Economic Impacts of Marcellus Shale in Pennsylvania:

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1 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 EconomicImpactsofMarcellus ShaleinPennsylvania: EmploymentandIncomein2009 August MarcellusShaleEducation&TrainingCenter(MSETC)isacollaborationof PennsylvaniaCollegeofTechnologyandPennStateExtension 2011PennStateExtensionandPennCollegewww.msetc.org1

2 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 EconomicImpactsofMarcellusShalein Pennsylvania:EmploymentandIncomein 2009 TimothyW.Kelsey(PennState),MartinShields(ColoradoState),JamesR.Ladlee(PennState),and MelissaWard(PennState),incooperationwithTracyL.Brundage(PennCollege),JeffreyF.Lorson (PennCollege),LarryL.Michael(PennCollege),andThomasB.Murphy(PennState) TheauthorswanttothankreviewersKathrynJ.Brasier(PennState),StevenC.Deller(Universityof Wisconsin),DavidL.Kay(CornellUniversity),ThomasKnapp(PennState),andStephenSmith(Penn State)fortheirvaluablecommentsandsuggestionstoimprovethereport.Thefindingsandconclusions inthisstudyaresolelythoseoftheauthors. 2011PennStateExtensionandPennCollegewww.msetc.org2

3 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 AbouttheAuthors: TimothyW.Kelsey,Ph.D.,isProfessorofAgriculturalEconomicsatThePennsylvaniaStateUniversity, andstateprogramleader,economicandcommunitydevelopment,pennstatecooperativeextension. MartinShields,Ph.D.,isProfessorofEconomicsatColoradoStateUniversity. JamesR.LadleeisCountyExtensionDirector,ClintonCounty,PennStateCooperativeExtension,and DirectorofSpecialInitiatives,MarcellusShaleEducation&TrainingCenter. MelissaWardisagraduatestudentintheDepartmentofAgriculturalEconomicsandRuralSociology, ThePennsylvaniaStateUniversity. MarcellusShaleEducation&TrainingCenter(MSETC)isacollaborationof PennsylvaniaCollegeofTechnologyandPennStateExtension 2011PennStateExtensionandPennCollegewww.msetc.org3

4 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 EconomicImpactsofMarcellusShaleinPennsylvania: EmploymentandIncomein2009 Abstract ThisstudyexamineshowseveralkeyunexploredaspectsofMarcellusShalenaturalgasdevelopmentin PennsylvaniawillaffecttheoveralleconomicimpactoccurringintheCommonwealth.Whereleasing androyaltydollarsareactuallygoing,andhowtheyarebeingspent,hasnotbeenexaminedinprevious economicstudies.theeconomicimpactwillbeverydifferentdependinguponhowmanydollarsgoto Pennsylvaniahouseholds,tothestategovernment,andtonon residents.inaddition,howmanyof thosedollarsareimmediatelyspentbyrecipients,andhowmanydollarsaresaved,similarlywillaffect theeconomicimpacts,aswilltheproportionofwagesbeingpaidtonon Pennsylvaniaworkers. Thestudyincludessurveysoflandowners,localbusinesses,andlocalgovernmentofficials,andaGIS analysisoflandownershippatternsrelatedtopennsylvaniaresidents,non residents,andthe Commonwealth.Wecombinedthisinformationwithindustryspendingdatatoestimatethe distributionofnaturalgascompanyspending,bothspatiallyandtemporally.thesenumberswerethen enteredintoaninput outputmodelofthepennsylvaniaeconomygeneratedwiththeeconomicimpact toolimplansowecouldestimatethemultipliereffects. Accordingtoouranalysis,approximately51percentofthelandinMarcelluscountiesisownedby residentswithinthecounty,25percentisownedbysomeonelivingelsewhereinpennsylvania,and7.7 percentisownedbypeoplelivingoutsideofpennsylvania.theremaining17percentisownedbythe publicsector,primarilythecommonwealth.thesurveyof1,000landownerswithinathousandfeetof activemarcelluswellsinbradfordandtiogacounties(501replies,foraresponserateof50.1percent) suggeststhatlandownerssaveorinvestabout55percentofthetotalleasingdollarsintheyearthey receivesuchpayments,ratherthanspendingthemimmediately.theyalsosaveorinvestabout66 percentofalltheroyaltydollarstheyreceive.thismeansasignificantportionofleasingandroyalty dollarsarenotspentinpennsylvaniaintheyearthosedollarsarereceived,reducingtheirpotential economicimpactintheyearthecompaniespaymineralrightownersforleasesandroyalties. Weestimatedtheeconomicimpactofthesedollarsundertwoalternativescenariosofout of state ownership(7.7percentand15.4percent),butsuspectthatbothmayunderestimatetheamountof leasingandroyaltydollarsimmediatelyleavingpennsylvaniabecausemineralrightownershippatterns donotcorresponddirectlywithlandownershippatterns.manyoftheserightsweresevered generationsagoandhavesubsequentlybeenpasseddownthroughfamilies,splinteringintomultiple ownershipacrosschildrenandgrandchildren,manyofwhomlikelynolongerliveinpennsylvania. Wesurveyed1,000randomlyselectedbusinessesinbothBradfordandWashingtoncounties(foratotal of2,000businesses)toidentifytheimpactstheyareexperiencingfrommarcellusshaledevelopment (619replies,foraresponserateof31percent).Questionswereaskedaboutpossiblenegativeand 2011PennStateExtensionandPennCollegewww.msetc.org4

5 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 positiveimpacts.thesurveyresponsesindicatedpositiveeconomicimpactsareoccurringbroadly acrosstheeconomyinthecommunitieswheredrillingisveryactivelyoccurring.aboutone thirdofall thebusinessesinbradfordcounty,forexample,reportedthattheirsaleshadincreasedduetonatural gasdevelopment,andonly3percentreportedsaleshaddeclined.businessesacrosstheeconomy reportedpositiveeffects,thoughhotels,construction,transportation,eatinganddrinkingplaces, wholesaletrade,andfinancialservicebusinessesweremostlikelytoreporthighersales. Wealsosurveyedall494municipalgovernmentsinthe12Pennsylvaniacountieswiththemost MarcellusShaleactivity(293replies,foraresponserateof59percent).Onehundredthirty oneofthe governmentssaidthatmarcellusdevelopmentactivitywasoccurringintheirjurisdiction.therewas littlepatterntotheiranswersinrelationtotheamountofdrillingactivityoccurringwithintheir jurisdiction.only18percentofthegovernmentsexperiencingmarcellusdevelopmentactivitysaidtheir taxrevenueshadincreased,whichindicatesthatmostlocalgovernmentsbeingaffectedarenotseeing moretaxrevenueasaresult.incomparison,26percentofthelocalgovernmentsindicatedthattheir costshadincreased,particularlyrelatedtoroadexpenses.thisconfirmsthatconsideringboth revenuesandcostsiscriticalforhavingacompleteunderstandingoftheimpactsofmarcellusshale. Thesefindingsfromlocalofficialscontrastwithprioreconomicstudieswhichpredictedthattherewould belargelocaltaximpacts,butwhichdidnotverifywhatisactuallyoccurring. Weusedtheeconomicinput outputmodelimplantolookattheeconomy wideimpacts,modifyingthe informationwithresultsfromthegisanalysisandsurveys.weuseddetailedpublishednaturalgas companyspendinginformationinpennsylvaniafrom2008,scalingitupto2009usingotherpublished dataabouthowspendingchangedbetweenthetwoyears.wemodifiedpayrollspending,usingdata fromarecentmarcellusworkforcestudywhichindicatedthatabout37percentofthemarcellus workforcearenon Pennsylvaniaresidents.Weestimatedtwoalternativescenariosaboutthepayroll goingtonon Pennsylvanians,recognizingthatworkersfromoutofstatesendsomeoftheirincomeback totheirhomestatecommunity;thisincludedassumingthatnon Pennsylvaniaworkersspend50 percentoftheirmarcellus earningsinsidepennsylvania,andalternatively,thattheyspend75percentof theirearningshere.wealsoaccountedforhowtheirspendinglikelydiffersfromtypicalresident workers. OurfindingssuggestthattheeconomicimpactofMarcellusShaleinPennsylvaniaduring2009ranged between23,385and23,884jobs,and$3.1and$3.2billioninthatyear.thisincludedabout$1.2billion inlaborincomeandalmost$1.9billioninvalueaddedtothepennsylvaniaeconomy.inaddition,there willbeadditionaleconomicimpactsof2009marcellusshaleactivityinfutureyearsasmineralright ownersspendtheleasingandroyaltyincometheyreceivedin2009butsavedforlateruse.theseare largeeconomicimpacts,especiallysincemuchofthisimpactisoccurringinrelativelysmallcounties. WedidnotestimatetaximpactsofMarcellusShaleactivitybecausewewerenotcomfortablewiththe reliabilityofimplan staxanalysis. Theseresultsareabouthalfthesizeofthoseestimatedinpreviouseconomicimpactstudiesof Marcellus,butthisisnotsurprisingbecausewehadmoredetailedinformationaboutleasingandroyalty income.ourfindingsareconsistentwithseveralotherrecentemploymentstudiesofmarcellusshale 2011PennStateExtensionandPennCollegewww.msetc.org5

