Saving Open Space with Natural Gas
Updated Version of River Reporter Op-Ed, September, 2010
One of the issues we have debated in northeast PA and the southern tier of New York in recent years is the best way to preserve our open space to maintain the land that defines our area. As government programs have run dry and developers have continued to build subdivisions it was clear we were in engaged in a losing battle. That was, of course, until natural gas development came to our area. Now experience is showing that natural gas operations have done more to save farmland, preserve open space and protect wildlife habitat than any other solution we have sought in recent years. Indeed, it is the single most effective tool available for protecting the rural character of our area, valued by all who live here, because it rewards landowners for holding on to property and gives them the means to do so. Combine all the effects of every government open space program currently available and they will never protect as much land as natural gas development.
Right now many anti-natural gas development folks are certainly up in arms based on my writing. So let me expand on why this is the case. Its simple really: absent government buying the land, someone has to pay taxes on it and this demands an income, unless your last name is Rockefeller and you aren’t bothered by such things as earning a living wage.
Vacant farmland in Sullivan County, New York, for example, typically generates an annual real property tax bill of $6 to 8 per acre, meaning that just holding onto 150 acres of farm fields costs about $900 to $1,200 year in taxes before considering taxes on improvements, insurance or other operating costs and opportunity costs, all of which can be considerable. Indeed, a 2008 Cornell study of 46 dairy farms found they paid an average of $4,800 per year in real property taxes alone.
The same Cornell study found labor and management returns for these farmers were negative, and they earned nothing on their equity. Another 2009 Cornell study of 92 dairy farms found the average return on equity was -7.9% and that was before accounting for negative appreciation averaging nearly $245,000. Moreover, the farmers surveyed in that study lost an average of $235,964 and even the top 20% lost an average of $45,567 from farming that year.
Worse, these were the larger farmers (300+ cows) with greater economies of scale who typically do much better than the smaller farms that are so predominant in our region. This indicates the old saying—“the quickest way for a farmer to become a millionaire is to start with $2 million” — is, sadly, all too true.
It is ever more difficult for our farmers to stay in farming, and unless they find additional ways to produce income from their farmland, it will inevitably disappear, despite whatever heroic efforts we make to save it with temporary programs that rely on increasingly restrained public funds. Ag assessments, conservation easements and agricultural zoning are all commendable but don’t do one darned thing to preserve the farm if you still have to pay to farm.
Put yourself in the position of the typical farm or forest owner. You have few choices if the farm or woodlot doesn’t pay its way and most don’t due to these economics. Essentially, most of these landowners are faced with three options.
- You can develop another source of income to subsidize your land holding costs, which is what many niche “farmers” do, but this typically requires skills in some other profession or independent sources of capital.
- You can develop the property for some sort of residential or commercial use and hope to keep some remainder portion for yourself, or
- You can simply sell out to some wealthy urban resident who wants a second home estate in the country.
None of these possibilities truly preserves the farm or forest unless one is well off at the outset with no need for additional income. There is however one other option with tremendous potential to generate economic rent with little disturbance. That option is natural gas.
Natural gas does provide such an answer not only because it offers tremendous income potential but also due to its incredibly small footprint, compatibility with agriculture, and lack of needed capital requirements. The latest natural gas development plans for the Marcellus Shale provide for units as large as 1,280 acres (two square miles) with all wells for each unit being placed on a single pad of less than five acres in size. Even after allowing for an access road of three-fourths mile in length to reach the pad, this amounts to total land disturbance of but eight acres, or six-tenths of one percent of the land.
Putting this in perspective, a typical home on a three-acre lot will, with driveway and lawn included, disturbs a minimum of five to 10% of the land. A commercial or industrial enterprise will often cover more than 50%, and is seldom allowed less than that area by zoning regulations.
Nothing has so little impact on the land we treasure as a finished gas well. You can drive through the beautiful Finger Lakes and see them everywhere in the middle of cornfields and vineyards. If, like the people of that region, we’re serious about farmland and open space protection, we, too, need this source of additional income. Natural gas will save the farm. It’s that simple.