Marcellus Shale

Penn State Hears Missing Voices, But Misses the Point

Documenting the obvious is, seemingly, full-time work for some academics.   There are any number of websites offering lists of ridiculous studies funded by government or conducted at major universities.  There was, for example, that Stanford University study finding “athletes who get an extra amount of sleep are more likely to improve their performance in a game.”  Then, there was the study showing “teenagers’ use of cell phones after bedtime contributes to poor sleep.”  There are hundreds of these superficial studies and you can find several more here.

These make-work research projects, while wasteful, are typically otherwise harmless.  Nevertheless, when such a study of the obvious is used as an excuse to launch what are essentially political arguments designed to grab cheap headlines, it is quite a different matter.  Sadly, for me as a Penn Stater, I am forced to conclude this is exactly what we’re seeing from the university’s Center for Economic and Community Development with its recently released Marcellus Shale: Land Ownership, Local Voice, and the Distribution of Lease and Royalty Dollars.  It offers nothing new and is a little more then a platform from which to launch broadsides against owners of mineral rights.  Worse, while it focused on the obvious, it simultaneously ignores the most obvious point of all.  It’s like a new review of an old movie titled King Kong that somehow fails to mention the giant gorilla.

One gets a very clear idea where the Penn State study is headed from this selection of quotes from the study’s introduction (emphasis added):

Local elected and appointed officials, and residents who own little or no land have relatively little voice about whether natural gas development occurs within their community.  The decision is largely in the hands of current owners of larger parcels of land who decide whether to lease for drilling, and in gas companies who then decide where among the leased parcels to actually drill.

The ownership of the rights also affects who receives the lease and royalty dollars created by gas development.

Understanding how these dollars are distributed is important from several perspectives.  These include how many of these dollars remain within the counties with drilling and related activity, how broadly the economic benefits flow across county residents, and how these dollars compare to the distribution of the costs of Marcellus development.  The latter has significant equity implications which underlie much of the public policy debate about the Marcellus shale play.  Economic studies of Marcellus shale to date have mostly focused on estimating the overall economicbenefits, but have not addressed the equally-important understanding of how the economic benefits are distributed among residents and non-residents, nor the costs of such development.

Much of the public debate about Marcellus shale development revolves around differing views of fairness and equity, particularly discussions about the environmental, health, and other risks, the proper role for local government regulation and oversight of industry activities, and the ability of individual owners to use their resources as they believe is appropriate.  This study is not intended to evaluate or make judgments about Act 13 of 2012 or the current distribution of control and income.  Rather we believe that understanding landownership patterns helps to clarify the economic implications of Marcellus shale development, and the context for the concerns some are expressing about the need for more local government control over that development.

So, the authors of the study “don’t intend (to) make judgments about Act 13,” but do intend to provide “context for the concerns some are expressing” about it.  If a textbook definition of “wink and a nod” were needed, this would certainly do.

PSU StudyIt’s also interesting to note the language and tone employed as the writers trying making a case that only landowners and gas companies have a “voice” in the matter.  Who do they think the hundreds of elected representatives in the Pennsylvania General Assembly are representing – Martians?  Are we to conclude residents’ interests are nowhere represented other than at the local government level?  Are we to suppose the Pennsylvania DEP has no role, that there are no location standards in place to protect all Pennsylvanians?  If so, that’s utter nonsense.

And, what’s this about land ownership affecting who receives lease and royalty dollars?  Are the authors actually suggesting someone else should get them?  It’s hard to imagine they aren’t planting that seed, as this fact is so self-evident as to require no explanation, unless the intent is to imply there’s something wrong with that.  Frankly, I thought I might have been reading some polemic against land ownership in some evolving third-world nation where the peasants are rising up against the plantation owners.  The reality is that most of rural Pennsylvania is owned by large landowners who are poor and desperately in need of those lease payments and royalty dollars to save their land from the tax collector or mortgage holder.  Yet, Tim Kelsey and friends, the authors of this report and some other dubious studies, hasten to inform us these folks are getting most of the dollars, as if they hadn’t also paid 100% of the taxes on that land since they owned it.

What is completely missing from the Penn State analysis, however, is nothing less than startling.  The report repeatedly, with nothing but anecdotal evidence for support, suggests non-landowners, and especially renters, get all the costs and none of the benefits associated with natural gas development unless they are lucky enough to secure a job in the industry.  Act 13, which has a direct bearing on this matter and is largely the focus of the research, is mentioned four times in the study.  Yet, nowhere, is there one iota of discussion of what Act 13 generates in the way of revenues for all Pennsylvanians, especially those who live in counties with natural gas development, regardless whether they own land or have a gas lease.  Pause right here and think about that.  Penn State has produced a study implying Act 13 deprives non-landowners of both a voice and compensation for their troubles and never mentions the natural gas impact fees shared with communities as a result of that very Act.  You really don’t need to know much more, but there is much more.