6 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 whichfocusedonindustryspending.ourresultsconfirmthatwhereleasingandroyaltydollarsare goinghasasignificanteffectontheestimatedoveralleconomicimpactsofmarcellusshale development.becauseonlyabouthalfofthelandinatypicalmarcelluscountyisownedbyresidents ofthatcounty,itwouldsuggestthatalargeportionoftheeconomicbenefitsimmediatelyleavesthe communitiesbeingimpactedbydrilling. WedidnottrytoquantifymanyimportantbutevenmoredifficulttomeasurecostsofMarcellusShale development,suchaseffectsontheenvironmentandhealth.wehopethatfutureeconomicstudies canconsidersuchcostsasbetterinformationbecomesavailableabouttheincidenceandextentofsuch impacts.inaddition,wedidnotaddressthedistributionofbenefitsandcosts,eventhoughtheequity ofhowthesearedistributedunderliesmuchofthecurrentpolicydebateaboutmarcellusshale.the longrunimplicationsofmarcellusshaledevelopmentareasofyetstillunknown.jobsandincomein theshortrunareimportant,butmanywouldarguethatotherfactorsareequally(ifnotmore) important,suchascleanwater,healthyforestsandotherecosystems,cleanair,andgoodpublichealth. Inadditiontoaffectingqualityoflife,theseareimportantresourcesforthefutureofPennsylvania communities,includingfutureeconomicopportunities,socialandphysicalinfrastructure,wellfunctioninglocalgovernmentandinstitutions,andcommunitywell being.webelieveourresultsmust beviewedasapreliminary,short runviewoftheeconomicimpactsofmarcellusshaleandbeplacedin abroadercontextoftheseotherimportantconcerns. 2011PennStateExtensionandPennCollegewww.msetc.org6

7 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 TableofContents Abstract...4 I. Introduction...10 II. WhatAffectstheEconomicImpactsofMarcellusShale?...10 A. Timing,Scale,andPace TimingandLeasing/RoyaltyIncome TimingandWorkforce OtherTimingIssues...13 B. Leakage LeakageandLeasing/RoyaltyIncome LeakageofEmployeeWagesandSalaries LeakageofBusinessActivity...15 III.StudyMethods...16 A.CompanySpending GeneralSpending Workforce...17 B.LeasingandRoyalties GISAnalysisofOwnership SurveyofLandowners...21 i.wheretheownerslive...21 ii.dollarsreceivedforleasing...21 iii.useofleasingandroyaltydollars AllocationofLeasingandRoyaltyDollarsintheStudy...23 C.LocalBusinessEffects BusinessImpacts ChangesbyBusinessType...25 D.LocalGovernmentEffects PennStateExtensionandPennCollegewww.msetc.org7

8 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 IV.EconomicImpactResults...30 A.CompanySpendingandPayroll...31 B.LeasingandRoyalties PennsylvaniaGovernment PennsylvaniaHouseholds...33 C.OverallEconomicImpact TotalImpact Multiplier EconomicImpactonaPerWellBasis...35 V.Discussion/Implications...36 A.LimitationsofOurStudy...38 B.WhatNoOneKnows(ButShouldbeKnown) Costs WhoIsBenefitingandWhoIsBearingtheCosts Long RunImplications WhatIsActuallyOccurring...41 VI.Conclusions...42 VII.References...44 VIII.Appendices...46 Appendix1.MarcellusNaturalGasIndustrySpendingResults...46 Appendix2.MarcellusNaturalGasIndustryPayrollImpacts:Scenario Appendix3.MarcellusNaturalGasIndustryPayrollImpacts:Scenario Appendix4.RoyaltyPaymentstoPrivateMineralRightOwners...55 Appendix5.PaymentstoPrivateMineralRightOwners...58 Appendix6.MethodologyandDefinitions PennStateExtensionandPennCollegewww.msetc.org8

9 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 TableofTables Table1.NaturalGasCompanySpendinginPennsylvania, Table2.PercentofAcresinMarcellusCounties,byOwnershipType...20 Table3.MineralRightOwners UseofLeasingDollars...22 Table4.ChangesinBusinessActivity...25 Table5.ChangesinBusinessActivitybyBusinessType...26 Table6.MunicipalRevenuesandLevelofDrillingActivity...28 Table7.MunicipalServicesandLevelofDrillingActivity...29 Table8.MunicipalExpendituresandLevelofDrillingActivity...30 Table9.EconomicImpactofNaturalGasCompanyNon PayrollSpending, Table10.EconomicImpactofNaturalGasCompanyPayroll, Table11.EconomicImpactofLeaseandRoyaltyPaymentstoStateGovernment, Table12.EconomicImpactofLeaseandRoyaltyPaymentstoPennsylvaniaHouseholds, Table13.SummaryofEconomicImpactsandTotalEconomicImpact, Table14.TotalEconomicImpactbyWell, PennStateExtensionandPennCollegewww.msetc.org9

