Appalachian Basin

Why Isn’t New York Developing Natural Gas to Get Out of Financial Hole?

New York State is in deep financial trouble. Yet, it continues to procrastinate when it comes to natural gas, perhaps the one thing that could save the Southern Tier.  A recent report by the State Budget Crisis Task Force indicates the state is in a huge hole and must climb mountains to get out of it.

New York State’s leadership is still cowering before opponents as they delay the inevitable need to develop natural gas resources.  The state is on an unsustainable financial course and one hopes it won’t end in collapse before officials do what must be done to revive upstate communities and give some hope for the future.

There is a future with natural gas development and that much is clear from what’s happening in Bradford and Susquehanna Counties across the border.  Will New York grab it?  Or, will it continue to delay in a never ending attempt to appease naysayers, NIMBYs and notables such as Yoko Ono?

Here’s some of the frightening information from this report, with some of what I hope are common sense  observations shared by our readers.

The State Budget Crisis Task Force’s initial report in July 2012 analyzed six major fiscal threats and concluded that states cannot continue just “muddling through” without decisive actions. New York, as is the case with the other five states in the study, faces most of these threats. The Great Recession was a major shock and its impact still lingers, but the threats run much deeper: the recession laid bare the problems of structural deficits, poor fiscal practices, and unsustainable trends that existed before the downturn. These problems will not be reversed simply by improved economic circumstances. While the Task Force analysis of New York’s fiscal condition highlights troubling trends, it also reveals efforts at corrective steps. These are important, but further determined political action is required.

“Muddling through” won’t work?  Well, that’s a revelation.  I could have told them that even with my own relatively recent degree in economics.  New York obviously needs a long-term plan that directly unleashes the private economy.  It isn’t complicated and natural gas can help get the state out of recession.  Our previous comparison of Ithaca and Williamsport demonstrates this and New York’s unique ad valorem taxes on natural gas would put the state in an even better position than Pennsylvania.

The Empire State could also find considerable help from gas companies in dealing with the need to upgrade its highway infrastructure.  Chesapeake Energy alone has put well over $300 million into road upgrades that would have fallen to the Commonwealth or local governments in the Keystone State.

It doesn’t take a PhD to see waiting through another year of economic suffering upstate for things to get better on their own makes no sense when natural gas is knocking at the door.

New York’s economy has experienced long term decline in older upstate cities, and sharp episodic shocks downstate. Buffalo, Rochester, and Syracuse have seen population losses of 55 percent, 37 percent, and 34 percent, respectively, since 1950.

Why is the state losing people?  Shouldn’t that be the question?  Could it be the stifling lack of economic opportunity upstate that is sending people my age elsewhere?  Again, the fact this is surprising to some people is the only surprise.  Upstate and western New York are dying from a youth drain and declining potential for success if one hasn’t already made it.  Western New York, in fact, has lost 17.2% of its school enrollment in just the last decade.  No region can make it to the future with those kind of losses.

Meanwhile, state officials continue to seek politically correct solutions rather than real ones before their very eyes.  This report from the New York State Senate at least acknowledged the problem, but then suggested “emerging industries, such as biotech and green manufacturing, will help to buffer the region from these forces.”  Not one word was mentioned about natural gas development which, in 2010, brought neighboring Pennsylvania some $11.2 billion in value added (equivalent to gross domestic product), contributed $1.1 billion in state and local tax revenues and supported nearly 140,000 jobs.  If only New York’s leaders spent some time reading Pennsylvania’s Marcellus Shale Fast Facts, which show the following as of June, 2012, for Marcellus Shale core and ancillary industries compared to all Pennsylvania industries:

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The numbers speak for themselves and New York could sure use some of this, couldn’t it?  Instead, the state pursues gimmicks and wild, but politically correct, dreams, as the State Budget Crisis Report notes:

For decades, regardless of the economy’s strength, New York has had a structural budgetary imbalance, with recurring revenues insufficient to sustain ongoing spending. Rather than address the structural problems, New York lawmakers have struggled to wrench each upcoming year’s budget into balance temporarily on a cash basis, through dependence on oneshot actions amounting to about $25 billion in the past ten years alone. The New York State comptroller aptly termed this “The Deficit Shuffle,” saying, “The State dips into dedicated funds here and shifts money over there, all to cover cash shortfalls and avoid making the difficult decisions needed….”

Ongoing spending without sufficient revenues is exactly the reason the state is where it is today.  Bringing in a state wide industry (development of Marcellus Shale and Utica natural gas reserves) just might be a solution to a good part of the problem, don’t you think?   Given that some wells are expected to produce for 30 years or more and Pennsylvania was able to generate over a billion dollars of revenue in one year from natural gas, there is enormous potential for New York State to get on the right road as well.  Isn’t it time New York took a long-term view on developing its upstate economy instead of continually draining it to support the tax and spend ways of its cities?

One theme of the Task Force report is that fiscal stress runs downhill. As a result, local governments are badly strained…

We see the communities facing the problems.  We live in them.  Local governments cannot handle the costs because they’re not growing.  The entire government financial system, from safety net programs, to infrastructure development to pensions depends  on growth.  Nothing but problems are possible without it.  The foundation for growth is right in front of us with natural gas.  The Manhattan Institute, in fact, “estimates that in 2015 New York State could enjoy $1.7 billion in additional economic activity, 16,000 more jobs and $214 million in extra tax revenue if its natural gas reserves were developed.” It further suggests, “over the period 2011 to 2020, New York State could gain $11.4 billion in economic output, 90,000 to 108,000 new jobs, and $1.4 billion in tax revenues.”

Meanwhile, New York State lives with an 8.3% unemployment rate compared to 7.8% in Pennsylvania (November, 2012).  It gets worse when one looks at the data county by county as depicted in these two Bureau of Labor Statistics charts for October, 2012:

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Notice how the northern tier counties of Pennsylvania where natural gas development takes place have significantly lower unemployment rates than the adjoining southern tier counties of New York State.

Is New York State interested in getting out of the financial hole it’s dug for itself, or isn’t it?

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