Here, for example, is the actual breakdown of natural gas impact fees generated by Act 13 for the 11 counties Penn State studied:

Act 13 Natural Gas Impact Fees

Act 13 Natural Gas Impact Fees

Does anyone think $162.5 million of new revenue to the Commonwealth from activity in just these 11 counties, $35 million of which goes to those counties, and the bulk of which will benefit non-landowners and landowners without gas leases, does not make a difference, given that all residents gain from the services provided?  Is there anyone who can say the costs of development have not been addressed in a major way?  Is there anyone, other than the authors of this report, who doesn’t think every resident benefits to some degree by development, regardless how they feel about it?  Bradford County’s share is $10.6 million, which is only $250,000 less than the county’s entire real estate tax revenue – near doubling county discretionary funding.  How can the authors have possibly ignored this aspect of Act 13 while bemoaning the plight of those “who do not have to live with the day-to-day nuisances and costs of natural gas development”?  This funding goes directly to residents, rather than non-residents, and directly counteracts Penn State’s theory non-residents are pulling off the money without experiencing the costs.

These are some of the biggest problems with the Penn State study.  There are other issues.  Kelsey and company would have us all believe there is something slightly unusual about land use patterns in the counties they surveyed that somehow distort democratic rights as applied to shale gas development.  They note the following, for instance, as evidence of “the distribution of control over the land in these counties, and where lease and royalty dollars are going”:

In Bradford County, for example, 8.6 percent of the land area is owned by the public sector, 31.1 percent is owned by people living outside the county, and 60.3 percent is owned by county residents.  Of the total land area in Bradford County, 43.9 percent of the land area is owned by the top ten percent of county resident landowners

1978 StudyThis implies, of course, lease and royalty dollars are disproportionately leaving Bradford County for elsewhere and going to large landowners.  The Bradford pattern, however, is anything but unusual.  A USDA study entitled “Landownership in the United States, 1978” found (see Table 6), across the United States, 76.6 percent of land was owned by people living in the same county and 20.3 percent was owned by those who lived outside the county. The 11 counties studied by Penn State exhibited numbers, for the latter, ranging from 18.3 percent (Washington County) to 34.3 percent (Greene County).  Bradford had twice the amount of public land as these two, and, therefore, less land owned by county residents, but still was in the middle of the pack with three other counties having higher percentages, meaning Bradford was anything but atypical.

Likewise, the nationwide figure of 20.3 percent from 34 years ago would fall well within the range observed in the Penn State report, with three counties have smaller percentages.  This tells us there is nothing out of the ordinary about the land ownership patterns in the Marcellus Shale counties, except some counties have high amounts of public land ownership that modestly distort the picture.

Moreover, the same 1978 study found “the top 5 percent of all landowners own 75 percent of the land, while the bottom 78 percent of all landowners own 3 percent of the land” and “fifty-one percent of the farm and ranch land is owned by the top 5 percent of owners.”  Likewise, a 1993 Statistical Brief from the Bureau of Census noted landlords “own some 45 percent of all agricultural land, and over one-third of all privately held agricultural land.  Among landlords, ownership is highly concentrated; only 8 percent own more than half of all land owned by landlords.”   This means Bradford County land ownership; (a) is much less concentrated than is the case nationally, or (b) the degree of concentration has dropped considerably since then.  Either puts the Penn State findings in perspective.  There’s no smoking gun and the only thing surprising is Penn State’s surprise.

One is tempted, in fact, to scream “it’s the math, stupid.”  If you’re going to have privately owned farms and forests, you’re going to have land ownership concentration.  A community composed of one farmer owning 100 acres and 100 homeowners on one-acre lots will concentrate 50% of land ownership in slightly less than 1 percent of the community.   It’s unavoidable, but, so what?  Is that landowner the owner, or not?  Is he or she not responsible for making that land work economically and paying the taxes on it?  Does that landowner surrender those rights and responsibilities at every point an economic decision is required?  Does reward no longer accompany risk?  The answers are obvious.

King Kong on Empire State Building

It’s Hard to Write About King Kong and Ignore the Gorilla

The degree of concentration is irrelevant unless one is determined against all reason to put ill-equipped local officials in charge of regulating an industry they know little or nothing about.  This hardly means the landowner gets to make all the decisions regarding shale gas development.  Indeed, the landowners is at the complete mercy of state officials whose political allegiance is, if anything, more geared toward the interests of far more numerous urban residents who have no share in the landowners’ tax-paying responsibilities, but get the benefits of jobs and increased public tax revenue.

This includes not only owners, but also renters who the study claims “have no input to the decisions of landowners to lease their land, or of gas companies to drill in the county.”  The suggestion these individuals are somehow left out of the equation is bizarre, to say the least.  Everyone, from state government to gas companies seeking to avoid offense, is looking out for their interests, but few represent the landowner.  The landowner must defend his or her own interests.  Penn State has tried to turn the whole thing on its head.