10 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 I. Introduction ThepotentialoftheMarcellusShaleregiontobecomeamajornationalsourcefornaturalgashas generatedsignificantinterestinpennsylvaniaoverthepastseveralyears.countiesacrossthemarcellus ShaleregionoftheCommonwealthhaveexperiencedsignificanteconomicactivityasnaturalgas companieshavebeguntoexploreandthenactivelydeveloptheresource.thepaceofdevelopment variesacrosstheregion,withsomecounties,suchasbradford,tioga,susquehanna,washington,and Greene,becomingamajorfocusforgasdrillingactivity.Othercounties,suchasLycoming,are becomingmajorhubsforthecompaniesworkingonmarcellus,whileothershaveseensignificant pipelineconstructionrequiredtogetthegastomarket.drillingactivityisexpandinginthe Commonwealth,growingfrom27wellsin2007,to1,445wellsin2010(DEP). Travelthroughthesecountiesandanecdotesfromresidentsandothersindicatethatthedevelopment ofmarcellusshaleisbringingmajorchange,includingmanynewdollarstomineralrightownerstolease theirresourcefordevelopmentandsubsequentroyaltydollarstothemoncewellsbecomeactive. Additionally,manycommunitiesareseeingnewsalesandexpandedactivityforexistingbusinesses workingwiththegascompaniesorprovidingservicestotheirworkers,newjobswithinthecommunity forbothresidentsandnon residents,andmuchmorelocalspending.inadditiontotheseincomeand jobeffects,therearenon monetaryeffects,suchassignificantincreasesintruckandothertraffic,road damage,andnewroads,wellpads,andpipelinescuttingthroughforestandfarmland,withpotential health,environment,social,andotherimpacts. PublicdebateoverMarcellusShaledevelopmentseemsincreasinglypolarizedbetweenthosewho believeitisgoodforpennsylvaniaandotherswhobelievethatitisnot.becausedevelopmentisstillin itsearlystages,muchisnotknownabouttheshort orlong runeffects,soitiscriticalthatwhatis occurringbestudiedtohelppolicymakers,communities,andcitizensunderstanditsfullimplications. Thisstudyusesthewell knownandwidely usedeconomicimpactmodelimplanandresultsfrom surveysoflandowners,localbusinesses,andmunicipalgovernments,pairedwithgisanalysisofland ownershippatterns,tobetterunderstandthecurrentjobandincomeimpactsofmarcellusshale development.economicanalysisisusefultohelpunderstandwhatinfluencestheimpactofchange,and inmanywaysthisismoreimportantthantheactualjobandincomeestimatesthateconomicmodeling creates.thisstudyexploreshowseveralkeyandunexploredaspectsofnaturalgasdevelopmentin Pennsylvaniawillaffecttheoveralleconomicimpacts. II. WhatAffectstheEconomicImpactsofMarcellusShale? DevelopmentoftheMarcellusShaleregionwillaffectPennsylvania seconomythroughseveralprimary means,including(1)leasingandroyaltyincomepaidtomineralrightowners;(2)purchasingofservices andequipment,andemploymentbythecompaniesdirectlyinvolvedinthedevelopmentofthegasplay (e.g.thosebusinessesthatfind,extract,andprocessthegas);(3)employmentandpurchasesby 2011PennStateExtensionandPennCollegewww.msetc.org10

11 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 companiesthatmaymovetopennsylvaniabecauseofthesupplyofnaturalgas(e.g.thosebusinesses thatwanttousethegas);and(4)effectsofgasdevelopmentonbusinesses,communities,and residentsthataffecttheircompetitivenessandqualityoflife,suchaslossofqualifiedemployeestogas industryjobs,increasesinlocalgovernmentcosts,changesinenvironmentalorwaterquality,health effects,andotherimpactsofproduction. Currentlyavailableinformationonlyallowseconomiststoexaminetheeconomicimpactsofleasingand royaltyincomeandofgascompanyspending,somostpreviouseconomicstudiesofmarcellusshale(as doesthisstudy)havefocusedonjustthesetwodriversofeconomicchange.thelatterimpactsmight belargeinthelongrun,whichiswhymanylocalandregionaleconomicdevelopmentgroupsare beginningtofocusonencouraginggrowthofbusinessesthatusenaturalgas,andmanyenvironmental agenciesandorganizationsarefocusingonbetterunderstandingtheenvironmentalimplicationsofgas development.eventhoughthelatterimpactshavenotbeenmodeled,theyareimportanttokeepin mindandshouldbethesubjectofadditionaleconomicstudies. SeveralkeyelementswillaffecttheeconomicimpactofMarcellus,suchasthetimingofdevelopment, includingitsscaleandpace.theseelementsareimportantforthefullrangeofimpacts,andstrongly influencethesubsetofimpactsfocusedoninthisstudy.inaddition,howmanyofthedollarsremainin thecommunityversusimmediatelyleave(whateconomistcall leakage )alsoplaysacriticalrolein influencingthemagnitudeoftheeconomicimpacts.eachwillbediscussedinturn. A. Timing,Scale,andPace Itiscriticaltorecognizethattheeconomicimpactswillchangethroughoutthedevelopmentofthe MarcellusShaleplay,mostparticularlyrelatedtoleasingandroyaltyincome,andworkforce.In addition,naturalgasdevelopmentbyitsnaturehasalimitedtimespanbecauseitisanon renewable resource.expertsdon tagreeonhowmanyyearsmarcellusshaledrillingwilloccurinpennsylvania,but manyestimatesare20yearsormore.othershalesunderpennsylvaniahavethepotentialofextending naturalgasdrillingactivity,sonaturalgasdevelopmentcouldbealongerprocess,butatsomepointthe gaswillbegoneorotherwisewillnolongerbecommerciallyviable.manyfactorswillinfluencepace andscale,includingthehealthoftheeconomyasawhole,theproductivityofshalewells,technological changeandinnovation,foreignpolicy,domesticenergypolicy,andtherelativepricesofdifferentfuels. 2011PennStateExtensionandPennCollegewww.msetc.org11

12 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein TimingandLeasing/RoyaltyIncome Intheearlyyearsofagasplay,alargeshareofspendingbygascompaniesisforleasepaymentsto mineralrightownerstoacquiretherighttoexploreanddevelopwells.leasingdollarsaremostly upfront,earlyinthedevelopmentoftheplayascompaniescompetetogaincontroloftheresource.as wellsaredrilledandcomeon line,themineralrightownersreceiveroyaltypaymentsinsofarastheir wellsareproductive.pennsylvanialawspecifiesthatmineralrightownersmustreceiveatleastone eighthofthevalueofproduction,butsomeownershavenegotiatedforhigherroyaltyvalues.the majorityoftheseroyaltydollarsgotomineralrightownersinthefirstfewyearsofawell sactivelife, becauseproductionfromindividualmarcelluswellsdropsveryquicklybeforelevelingofftoaslowbut steadydecline.thismeansthatthemajorityofalltheroyaltydollarswillbepaidtomineralright ownersduringtheactivedrillingphaseofthemarcellusshaleplayandwilldeclinequicklyoncedrilling ends. Thetimingoftheuseofthoseleasingandroyaltydollarsbymineralrightownershasimportant implicationsfortheeconomicimpactsfrommarcellusshaledevelopment.priorstudiesofthe economicimpactsofmarcellusshaleinpennsylvaniahaveassumedthatsuchownersspendleasingand royaltydollarsonthesamegoodsandservices,andinthesameproportion,astheyspendtheircurrent income.thisisaparticularlystronganduntestedassumptionbecauseitimpliesthatmostofthose dollarsimmediatelybegincirculatingthroughtheeconomy.bycomparison,anecdotesfromindividuals receivingthosedollarsandfromlocalbankerssuggestthatmineralrightownersarespendingmore moneyondifferentkindsofgoodsandsavingmuchofthemoneythey rereceivingforlateryears.this isgoodfromalong runeconomicdevelopmentperspective,sinceitmeansthattheeconomicimpacts ofmarcellusshaledevelopmentwillbespreadoveralongertimewithinacommunity,ratherthan occurringonlyinthoseyearswhereleasingandroyaltydollarsarereceived,potentiallysmoothingthe boom/bustcycle.italsomaymeanthereismorecapitalwithinthecommunity,spurringmorelocal investment,withlong runbenefits.butsuchsavingsresultinalowercurrenteconomicimpact,soitis importanttoaccountforthemasaccuratelyaspossibleineconomicimpactstudies. 2. TimingandWorkforce Laborrequirementsaresignificantlydifferentduringthedrillingphaseofgasdevelopmentthaninthe subsequentproductionphase,whichoccursonceallwellshavebeendrilled.brundageetal(2010),for example,foundthateachwetgaswellinsouthwestpennsylvaniarequirestheequivalentof13.1full timejobs,spreadacrossalmost150occupationsand420individuals,duringtheyearwhendrillingand wellcompletionoccuronthewellsite,butonly0.18fulltimejobequivalentsduringeachofthatwell s subsequentproducingyears.laborrequirements(andthereforemostoftheemployment based economicdevelopment)arehighestduringtheactivedrillingyearsandlargelyaredrivenbythenumber ofwellsdrilledperyear.thispaceofdrillinghasimportantconsequencesforotherimpactsofgas development,includingtheneedforworkerhousing,thenumberoftrucksontheroad,other 2011PennStateExtensionandPennCollegewww.msetc.org12

