation o theroad.

EnorcementReports rom Pennsylvanias Northern ier suggest thatnatural gas operators are running trucks carrying loadsover the legal limit o 80,000 pounds or a semi-trailertruck. Since January 2010, Pennsylvania State Police haveconducted 5800 roadside inspections o industry trucks;42 percent o those resulted in pulling either the driver or

vehicle out o service. Enorcement eorts come at a price,

however; Pennsylvanias Department o EnvironmentalProtection has invested $550,000 rom the states Wasteransportation Saety Account into unannounced roadsideinspection blitzes.

ConclusionTere are engineering, logistical, and legal obstaclesto insuring good management o local roads in theace o abrupt, high-intensity truck travel. Te burdenor implementation and enorcement o RUAs will besubstantial or many localities. It is unclear what assistancestate agencies will provide, and the process is as yetdecentralized.

C.J. Randall has a MRP degree rom the Department o City and

Regional Planning at Cornell University and holds a New York State

Class A commercial driver license.

1 Municipal Home Rule Law 10[2]

2 N.Y. Veh. & Tra. Law Art. 41 1660-1664

3 New York State Environment and Conservation Law 23- 0303(2)

4 N.Y. Veh. & Tra. Law Art. 41 1660, paragraphs 10 and 17

5 N.Y. Veh. & Tra. Law Art. 41 1604


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Marcellus Shale: The Case or Severance TaxesSara Lepori

Tere are multiple social, environmental and economic costsassociated with the boom/bust cycle o energy development.Research indicates that a well-structured tax policy can playa signicant role in paying some o these costs and insuringlong-term economic development in regions aected bynatural resource extraction industries. Tis brie addressestwo questions that are oen asked about severance taxes:1) Do state severance taxes inhibit industry investment? 2)How can severance tax revenue cover short and long termcosts o drilling?

The Role o State Severance TaxesA severance tax is a tax imposed on the value ononrenewable natural resources that will be used outsidethe state rom which they are extracted. Severance taxes areinstated to cover costs associated with resource extraction

and to compensate the state or the loss o a non-renewableresource. With the exception o New York and Pennsylvania,all signicant producing states impose a severance tax onossil uel extraction. Reports released by the IndependentPetroleum Association o America, the national associationrepresenting U.S. independent oil/natural gas producers,prepare the industry to be responsible or these taxes.

When towns boom as a result o energy extraction, thereare increased job opportunities and a growing population.Along with this short-term growth come increased publiccosts: or planning & zoning and other administrativeservices, or intensied road trac and reconstruction, andor increased demands on schools, social services and public

saety. Tese costs are predominantly paid or by state,county, and municipal governments. When natural resourceextraction ends, communities ace dierent challengesrom the bust: a decreased population and tax base, orexample. Te public costs associated with extraction areusually covered through taxation o the extracted resource

via a severance tax.

Do Severance Taxes Deter Industry Investment?Te question o whether severance taxes aect industrydecisions regarding when and where to drill is controversial.Headwaters Economics (2008) shows that in the 1990sMontana and Wyoming made divergent tax policy

decisions. Montana decreased its eective tax rate (theratio o production value to tax revenue), while Wyomingincreased its rate. A decade later, Wyomings tax rate or theenergy industry is approximately y percent higher thanMontanas. Both states have experienced a surge in naturalgas drilling, yet Wyomings production value (the producto price times production volume) is 5 times as high asMontanas. It appears in comparing Wyoming with Montanathat tax increases did not deter rms rom investing.

Drilling is infuenced rst and oremost by reserves. Tepreponderance o evidence (Gerking, 2000, Kunce 2001)indicates that severance taxes have little eect on naturalgas company decisions about where and when to drill. State

severance taxes are deductible against ederal corporateincome tax liabilities, so their eect on the companysbottom line is greatly reduced. Other actors such as gasprice, labor costs, access to markets (e.g., oil and naturalgas pipelines), technology, and regulations have the mostsignicant eects on industry activities.

