The Local Community Benefits of Shale Development are Real
There’s no question that shale development has brought clear benefits to local communities, including jobs, economic growth, and increased tax revenues.
That’s why an article in this month’s issue of Governing Magazine, which claimed that local communities are “fracking’s financial losers,” particularly stood out for being so misguided and devoid of the facts. The article argues that revenue from development “goes straight into state and federal piggy banks, as does increased corporate income tax revenue from energy companies profiting from fracking” and goes on to say,
“Localities, however, enjoy no such benefits. Instead, they get stuck with all the fracking problems: noise from blasting, storage of toxic chemicals, degraded water sources and heavy truck traffic, as well as the rising costs of cleaning up the detritus fracking leaves behind. North Dakota counties affected by hydraulic fracturing have reported to the state Department of Mineral Resources’ Oil and Gas Division that traffic, air pollution, jobsite and highway accidents, sexual assaults, bar fights, prostitution and drunk driving have all increased.”
First of all, it is simply wrong to say that local communities are not receiving revenues. In Alabama, for instance, $26 million of severance tax revenues went to counties during fiscal year 2012-2013, according to the State Finance Department. One of those counties, Tuscaloosa County, has no debt and is the most fiscally sound county in Alabama. Conecuh County alone received $10,022,116.16 in severance tax revenue last year, which is a significant boost considering that in 2007 it had a budget of $4.3 million.
Further, many states require oil and gas companies to pay impact fees, which go to local communities to address any issues that might arise. In Pennsylvania, 60 percent of the $220 million raised every year by the impact fee goes to local municipalities, and state law requires that all counties, even those that aren’t developing shale resources, receive a share of these funds. For instance, York County, Pa. – which doesn’t have any oil or gas wells – will receive $419,572 this year. As York County Commissioner President Steve Chroniser said about the effect of the impact fees for communities,
“The money gives us surplus funds to help small boroughs that aren’t rich with funds. It gives small groups an opportunity to do things they otherwise could not.”
And it’s not just funds from impact fees or severance taxes that make a difference. In Texas, some counties with shale development are experiencing sales tax increases of “over 500 percent year over year.” Researchers from Cleveland State University released a report finding that the tax apportionment in five Ohio counties — Carroll, Harrison, Noble, Guernsey and Belmont — increased by a spectacular 50 percent from 2011 to 2013, jumping from $15.5 million to $22.9 million due to shale development in those areas.
“Our research indicates that the net impact of recent oil and gas development has generally been positive for local public finances. While costs arising from new service demands have been large in many regions, increased revenues from a variety of sources have generally outweighed them or at least kept pace, allowing local governments to maintain and in some cases expand or improve the services they provide.” (p. 2)
The report pointed out that local governments are seeing increased revenue from “a variety of sources, such as severance taxes distributed by the state government, local property taxes and sales taxes, direct payments from oil and gas companies, and in-kind contributions from those companies.” Here are a few examples of the benefits the Duke researchers identify:
- In Colorado’s Denver-Julesberg and Piceance basins, “county governments generally experienced large net fiscal benefits.”
- In Pennsylvania the revenue from the state’s impact fee “in some cases doubled the operating budgets of townships and provided substantial new revenue for county governments.”
- In Texas many counties experienced a “large net positive”: Along with property tax and sales tax growth, Texas municipalities “have seen large new revenues from leasing municipal land for oil and gas production.”
So it’s no wonder that a study released recently by the University of Texas at San Antonio found that oil and gas production in the Eagle Ford Shale provided more than $4.4 billion to local and state governments, generated more than $87 billion in total economic output, and supported almost 155,000 jobs in 2013. A report by the Perryman Group found that development in the Barnett Shale provides $480.6 million in local government revenues and $644.7 million in state revenues, as well as 107,650 permanent jobs and $11.8 billion in contributions to GDP.
And that’s only counting the benefits from tax revenues. In addition, there are numerous examples of producers contributing additional funds to keep the impacts minimal for local communities. For instance, Chesapeake Energy invested more than $300 million between 2010 and 2012 in roads in northeastern Pennsylvania. In parts of the state, Chesapeake actually spent more on roads than the state Department of Transportation. In Ohio, oil and gas companies participate in agreements with municipalities in which the industry invests directly in road and highway maintenance.
The shale boom is also helping local economies thrive by expanding their economies. For instance, a Bureau of Economic Analysis (BEA) report found that Greeley, Colo., ranked second in the nation for GDP growth and that development in the Niobrara shale formation “contributed significantly” to the area’s growth.
Counties in Ohio are also seeing major investments from shale development. Over $18 billion has already been invested in communities in eastern Ohio. Monroe County will have a $1 billion facility built by Appalachian Resins, which will process ethane into ethylene and polyethylene and provide new jobs for the community. Columbiana County, which used to have a 15 percent unemployment rate, now has an unemployment rate of six percent thanks to being the third most permitted county atop the Utica Shale. Businesses are also flocking to the county and as Tad Herold, Columbiana County’s Director of Development, said about this new economic activity, “There’s no doubt we’ve seen some benefits from oil and gas… It’s primed the pump for development.”
None of this is to say that communities don’t ever run into challenges with an energy boom. Those challenges, coincidentally, are why the tax and disbursement structures identified above – which only constitute a snapshot – actually exist. It’s unfortunate that the author of the Governing article dismissed or overlooked those facts, especially considering how many families across the country are benefitting from those revenues.