13 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 infrastructurerequirements,thequantityofwaterusedandneedingtobedisposedof,andother environmentaleffects. 3. OtherTimingIssues TheeconomicimpactofMarcellusShaledevelopmentwithinanindividualcommunitywilldependupon thescaleandpaceofactivitywithinthatcommunity,notnecessarilythedurationofdrillingactivity statewide.eventhoughsomeestimatethatitmaytake20ormoreyearstodrillalltheplanned MarcellusShalewells,thedrillingphaseinanyonecommunitylikelywillbeshorter,asthecrews completeworkinoneareabeforemovingontoanother.whethertheworkerslivewithinthe communitieswherethedrillingisoccurringsimilarlyisimportant,becausetheresidenceoftheworkers determineswhichmunicipalityandschooldistrictreceivetheirearnedincometaxandwherethe workersandtheirfamilieswilltendtospendmuchoftheirearnings. Afastpaceofdevelopment,withahighnumberofwellsdrilledinasingleyear,meansthedrilling activitywithinacommunitywillbeconcludedmorequicklythanifthedrillingactivityoccursovera longertimeframe.becausethelaborrequirementsperwellarerelativelyconstant,afasterpacemeans moreworkersareneededperyear,withmoretrucktraffic,higherhousingandotherlocalinfrastructure needs,andgreaterdifficultyforthecommunitytoeasilyaccommodatethescaleofactivity.aslower paceofdevelopmentthusgenerallywillbelessdisruptiveandwillextendthebenefitsoveralonger periodoftime,thoughitmayaffectcompanycostsandthereforelandownerreturns. B. Leakage Whenconsideringtheeconomicimpactsofanactivity,suchasdevelopmentofMarcellusShale,itis importanttotrackwherethedollarsareactuallygoing.moneyimmediatelyleavingthecommunity, suchaspurchasesfrombusinessesoutsideoftheregion,haslesslocalimpactthanmoneyspentatlocal businesses.thespatialdistributionofthenewdollarsfrommarcellusshaleactivitythuscanbeas importantasthetotalnumberofdollarsinvolved.leakageisparticularlyanissuewithleasingand royaltydollars,andwithworkerpayroll. 2011PennStateExtensionandPennCollegewww.msetc.org13

14 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein LeakageandLeasing/RoyaltyIncome Whoactuallyreceivesleasingandroyaltydollars,andhowthosedollarsarespent,hasanimportant influenceontheeconomicimpactsofgasdevelopment.notallmineralrightownerslivewithinthe communitywheretheyowntherights,sotheleasingandroyaltydollarstheyreceiveimmediatelyleave thecommunity.althoughthisisverysignificantforcounty leveleconomicimpactanalysis,froma statewideeconomicimpactperspective(whichistheframeworkforthisstudy),itdoesnotmatter whetherthemineralrightownerlivesinthecountywheretheyowntheirparcel,providedtheylive elsewhereinthecommonwealth,sincemostofthosedollarswillcirculatesomewhereinthe Pennsylvaniaeconomy.LeasingandroyaltypaymentstoownerswholiveoutsideofPennsylvania,in contrast,havelittlelocalorstateimpactsincethosedollarsimmediatelyleavethecommonwealth. Howthedollarsarespentalsohasimportantimplicationsfortheeconomicimpacts.Giventhe relativelylargesizeofsomeofthechecksmineralrightownersarereceiving,itisexpectedthatmany householdswilltreatlump sumpaymentsdifferentlythanregularincome.anecdotesfromareaswith substantialmarcellusactivitysuggestthatmanylandownersarespendingmoreonconsumerdurables, orsavingorinvestingthedollars.forexample,newtractors,vehicles,andfourwheelersarebeing purchased,manyhousesandbarnsarebeingrepaired,andmineralrightownersareotherwiseusingthe dollarsinspecialways. TheCommonwealthofPennsylvaniaitselfownsasignificantshareofthemineralrightsbeingleased, suchasonstateforestandstategameland.leasingandroyaltydollarsfortheselandsgotothe Commonwealth,immediatelyleavingthecommunitieswheredrillingisoccurring.Theeconomicimpact ofthesedollarsisdifferentthantheimpactofpaymentsgoingtoprivateindividualsbecausethestate spendsthosedollarsverydifferentlythandoindividualhouseholds.somelocalgovernmentsandschool districtslikewisehaveleasedtheirmineralrights,andtheiruseofthosedollarssimilarlydiffersfrom householdspending. PrioreconomicimpactstudiesofMarcellusShaleinPennsylvaniahavenotaddressedthedistributionof leasingandroyaltyincome,norhowthosedollarsarespent,butinsteadhaveassumedthatallthe dollarsaccruetopennsylvaniahouseholdsandarespentlikenormalincome.thishasthepotentialof significantlyaffectingoverallresults,since69percentoftotalindustryspendingin2008wasleasingand royaltypayments(considine,etal.2009)andabout38percentoftotalspendingin2009(considineet al.2010),andthusthesedollarsareaverylargedriveroftheoveralleconomicimpact. Severalstudiesofgasdevelopmentinotherstateshaveattemptedtoconsidertheinfluenceofsavings. InastudyoftheHaynesvilleShaleinLouisiana,Scott(2009)assumedonly5percentofleasingand royaltypaymentswerespentintheyearreceived.intheirstudyofwestvirginia,thenationalenergy TechnologyLab(2010)insteadestimatedhowmuchwassavedbyassumingthatpeoplesavedleasing androyaltydollarsinthesameproportionastheydoregularincome.nostudiestodatehavebased theirestimatesontheobservedoractualbehaviorofleaseandroyaltyrecipients,animportant limitationwhichthisstudybeginstoremedy. 2011PennStateExtensionandPennCollegewww.msetc.org14

15 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein LeakageofEmployeeWagesandSalaries Lossofeconomicimpactalsooccurstotheextentthatworkersreceivingwages,salaries,andother compensationspendtheirincomesoutsideofthecommunity aneventualitythatismuchmorelikelyif theyliveelsewhere.wagestotransientworkerstypicallydohavesomelocaleconomicimpact,since suchworkersspendpartoftheirincomeintheareawheretheyaretemporarilyliving(suchasrent, hotelorcampgroundfees,food,entertainment,andotherbasiclivingexpenses).butsincetheir permanentresidenceiselsewhere,alargershareoftheirearningsimmediatelyleavethecommunity thandowagesgoingtolocalworkers. Theproportionofnaturalgasworkerswhoarefromoutofstatehasbeenasourceofcontroversyand sensitivityinsomeregionsofpennsylvania,inpartbecauselittleconcreteinformationhasbeen availableabouttheresidenceofsuchworkers.thereislittledoubtthatmanyworkersinhighly specializedfields,suchasdirectionaldrillers,perforators,andwellcompletionsupervisors,currentlyare fromoutsidethecommonwealth.relativelyfewpennsylvanianshavetheskillsortrainingto immediatelyfillsuchpositions,anduntillocaltrainingprogramsrampupandpennsylvaniansgetonthe jobexperiencetodothesejobssafely,suchjobslikelywillremainlargelyheldbynon residents.at thesametime,however,thereisalsolittledoubtthatasubstantialnumberofthenewjobsinthegas industryaregoingtopennsylvanians.manyofthejobsareinoccupationsalreadyexistingwithin Pennsylvania,suchasconstruction,commercialdrivers,anddieselmechanics,soPennsylvanianshave theskillsandexperienceforthesenewjobopenings. Identifyingtheportionofgas relatedworkerswhoarepennsylvaniaresidentsisimportantfroman economicimpactperspective,sinceitaffectshowmanywageandsalarydollarsremainwithinthe Commonwealth.Aswithleasingandroyaltydollars,fromastatewideeconomicimpactperspectiveit doesn tmatterwhetherworkers permanentresidenceisinthecountywheretheyworkoriftheir permanentresidenceiselsewhereinpennsylvania,sincethosedollarswillcirculatesomewherein Pennsylvania.Workersretaininganout of statepermanentresidencetypicallywillspendtheirincome differently,withalargershareimmediatelyleavingthecommonwealth. 3.LeakageofBusinessActivity WhetherthebusinessesprovidingservicestothenaturalgasindustryarelocatedinPennsylvaniaor outsidethecommonwealthhassimilareffectsontheeconomicimpactofsuchspending.moreofthe dollarsgoingtolocalbusinessestypicallywillre circulatewithinthepennsylvaniaeconomythanwill dollarsgoingtofirmslocatedoutsideofthecommonwealth.locallyownedbusinessesmeanthe profitsaremorelikelytoremaininthecommunity.locationofthebusinessalsomayaffectthe compositionoftheworkforce,particularlythesharethatarelong termresidents. 2011PennStateExtensionandPennCollegewww.msetc.org15

