Shale mixed blessing for economy

MATT HUGHES

mhughes@timesleader.com

WILKES-BARRE – The development of Pennsylvania’s natural gas resources offers a potential economic boom for local businesses and municipalities, but without proper planning, the boom could go bust and leave the area no better off once the gas supply is depleted.

That was the message economist Dr. Tim Kelsey of the Penn State Cooperative Extension delivered to about 50 business people and municipal officials at an Executive Management Series breakfast sponsored by Penn State Wilkes-Barre at Genetti Hotel & Conference Center Friday.

“Marcellus Shale, the challenges, the opportunities, truly have the potential of changing Pennsylvania communities,” said Kelsey, but he added that “it’s critical to keep in mind throughout the process is that this is a natural resource-based economic development, and at some point in time the gas will be gone.”

Kelsey said each well drilled in the Marcellus Shale creates about 13 full-time jobs, and that drilling also offers tremendous opportunity for ancillary businesses like construction contractors and purveyors of raw materials needed to build gas well sites, office and warehouse landlords, professional services providers and those in the retail and hospitality industries. The high wages paid by the gas industry can also attract workers away from existing businesses and drive wages in other industries higher, potentially making it more expensive to run a business in a drilling region.

“It can be a two-edged sword,” Kelsey said.

The influx of a new work force into primarily rural regions can cause rent to skyrocket. Bradford County, where natural gas drilling has exploded in the past five years, can no longer place low-income residents into short-term housing because all available apartments have been rented, Kelsey said.

Coupled with the newfound wealth offered to landowners who have signed gas leases from production royalty payments, drilling can exacerbate the gulf between the “haves” and “have-nots,” in local communities.

Labor demand from the gas industry drops off sharply following an initial development phase of five to 15 years, Kelsey said, and businesses and communities need to plan how they will adjust to stay profitable during this transition.

Kelsey said the key to success lies in strong local leadership and community involvement, active monitoring of extractors and response to issues and entrepreneurial support systems that help businesses adapt to the opportunities the industry presents.

“The problem is, when you make mistakes early on, there isn’t a lot of time to correct those mistakes,” Kelsey said. “When it hits, it hits fast.”

Municipal leaders need to think now about how to use gas drilling for the benefit of their communities, Kelsey said, because the tax benefits of drilling for municipal coffers are unclear.

Local earned income taxes are paid to the municipality where a person lives, not works, and it is illegal for municipalities to subject natural gas resources to property taxes.

Municipal leaders should therefore not consider Marcellus Shale gas production to be an end in and of itself, but use the increase in business as a means to improve their municipal economies, human capital and physical infrastructure, Kelsey said, with a focus on the post-boom future, not just the present quick buck.