The study is also flat out wrong in some of its assertions.  It says “Under Act 13, local governments must allow drilling in all zoning districts, and cannot ban or restrict gas development.”  Really?  Well, that’s not how the County Commissioners Association of Pennsylvania sees it (emphasis added):

Statutory provisions supersede local zoning ordinances, allowing well and pipeline location assessment and oil and gas operations in all zoning districts if the well pad is at least 300 feet, and the wellhead is at least 500 feet, from an existing building.

Compressor stations are permitted uses in agricultural and industrial zoning districts and are a conditional use in all other zones if located at least 750 feet from nearest existing building or 200 feet from the nearest lot line, and the noise level at the nearest property line does not exceed 60 dbA.

Processing plants are a permitted use in an industrial zone and are a conditional use in agricultural zones if located at least 750 feet from nearest existing building or 200 feet from the nearest lot line and the noise level at the nearest property line does not exceed 60dbA.

Municipalities are permitted to enact provisions that are not covered by the law.  A procedure is established, comparable to ACRE, which allows an operator to ask the PUC to review a local ordinance to determine whether it allows for the reasonable development of oil and gas.  The municipality itself may ask for predetermination to see if a proposed ordinance is in compliance with law.

Municipalities clearly do have authority to regulate some aspects of shale gas development provided they are reasonable and do not enact provisions that would effectively ban the activity.  It is a preemption statute, to be sure,  but any suggestion a community couldn’t require road repairs, for example, or address other impacts from natural gas development (e.g. worker housing) is false on its face.

The study also says “With the relatively high amount of out-migration from Pennsylvania over the past decades, it is likely that many of the current mineral right owners live outside of their ancestral county, if not outside the Commonwealth itself.”  What data exists to support this “likely” conclusion?  Yes, Pennsylvania has had out-migration, but it’s also had a lot of in-migration at the same time.  And, do we know the original owners of the mineral rights were not from out of state?  Do we know landowners and mineral rights owners have not moved back to Pennsylvania due to Marcellus Shale gas development?  Isn’t this just as “likely” as what the study surmises?  What’s “likely” doing in the report anyway?  This is the problem with this entire series of Penn State studies by the Center for Economic and Community Development – they rely upon far too subjective data.  This is further illustrated, on page 13, by use of anecdotal evidence.

Still another problem is the failure of the study to provide meaningful aggregation of the data that would wash out distortions such as the high degree of public land ownership in some counties.  The study claims “The Commonwealth government owns about 13.1 percent of the total land area in these ten Pennsylvania counties while an additional 26.7 percent is owned by landowners living outside the respective counties. Together, this means that non-residents make decisions about 40 percent of the land area in these counties, with this percentage of non-resident control varying between the counties, from 22.4 percent in Washington County to 70.7 percent in Sullivan County.”  So, land owned collectively by all Pennsylvanians represents non-resident control?  Are these people kidding?  This is, yet again, a bizarre interpretation that strongly suggests an ideological motive or leaning.

But, if you’re looking for leaning, look no further than these paragraphs (emphasis added):

Pennsylvania law limits the abilities of local governments to regulate or control shale gas development, which means owners’ decisions about whether to lease, and with what conditions, are the primary local resident voice that affects where gas development occurs.  The concentration of landownership, as detailed in the analysis presented here, means that the majority of residents in the counties with Marcellus shale development have relatively little voice in these decisions which have significant implications for their communities and for their own quality of lifeA little less than forty percent of the land area within these eleven counties is owned by non-residents (including the Commonwealth) who do not have to live with the day-to-day nuisances and costs of natural gas development, but yet have potential gain through lease and royalty income.  About 48.9 percent of the land is owned by the top ten percent of resident landowners, who have a large potential economic gain from gas development due to the amount of land they own.

The rest of the resident landowners, in contrast, own a very small share of the total land area in these communities, so their decisions about whether to lease have relatively little impact on gas development in their community.  Residents who rent and own no land have no formal voice in whether and how gas development occurs within their community.  The potential economic benefit of local gas development to these latter groups of residents depends upon the potential employment and business opportunities, and most particularly the ability of local residents to get and hold jobs related to the industry activity.  Experience is demonstrating that Marcellus shale development also can have significant impacts on the daily lives of residents within the counties with drilling activity.  It thus should not be surprising that the development is generating conflict within communities, and that some citizens and local government officials across the Commonwealth want greater local control over natural gas development.

Do you think there might be an agenda here?  These statements will be quoted by every anti-natural gas activist and sympathetic media outlet out there, of course, and, unfortunately, will probably be used to justify more studies.  This report, once again, falsely raises the specter of additional costs and impacts on communities who have seen schools improved without new taxes, hospitals being built and roads being upgraded with no municipal expense or cost to these non-landowners.  How do these researchers get away with making these undocumented statements?    More to the point, how do they get away with writing a report aimed at the heart of Act 13 without ever once mentioning the fees it provides for the benefit of every single resident of the counties analyzed?

Frankly, it’s embarrassing to me, as someone who graduated from the very same department at Penn State many years ago.  Penn State can do better, and has done better in so many ways.  The authors may think they’re hearing missing voices, but they’re just missing the point.




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