16 III. EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 StudyMethods Thiseconomicimpactstudyusedseveralmeanstoestimatetheemploymentandincomeimpactsof MarcellusShaledevelopment.Wereliedupontheeconomicinput outputmodelimplanasthemain toolofanalysis,modifyingtheinformationwithresultsfromseveralsurveysthatweconducted. IMPLANisamongthemostcommonlyusedeconomicimpactmodels,andhasbeenfrequentlyusedto estimatethejobandincomeeffectsofnaturalgasdevelopment(centerforbusinessandeconomic Research,2008;Considine,Watson,andBlumsack,2010;Considine,Watson,Entler,andSparks,2009; NationalEnergyTechnologyLab,2010;PennsylvaniaEconomyLeague,2008;ScottandAssociates, 2009).Yetthereareclearcautionstoitsuseandinterpretationfornaturalgasdevelopment(Kay,2011; Kinnaman,2011). Ourstudyincludedsurveysoflandowners,localbusinesses,andlocalgovernmentofficialstobetter understandhowtheyareusingdollarsandtheimpactstheyareseeing.weusedgeographic InformationSystem(GIS)datatoanalyzelandownershippatternsrelatedtoPennsylvaniaresidents, non residents,andthecommonwealth.wecombinedthisinformationwithindustryspendingdatato estimatethedistributionofnaturalgascompanyspending,bothspatiallyandtemporally.these numberswerethenenteredintotheinput outputmodelimplantoestimatethemultipliereffects. A.CompanySpending 1.GeneralSpending Weattemptedtogatherinformationfromthemajorgascompaniesabouttheireconomicactivity,but noneultimatelyprovidedsuchinformationforuseinthisstudy.wethusrelieduponpublished companyspendinginformation,ascollectedandreportedbyconsidine,watsonandblumsack(2009 and2010).weadjustedthespendingimpactstoreflect2009activitylevels,usingthe2008proportions shownintable1oftheir EmergingGiant reportandappliedtothe2009totalspendingfromthe "Update"report. Considineetal.reportedthattheir2010surveywascompletedbytwelvecompanies,whocollectively accountedforabout74percentoftotalwellsstartedduring2009.sincetheirresponsesaccountedfor suchalargepercentageofdrillingactivity,theeffectofnon responsebiasislikelytobelow.theyused theseresponsestoestimatetotalindustryspendingthatyear.toprovideasecondaryverification source,weusedpennsylvaniadepartmentofenvironmentalprotectiondataonthenumberofwells drilledin2009toestimatetheperwellcostthattheirdataimpliesandfoundthatitwasapproximately $3.6millionperwell.Thisisconsistentwiththe$3to$4millionperwellcostthatcompanies independentlyhavereportedinpublicpresentationsandpersonalconversations. 2011PennStateExtensionandPennCollegewww.msetc.org16

17 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Table1.NaturalGasCompanySpendinginPennsylvania,2009 LeaseandBonus $1,728,765,000 Exploration $243,831,000 Upstream:DrillingandCompletion $1,700,435,000 Midstream:PipelineandProcessing $695,801,000 Royalties $54,683,000 Other $111,787,000 Source:Considine,WatsonandBlumsack,2010 WeusedIMPLAN smodeledindustryproductionfunctionofpurchasingrelationshipsbetweenbusiness sectors,whicharelargelybaseduponthelevelofgasdrillingactivityinpennsylvaniapriortomarcellus. Theselikelyunderrepresentthenumberandtypeofsupportingbusinessesthathaveeitherexpandedor movedintothecommonwealthduetomarcellusactivity.asaresult,ourestimatesoftheeconomic impactsofgeneralspendingbythenaturalgascompaniesmayoverestimatetheamountofbusiness spendingleavingpennsylvania. 2. Workforce Wagesandsalariespaidtonaturalgascompanyandsubcontractoremployeeshaveadditionaleconomic impactsbecausetheseworkersspendtheirearningsonfood,housing,recreation,andotherhousehold needs.thesizeofthesemultipliereffects,however,dependsuponwherethoseworkerslive,andthus wheretheyspendthosedollars.thisdistinctioniscriticaltounderstandingthedegreeofeconomic impactproducedbythedevelopmentoftheregion.ifnaturalgascompanyemployeesmaintaintheir primaryresidenceinthecommunitywherethedrillingisoccurring,orelsewhereinpennsylvania, workerswillbespendingasignificantamountoftheirwagesandsalarieswithinthecommonwealth, resultinginadditionaleconomicimpactasthosedollarscirculatethroughtheeconomy.iftheworkers arenon Pennsylvaniaresidents,someoftheirearningswillimmediatelyleavetheCommonwealthas theysendwagesback home tofamily. Forthisstudy,theproportionofresidentandnon residentworkerswassetusingdatafromamarcellus ShaleEducation&TrainingCenteronlinesurveyofgascompaniesconductedin2010aspartofa workforceneedsassessment(brundageetal,2011).theresponsesindicatedthat62.7percentofthe workersarepennsylvaniaresidentsand37.3percentarenon residents.thispercentagelikelyslightly overestimatestheactualpercentageofpennsylvaniaworkersin2009,andthusourresultslikelyslightly overestimatetheeconomicimpactofpayrollspending. Totalcompanypayrollspendingin2009wasestimatedbytakingthe$66milliontotalpayrollin2008 reportedbyconsidineetal(2009)andadjustingitupwardsby40percent,basedupontheir2010report thatcompanies totalgasexpendituresincreasedbyabout40percentbetween2008and2009.this totalpayroll,includingbenefitsandtaxes,wasdividedbetweenpennsylvaniaandnon Pennsylvania 2011PennStateExtensionandPennCollegewww.msetc.org17

