Trickle Down Economics Not Helping Marcellus Shale Communities

The counties hosting the most Marcellus Shale gas drilling are showing early signs of increased economic activity, but little in the way of increased resources.

The smart people at Penn State's Cooperative Extension (which is shortsightedly cut by 50% in the Governor's 2011-12 budget proposal) looked at state tax collections by county and noticed that certain types of taxes are performing better in areas of heavy drilling activity than in the rest of the state. Based on anecdotes of filled hotel rooms, increased restaurant usage, and checks to landowners for drilling rights, it is not surprising to see an initial uptick in royalty income and sales tax receipts in those counties.

For local governments and schools hosting the activity, there are increased demands for services like education, health care, police, and emergency responders, to name a few. The problem is that these communities receive almost no benefit due to the state's tax structure.

  • Local governments are heavily dependent on property taxes — oil and gas deposits and extraction equipment aren't taxable. Other states have seen land around drilling sites decrease in value due to the industrial activity.
  • Local earned income taxes don't tax royalties or other unearned income.  If residents get a big check from the gas company to lease their land, locals don't see a dime of it.
  • The increased activity at building supply shops, bars, and restaurants generates more taxable sales, but local governments and many counties see no share of these taxes.

One interesting note is that while taxable wages in drilling areas have increased slightly more quickly than the state as a whole, the percentage of growth in the number of returns with taxable wages (i.e., new jobs) is smaller in drilling areas than in the state as a whole. So much (at least, so far) for creating thousands upon thousands of jobs as the "drill, baby drill" crowd likes to say.

Some lawmakers favor — and even Governor Corbett has opened the door to — a local impact fee on gas drillers. This would be a short-sighted approach. The impacts of drilling don't stop at local boundaries. For instance, problems associated with wastewater from natural gas drilling could have an effect on downstream communities.

A drilling tax with a local share, like House Bill 33, can help fund local governments, as well as provide funding for healthcare, education, environmental protection, and public safety statewide.  Without it, we already see what local communities get.

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