Some economic models indicate that severance taxesmay aect the pace and scale o drilling. Considines model(2009) showed a decrease o 30% in drilling activity inPennsylvania, whereas an economic model completedby Center or Business and Economic Research o theUniversity o Arkansas (2008) indicated a 13% decrease.

Tese divergent conclusions suggest that while severancetaxes do not curtail investment in drilling activity theymay aect the pace and scale o drilling. axes can increasewithout risk o losing industry investment and a slower paceo drilling can benet regions, enabling them to adjust tothe impacts o the drilling economy over a longer periodo time. Regardless o change in pace, drilling is ultimatelydriven by the reserves available.

Covering Public CostsStudies o severance tax policy consistently make theollowing recommendations to insure that states cover thecosts o drilling and insure long-term economic viability in

drilling regions.

1. Create a tax that eectively pays or the short-termand long-term costs o drilling. States can impose aseverance tax without risk o reducing productionor industry jobs. I a state has a severance tax that istoo low, shale gas extraction will require a signicantamount o additional government services withoutcommensurate scal benets.

2. Distribute tax revenue predictably and airly betweenstate and local governments. Tere are many waysto allocate revenue that are aligned with the costs

o drilling. Regardless o the exact distribution, theprimary purpose o a severance tax is to cover costsborn by the local and county governments.

3. Limit deductions and exemptions. Many states haverelatively high tax rates but so many tax loopholesthat the eective tax rate does not cover the cost oadministering it, nor the short and long term costs odrilling.


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For example, Colorado, the 6th largest state producer onatural gas, has a tax rate set on a sliding scale between2-5%. Te state subtracts property tax rom the taxable

value and exempts certain wells rom taxation. As a

result the realized severance tax is between 2.5-0.3%each year. Constructing a tax that is straightorwardand simple makes compliance easier or gas producersand tax ocials. Because the structure o the taxdetermines how volatile it will be, exemptions andloopholes should be minimized.

4. Establish a Permanent Fund. A Permanent Fundis the most eective way to promote long-termeconomic development. For example, every state inthe intermountain west invests in a permanent nd.Te permanent und serves to protect the state against

uture recessions, yearly revenue volatility, and toensure ongoing scal benets rom the depletion o anon-renewable natural resource.

ResourcesColorado Department o Local Aairs. 2011. Why isthe state severance tax revenue so Volitile?. Availablerom the Colorado Department o Local Aairs (seehttp://www.colorado.gov/cs/Satellite/DOLA-Main/CBON/1251590375695)

Headwaters Economics. April, 2011. Fossil FuelExtraction and Western Economies. Available at: http://

headwaterseconomics.org/energy/western/maximizing-benets

Headwater Economics. October 2008. Energy Revenue inthe Intermountain West: State and Local Government axesand Royalties rom Oil, Natural gas, and Coal. Available at:http://headwaterseconomics.org/energy/western/energy-revenue-in-west

Jacquet, Jeery. January 2009. Energy Boomtowns &Natural Gas: Implications or Marcellus Shale LocalGovernments & Rural Communities. NERCRD RuralDevelopment Paper No. 43. Available at: http://nercrd.psu.edu/Publications/rdppapers.html

Kinnaman, Tomas. 2011. Te economic impact o ShaleGas Extraction: A Review o Existing Studies. EcologicalEconomics 70, 12431249. Available at: http://works.bepress.com/thomas_kinnaman/9/

Wood, Michael; Ward, Sharon, Responsible GrowthProtecting the Public Interest with a Natural Gas Severanceax. Available at: http://www.pennbpc.org/gas-drilling-tax

Sara Lepori received a Master o City and Regional Planning degree

rom Cornell University in 2011 with a special ocus on land use and

"the economic consequences of marcellus shale gas extraction: key issues" cardi report on the...

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