Blog Post

Local Governments See Benefits from Fayetteville Shale Development

Feb 12, 2014 | Daniel Raimi

Arkansas’ oil and gas production history dates back to the 1920s along its southern border, near the colorfully named communities of El Dorado and Smackover. A more recent boom in production has come from the Fayetteville Shale formation, stretching across the rolling hills in the north-central part of the state, roughly an hour’s drive north of Little Rock.

Fayetteville Shale gas production
Fayetteville Shale gas production.

In the counties of Cleburne, Conway, Van Buren and White, natural gas production grew from virtually nothing in the mid-2000s to nearly 1 trillion cubic feet per year in 2012.

I visited the Fayetteville Shale region during an icy week in early February, meeting with local government officials and experts from Southwestern Energy, a leading natural gas producer in the region. While activity has slowed substantially since the peak years of 2008-2009, 15 rigs were drilling new wells in the area during my visit.

For county governments, property tax revenues have grown substantially as newly valuable mineral properties swelled the tax rolls. The assessed value of mineral properties in this four-county region grew from $15 million in 2007 to $741 million in 2011, generating large amounts of new revenue for county governments and especially school districts, which receive the lion’s share of local property taxes.

A drilling rig in Van Buren County

While there have also been increased costs for local governments — mainly from additional demand for road repairs due to the industry’s heavy truck traffic — road maintenance agreements with natural gas operators has substantially limited the direct cost to counties. For example, Southwestern Energy has spent roughly $17 million in the region over the past five years on road repair and dust control services.

In the cities of Morrilton and Clinton, the leading single revenue source has been leases for gas development on city-owned land, generating $600,000 for Morrilton and over $1 million for Clinton since 2005. For these small cities, this influx of cash has enabled upgrades of local infrastructure and new capital projects. The cities have also seen substantial upticks in their sales tax revenues, though growth in this revenue stream has slowed in recent years.

While direct costs to these local governments have been limited, largely due to the road agreements described above, workforce retention has been a challenge as government employees accept positions with local gas companies, which tend to provide higher salaries. Increased turnover has led to new training costs and, for some local governments, the loss of some of their best employees.

Nonetheless, the local officials I interviewed said the Fayetteville Shale development has been positive for government finances, though the degree has varied widely from government to government. As one county judge put it, “It’s never a rose garden, but the good outweighs the bad.”

This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.