18 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 laborusingtheproportionsfromtheonlinesurvey.thepayrollgoingtopennsylvaniaworkerswas addedtoimplanasnewtax adjustedhouseholdincome.becausespendingpatternsdifferby householdincome,weassumedworkerstypicallywereinthemedianfamilyoffourincomecategory (whichisabout$72,000ayear). 1 Wegeneratedtwoscenariosaboutpayrollgoingtonon Pennsylvanians,inrecognitionthatworkers fromoutofstatesendsomeoftheirincomebacktotheirhomestatecommunity.weranthemodel undertheassumptionthatnon Pennsylvaniaworkersspend50percentoftheirMarcellus earnings insidepennsylvania,andalternativelythattheyspend75percentoftheirearningshere.becausenonresidentworkerslikelyhavedifferentlocalspendingpatternsthantypicalresidentworkers,we estimatedtheimpactsoftheirspendingusingalowerincomecategoryintheimplanmodelmore typicalofrentinghouseholds. B.LeasingandRoyalties Notallleasingandroyaltydollarsareimmediatelyspentinthelocalorstateeconomy,sincesomeofthe dollarsgotonon Pennsylvaniaresidents(andthusimmediatelyleavethestate),andmineralright ownerstypicallysaveatleastaportionofsuchdollarsforuseinlateryears.inaddition,howdollarsare spenthasimportantimplicationsforthateconomicimpact.thecommonwealthofpennsylvaniaitselfis asignificantmineralrightowner,andthusisreceivingsignificantleasingandroyaltydollars.itsuseof thesedollarsdiffersfromhouseholds,soithasitsowneconomicimpactwhichmustbeanalyzed separately WeusedGISanalysisandasurveyofhouseholdsreceivingleasingandroyaltyincometoestimatehow manyleasingandroyaltydollarswenttopennsylvaniahouseholds,howmanywenttothe Commonwealth,andhowhouseholdsspentthosefunds.Eachofthesewillbeexplainedinturn. 1.GISAnalysisofOwnership InPennsylvania,asinmostotherstates,surfacelandownersdonotnecessarilyownthemineralrights undertheirland.surfaceandmineralrightscanbesevered,andbeowned(andsold)separatelyfrom eachother.thisisrelativelycommoninareasofpennsylvaniawhichhistoricallyhaveexperiencedcoal miningandnaturalgasorpetroleumdevelopment.manyoftheserightswereseveredgenerationsago 1 Perthesuggestionofanoutsidereviewer,weconductedsensitivityanalysisonthe incometype of householdthatreceivestheroyaltypayments.were rantheanalysisprovidingidenticalincomeshocks toimplanhouseholdincomecohortsimmediatelybelow($35,000 $50,000)andabove($75,000 $100,000)themediancohort.Theresultingdifferencesintotalemploymentimpactswereverysmall (lessthan10jobs)comparedtotheresultswhenweusedthemedianincomecategory. 2011PennStateExtensionandPennCollegewww.msetc.org18

19 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 whenresourcedevelopmentfirstbeganthere.mineralrightscanbeownedbycompanies(suchascoal companies)orbyprivateindividuals. Wecouldfindnopubliclyavailabledocumentationthattracksownershipofmineralrights,otherthan onadeed by deedbasis.wetalkedwithseveralcountytaxassessors,andtheyconfirmedthatthey wereunawareofanyresourcethatprovidesclearinformationaboutwhoownsmineralrights.indeed, thisiswhynaturalgascompaniesareconductingintensivedeedresearchoneachparceltheywantto lease.thereisnoeasywaytoidentifywhatpercentageofmineralrightsareownedbythe Commonwealth,bycompanies,andbyprivateindividuals(muchlesswhatpercentageofthese individualsareresidentsofthecounty,residentselsewhereinpennsylvania,orliveoutside Pennsylvania). Unlikemineralrights,allcountygovernmentsmaintainactiverecordsofsurfaceownership,compiledso itispossibletoclearlyandeasilyidentifyownersofparcelsandtoidentifyaggregatepatternsof ownership.gisdataonlandownershipisavailableineachcountywithinthemarcellusregion,which allowedustocalculatethepercentageoflandownedbythestateandbytheprivatesector.forsixof theprimarymarcelluscounties(bradford,fayette,greene,lycoming,tioga,andwashingtoncounties, whichcollectivelyaccountedfor68percentofallpennsylvaniamarcellusshalewellsdrilledfrom2007 throughfall2010),availabledatafromtheconservationbiologyinstitute sunitedstatesprotected Areasshapefileallowedustofurthersplitprivateownershippatternsintothepercentageofland ownedbyresidentsofeachcounty,ownedbyresidentselsewhereinpennsylvania,andownedby peoplelivinginotherstates.weweightedthisinformationbyacreagetocalculateanaverage proportionalbreakdownofprivateownershippatternsandassumedthattheseproportionsappliedin othercounties(seetable2). 2011PennStateExtensionandPennCollegewww.msetc.org19

20 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Table2.PercentofAcresinMarcellusCounties,byOwnershipType Percent Public Percent Private Percent Private, Ownedin County Percent Private, Owned Elsewhere inpa Percent Private, OwnedOutof State CalculationsBasedUponGISAnalysis Allcountieswith Marcellus 17% 83% Bradford 8% 92% 60% 22% 10% Fayette 13% 87% 64% 14% 9% Greene 4% 96%* 55% 31% 9% Lycoming 33% 67% 14% 49% 4% Tioga 25% 75%* 47% 19% 8% Washington 4% 96%* 80% 9% 7% PrivateOwnershipEstimatesbasedupontheGISAnalysis Weighted estimateforall countieswith Marcellus* 50.6% 24.7% 7.7% *Numbersdonotaddtothe PercentPrivate ownershipduetoroundingerror Weassumedthatleasingandroyaltydollarsaredistributedacrosslandownersbaseduponthese ownershippercentages,eventhoughtheproductivityofindividualwellswillvary,andactuallease valuesandroyaltypercentagesvarybaseduponwhenmineralrightownerssignedandhowwellthey wereabletonegotiate.thisshouldnotmakeadifferencefortheoverallimpactsofhousehold spending,butitdoesmeanthatthestudylikelyoverestimatestheamountofdollarsgoingtosuch householdsandunderestimatestheamountgoingtothestate,sincethecommonwealthhasbeenable tonegotiatebetterleasingtermsthanmanymineralrightowners. 2011PennStateExtensionandPennCollegewww.msetc.org20

21 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein SurveyofLandowners Howleasingandroyaltydollarsarebeingspentwasestimatedthroughahouseholdsurveywesentto 1,000landownerslocatedwithinonethousandfeetofactiveMarcelluswellsinPennsylvania sbradford andtiogacounties.inbothcounties,mostlandownersdoowntheirmineralrights,makingitpossible touselandownershiprecordstocontactmineralrightowners.weidentifiedthelandownersusinggis propertyrecordsanddrewa1,000footradiuscirclearoundactivewellsinthetwocountiesusingthe wells longitudeandlatitudeinformationlistedinpennsylvaniadepartmentofenvironmentalprotection reports.onethousandlandownerswererandomlyselectedfromthislist,andtheyweresentpaper surveysinthefallof2010.thesampleincluded516landownersfrombradfordcountyand484from TiogaCounty.Twofollowupremindersweresenttonon responders. Surveyswerereceivedbackfrom501landowners,foraresponserateof50.1percent.Surveyswere returnedfrom23peoplewhosaidtheiroilandgasrightshadnotbeenleasedfornaturalgasdrillingin themarcellusshale;theiranswersweredroppedfromtheanalysis.thefinalbreakdownofresponses was254frombradfordcounty,and224fromtiogacounty. i.wheretheownerslive About71percentoftheBradfordCountylandwasownedbyrespondentswhoseprimaryresidencewas inthatcounty,and65percentofthetiogacountylandwasownedbyrespondentswhoseprimary residencewasinthatcounty.about6percentoftherespondentsreportedthattheirprimaryresidence wasoutsideofpennsylvania,withthemostcommonstatesbeingnewjersey(10respondents),new York(6respondents),andFlorida(5respondents).Thepercentageoflocallandownersdiffersfromthe county widegisanalysisoflandownership,butitisn tclearifthedifferenceisduetoresponsebias (e.g.bradfordandtiogacountyresidentsweremorelikelytorespondtothesurveythanwereowners livingoutsidethecounty),iftheownershippatternsaroundtheactivewellsinthosecountiesarenot representativeofpatternsacrosseachcounty,orifnon countyresidentstendtoownlargerparcels thanlocalresidents. ii.dollarsreceivedforleasing Theamountofleasingdollarsreceivedperacrevarieddramaticallyamongstlandowners,rangingfrom $1peracreto$5,750peracre.Equalpercentagesoflandownersreportedreceivingeitherlessthan$50 peracreorfrom$1,000to$3,000peracre(about30percent,respectively).thesepercentagesare aboutequalacrossbothbradfordandtiogacounties.themajorityofthelessthan$50peracreleases weresignedin2006,whilethemajorityofthe$1,000to$3,000peracreleasesweresignedin2008. About70percentoftheleasesreceivingover$3,000peracreweresignedin PennStateExtensionandPennCollegewww.msetc.org21

