Blog Post

Divergent Fiscal Impacts in Neighboring Pennsylvania Counties

Nov 10, 2016 | Daniel Raimi

In 2004, the first Marcellus shale gas well was drilled in Washington County, Pennsylvania, about a thirty-minute drive from Pittsburgh in the southwestern corner of the state. Since that time, production from the Marcellus has surpassed virtually all expectations, leading Pennsylvania to become the second largest natural gas producer in the United States, behind only Texas.

Figure 1. US Shale Gas Production

Data source: US Energy Information Administration

While shale gas production has grown in over a dozen Pennsylvania counties, Washington County and its southern neighbor Greene County have been two of the largest contributors to the shale gas revolution. This growth is due in part to production of natural gas liquids (such as ethane) that are often more valuable than the “dry” gas (composed primarily of methane) produced in counties like Bradford or Susquehanna in the state’s northeast.

When we first visited these two counties in late 2013, drilling activity was robust, hotels were near capacity, and fast-food drive-throughs were thronged with vehicles bearing license plates from Texas, Oklahoma, Louisiana, and other longtime producing states. At that time, all of the local government officials we interviewed reported that new revenues flowing into their budgets, primarily from the state’s “Impact Fee” beginning in 2011, were easily outweighing any increase in demand for public services associated with the industry.

Since that time, sustained low natural gas prices have led to a slowdown in industry growth and, to our surprise, some fiscal impacts for local governments have changed. Pennsylvania’s Impact Fee charges a flat fee for each shale well, rather than applying an ad valorem tax to the value of oil or gas produced. A substantial portion of these revenues are shared with local governments in regions where oil and gas production occurs, such as Washington and Greene Counties (see Figure 2).

Figure 2. Washington and Greene Counties Drilling Activity and Impact Fee Revenue

Data sources: DI Desktop for new shale wells (including Marcellus, Utica, and Point Pleasant); Pennsylvania Public Utility Commission for Impact Fee Revenue.

Although local governments in Pennsylvania receive a relatively small share of production value compared with most other oil and gas producing states, the local fiscal impacts in the region have been substantial. In Greene County, for example, the annual budget in FY 2017 is projected to be roughly $29 million, and Impact Fee revenues in 2015 totaled roughly $6 million. Officials in both counties have described Impact Fee revenue as highly beneficial, and state that those revenues have allowed them to purchase equipment and make upgrades that they otherwise would have been unable to do.

However, the challenges of Marcellus shale development have affected the two counties differently. Washington County is substantially more densely populated than Greene County, with higher household incomes and lower rates of poverty (see Table 1). As we have described in previous reports, local governments in more rural regions tend to experience greater challenges associated with managing impacts associated with the oil and gas industry.

Table 1. Washington and Greene County Demographic Characteristics

Data source: US Census. 2010 estimates.

This trend holds true in Greene County, where local officials at the county and township level described substantial challenges managing impacts to bridges, roads, and quality of life issues for residents. The rural nature of Greene County has led to a more noticeable effect on local landscapes, and some townships have struggled to keep up with the rapid pace of development. In Washington County, where suburban-style land use and office parks are found more frequently, managing this growth has been less of a challenge.

Importantly, every township that we visited on this trip—and in 2013—had formal or informal agreements with operators to make repairs to the roads they impacted during construction, drilling, and hydraulic fracturing (in Pennsylvania, townships maintain most rural road networks). While these arrangements do not alleviate all impacts, they have substantially mitigated the costs that otherwise would fall to small townships with limited revenues.

A final concern in southwestern Pennsylvania centers on the growth of infrastructure such as gas gathering lines. Local officials in both counties expressed concern that this buildout may constrain future residential or commercial growth, as farmland that had previously been slated for development may be “taken off the table” by networks of underground pipelines. This concern has arisen in other communities where oil and gas development abuts growing communities such as Fort Worth, Texas, and Weld County, Colorado, and presents an important unanswered question in the wake of the shale revolution.

Image 1. Pipeline, Wellpad, and Compressor Station in Center Township, Greene County, PA

Photo by Daniel Raimi, 11/9/2016

The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.