22 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 iii.useofleasingandroyaltydollars Fourhundredandtwelveoftherespondentshadleasedtheirlandfornaturalgasdrilling(ratherthana priorownerhavingdoneso).thevastmajorityreceivedtheirleasepaymentasaone timepayment, withonly15percentreceivingthepaymentsplitovermultipleyears.ofthoselandownersleasingtheir rights,161respondentshadreceivedroyaltyincome,withthevastmajorityreceivingroyalties(73 percent)reportingtheyreceived$25,000orlesssofar.abouttenpercentofrespondentsreported receiving$100,000ormoreinroyalties,andfour(2percent)saidtheyhadreceived$250,000ormorein royalties.manyoftheparcelswhichhadbeenleasedbypriorownershadbeenleaseddecades previously. Whenweightedbytheamountofdollarseachlandownerwaspaid,about55percentofthetotalleasing dollarsweresavedintheyeartheywerereceived(seetable3),ratherthanbeingimmediatelyspent. About66percentofalltheroyaltydollarsweresimilarlysavedforthefuture.Othercommonuses includedpayingstateandfederaltaxes(17percentofleasingdollars),purchasingvehicles(9percentof leasingdollars),andrealestate(5percentofleasingdollars).otherthanthestateandfederaltaxes, thesearenottypicalconsumerspending,indicatingthathouseholdsreceivingleaseandroyaltydollars areusingthesedollarsdifferentlythannormalincome. Table3.MineralRightOwners UseofLeasingDollars Sectors TotalSpent % ConsumerGoods $4, % Food $ % Farming $103, % MotorVehicles $213, % HealthServicesandInsurance $38, % Investments,Savings,&Finances $1,307, % NewBuildingConstruction/Home Improvements $41, % RealEstate $122, % Taxes $415, % Vacations,Travel,&Entertainment $8, % Other $113, % Total $2,368, % N=42 Thespendingon farming reflectsthatmuchoftheleasingandroyaltydollarsaregoingtofarmers, whichisnotsurprisinggiventhatfarmersownasignificantproportionofpennsylvania sland.such spendingisconsistentwithanecdotesandwrittencommentsinthesurveythatmanyfarmersareusing Marcellusdollarstobuynewtractors,fixbarns,andbuildnewstructures. 2011PennStateExtensionandPennCollegewww.msetc.org22

23 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Weestimatedtheimpactsofhouseholdspendingbyincreasinghouseholdexpendituresusingthe categoriesidentifiedintable3.wesubsequentlyaggregatedtheimplansectorsrepresentingeachof thebroaderspendingcategories.weapplieddefaultimplanmarginstotheconsumergoods,food, automotive,andhealthservicescategory.forfarmspending,withinimplanweseparatedouthard expenses(machineryandbuildings)fromoperatingexpensesandcalculatedtheratioofmachineryand buildingexpensestooperatingexpenses,whichwasabout2:1.wethenusedthisratiotoallocatefarm spendingbetweenthesetwocategoriesoffarminvestments. Fromaneconomicimpactperspective,spendingon realestate primarilyinvolvessimplyshifting existingassetsbetweenownersratherthancreatingneweconomicvalue.thecommissionspaidto realtors,financingcosts,deedsearches,andothercostsassociatedwithbuyingandsellingrealestate dohaveaneconomicimpact,however,sincethesearepaymentsforservices.forthisstudy,we assumedthat10percentofthespendingonrealestatewentforsuchcommissionsandactivities,and theremaining90percentwassimplyatransferofexistingassetsbetweenowners.improvementsto realestate,suchasnewbuildingconstructionandhomeimprovements,alsohaveaneconomicimpact, sincethesearespendingtocreateassets,butthiswasaseparatecategoryinthesurveyandwas includeddirectlyintheanalysis. 3.AllocationofLeasingandRoyaltyDollarsintheStudy WeallocatedleasingandroyaltydollarswithinthestudybasedupontheGISandsurveyanalysis.For thepurposesofthisstudy,weassumedthatmineralrightownershippatternsareidenticaltoland ownershippatterns,butwebelievethatthislikelyoverestimatestheamountofleasingandroyalty dollarsgoingtopennsylvaniansandthustheeconomicimpactofsuchdollars.manyoftheserights wereseveredgenerationsagoandhavesubsequentlybeenpasseddownthroughfamilies,splintering intomultipleownershipacrosschildrenandgrandchildren.giventherelativelyhighamountof outmigrationfrompennsylvaniaoverthepastdecades,itisexpectedthatmanyofthecurrentmineral rightownersdonotliveinthecommonwealth. Becauseoftheuncertaintyabouthowmineralrightownershipvariesfromsurfacerightownership,we estimatedtwoscenariosabouttheimpactsofleasingandroyaltypaymentsonprivatepropertyowners. ThefirstscenariousedtheGISanalysisaboutout of statelandownershiptoassumethat7.7percentof allleasingandroyaltypaymentsgotonon Pennsylvaniaresidents(asinTable2),whilethesecond scenarioassumedthat15.4percentofallthosepaymentsgoout of state. TheGISanalysisindicatedthatseventeenpercentoflandinPennsylvaniacountieswithMarcellusis ownedbythepublicsector,whichprimarilyisthecommonwealth.intheanalysis,wethusallocated17 percentofallleasingandroyaltydollarsdirectlytothestate.weassumedthatthesedollarswent directlyintothegeneralfundandwerespentthesamewayasothergeneralfundmonies.this assumptionoverestimatesthecurrenteconomicimpactoftheleasingandroyaltydollarsthe CommonwealthisreceivingbecausemanyofthosedollarsareinsteadgoingintotheOilandGasFund, 2011PennStateExtensionandPennCollegewww.msetc.org23

24 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 orsimilarsavingsfundsmanagedbythepennsylvaniagamecommissionorotheragencies,andthus werenotspentin2009. Weestimatedtheimpactofleasingdollarsbyincreasinghouseholdexpendituresinthespending categoriesidentifiedfromthehouseholdsurvey.incometherespondentssaidtheypaidintaxeswas allocatedbetweenfederalandstatetaxesbasedupontheratioofindividualfederalincometaxespaid bypennsylvanians(internalrevenueservice)andpersonalincometaxcollectionsreportedbythe PennsylvaniaDepartmentofRevenue.MostlocalmunicipalitiesandschooldistrictsinPennsylvanialevy anearnedincometax,butsinceleasingdollarsarenotsubjecttothattax,wedidnotincludeitinthe ratio.accordingtothesecalculations,about18percentoftotalpersonalincometaxespaidin PennsylvaniawenttotheCommonwealthwiththeremaindergoingtotheFederalgovernment.We dividedstatetaxpaymentsbetweennon educationstategovernmentspendingandeducationstate spendingusingtheactualproportionsofgeneralfundspendingin (63percentand37 percent,respectively)(commonwealthofpennsylvania,2009).becausethespendingdetailfromthe landownersurveydoesnotmatchupwellwithaggregatedimplanspendingcategories,thescenario hadtoberuninimplan sdisaggregatedmodel,whoselevelofdetailisdifficulttoincludeinareport. Wethusonlypresentthetotaleffectsratherthanallthedetail. Surveyrespondentsindicatedthattheysavedabout66percentoftheroyaltydollarstheyreceived. Savingsgenerateaminoramountofneweconomicactivityforthefinancialfirmshandlingthefunds,so inouranalysisweassumedthatsavingswouldgenerateservicefeesof1.5percent,generatingnew activitywithinthefinancialservicessector.forty tworespondentscompletedthequestionaboutthe percentageofroyaltyincometheyspentintheyeartheyreceivedthosedollars,butonly10completed thedetailedquestionsaboutwheretheyactuallyspentthose34percentofroyaltydollars.duetothis relativelysmallnumberofresponses,weestimatedtheimpactoftheroyaltydollarsrespondentsspent in2009byincreasinghouseholdincomeinthemedianincomehouseholdspendingcategoryfor Pennsylvania. C.LocalBusinessEffects IMPLANestimatesthesecondaryeconomicimpactsacrossalleconomicsectorsbyextrapolatingfrom economicrelationshipswithinthemodel.asameansofverifyingwhethersuchsecondaryimpactsare occurring,aspartofthisstudywesurveyed1,000businessesinbothbradfordandwashingtoncounties (foratotalof2,000businesses).businesseswererandomlyselectedusingacommerciallyavailablelist ofactivebusinesseshavinganofficeorlocationphysicallywithinthecounty.bradfordcountywas selectedbecauseithasexperiencedthemostmarcellusdrillingactivityofanypennsylvaniacounty throughtheendof2010,with482wellsdrilledsince2008(and355ofthesein2010).washington CountywasselectedbecauseithasexperiencedthethirdhighestamountofMarcellusdrillingactivity andthemostofanycountyinsouthwestpennsylvania.thecountyhashad305marcelluswellsdrilled since2008,with135in2010.becauseofthesignificantpopulationsizedifferencebetweenthetwo counties(60,384residentsinbradfordcountyin2009,accordingtotheu.s.census,comparedto 2011PennStateExtensionandPennCollegewww.msetc.org24

25 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein ,505inWashingtoncounty),weexpectedthatbusinessimpactswouldbemorevisibleinBradford CountythaninWashingtonCounty. ThepapersurveywasmailedtobusinessownersorlocalbranchmanagersduringOctober2010,and twofollow upremindersweresenttonon responders.surveyswerereceivedbackfrom619 businesses,foraresponserateof31percent.thisincluded360responsesfrombradfordcountyand 259fromWashingtonCounty.Surveyswerereturnedfrom82peoplewhosaidtheydidnotownor managethebusiness;theiranswersweredroppedfromtheanalysis.theoverallresponseswere generallyconsistentwiththeactualbusinesscompositionofeachcounty seconomy,sotheyare representativeofactualconditions. 1.BusinessImpacts One thirdofallthebradfordcountybusinessessaidthattheirsaleshaveincreasedduetodrilling activity,andonly3percentreportedthatsaleshaddeclined.about23percentofthewashington Countybusinessesreportedincreasedsales,andonly2percentreporteddecreasedsales.(SeeTable4) Table4.ChangesinBusinessActivity Haveyourbusinessactivitieschangeddueto naturalgasdrilling? Haveyourannualsaleschangedduetonaturalgas drilling? Percent(number)responding yes Allresponses Bradford Washington County County 17%(89) 22%(70) 9%(19) 31%(160) 35%(108) 25%(52) Salesincreased 28%(147) 32%(100) 23%(47) Salesdecreased 3%(13) 3%(8) 2%(5) 2.ChangesbyBusinessType Notsurprisingly,theresponsesvariedbytypeofbusiness(seeTable5).Eightypercentofthehotelsand campgroundsinbradfordcountyreportedthattheirbusinessactivityhaschangedduetonaturalgas drilling,and100percentreportedhighersales.construction(35percent),transportation(30percent), eatinganddrinkingplaces(29percent),andwholesaletradeandfinancialservicesfirms(both28 percent)inbradfordcountysimilarlyweremorelikelytoreportchangesinbusinessactivitythanwere otherbusinesstypes.halfofthefinancialbusinessesinbradfordcountyreportedhighersalesdueto naturalgasactivity,asdid44percentofretailtrade,38percentofeatinganddrinkingplaces,and33 percentofwholesaletradeandbusinessservicesestablishments. 2011PennStateExtensionandPennCollegewww.msetc.org25

26 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Table5.ChangesinBusinessActivitybyBusinessType Haveyourbusiness activitieschangeddueto naturalgasdrilling? Percent(number)saying yes Bradford Washington County County Haveyourannualsales increasedduetonatural gasdrilling? Percent(number)saying yes Bradford Washington County County BusinessType Agriculture,Forestry,Fishing 9%(2) 0% 9%(2) 23%(3) Mining 50%(1) 0% Construction 35%(8) 16%(3) 27%(6) 15%(3) Manufacturing 11%(3) 8%(1) 25%(7) 33%(4) Transportation,Communications, 30%(3) 0% 22%(2) 0% Utilities WholesaleTrade 28%(5) 20%(2) 33%(6) 50%(5) RetailTrade 25%(13) 8%(3) 44%(23) 28%(11) Financial,Insurance,RealEstate 28%(7) 10%(1) 50%(12) 40%(4) BusinessServices 20%(10) 6%(3) 33%(16) 16%(8) ProfessionalServices 15%(9) 9%(4) 23%(13) 16%(7) EatingandDrinkingPlaces 29%(6) 0% 38%(8) 33%(1) HotelsandCampgrounds 80%(4) 50%(1) 100%(5) 50%(1) Thedifferencesbetweenthetwocountiessuggestthateconomicimpactsaremuchmorevisiblein smallerthaninlargercommunities.businessesinbradfordcountytypicallyweremorelikelytoreport impactsassociatedwithmarcellusactivitythanwerebusinessesinwashingtoncounty.thoughwedid notattempttoplacedollarvaluesonthesesurveyresponses,theresultsconfirmindependentlyfrom IMPLANthatmanylocalbusinesses,irrespectiveofsector,areexperiencingsalesincreasesdueto Marcellusactivity.Naturalgascompany,worker,andmineralrightownerspendingrelatedtoMarcellus ShaleisbroadlyaffectinglocaleconomiesinPennsylvania. D.LocalGovernmentEffects IMPLANcanestimatetheimpactofeconomicactivityonstateandlocaltaxcollections,andthis sometimesisreportedwitheconomicanalysis.yetwithinacademiccircles,theassumptionsand methodimplanusestomakethesetaxestimatesisrecognizedaspotentiallyoverlystrong,particularly relatedtoindirectandinducedeffects,sosomeanalystschoosetonotuseorreportthisinformation. Becauseoftheseconcerns,welikewisedidnotestimatestateorlocaltaximplicationsaspartofthis study. Asanalternative,wesurveyedmunicipalgovernmentsinPennsylvaniacountieswithMarcellus Shaleactivitytoaskthemdirectlyhowtheirtaxrevenuesarebeingaffectedbygasdevelopment.We 2011PennStateExtensionandPennCollegewww.msetc.org26

27 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 alsoaskedthemhowtheirservicesandcostshavechanged,becausenewtaxrevenuesmustbe comparedtonewcoststomorecompletelyunderstandtheimpactonlocalgovernments. Thesurveyincludedalltownships,boroughs,andcitiesinBradford,Clinton,Fayette,Greene,Lycoming, Somerset,Sullivan,Susquehanna,Tioga,Washington,Westmoreland,andWyomingcounties,which totaled494jurisdictions(seemap1).atthetimeofthestudy,thesecountiesaccountedfor76percent ofallthemarcellusshalewellsthathaddrilledinpennsylvaniafrom2008untilfall2010.apapersurvey wassenttothechairofthetownshipsupervisorsorboroughorcitycouncilpresidentineach municipalityduringfall2010,andafollowuppostcardandsubsequentletterweresenttononrespondents.responseswerereceivedfrom293ofthesemunicipalgovernmentsforanoverall responserateof59percent. Map1.MunicipalGovernmentSurveyCounties Ofthe293responses,131reportedthatMarcellusdevelopmentactivityisoccurringwithintheir jurisdiction.suchactivityincludeddrilling,butcanincludepipelineconstruction,majortrucktraffic, pipeyardsorotherstagingareas,workerhousing,orothermarcellus relatedactivity.ofthese municipalitiesdirectlyexperiencingdevelopmentactivities,about75percentsaidthatmarcellusshale developmenthadnotaffectedtheirtaxornon taxrevenue.about18percentsaidthatrevenueshad increased,andonereportedrevenueshaddecreasedduetomarcellusdevelopment.another6percent didnotknowhowrevenueshadchanged. Thelevelofdrillingactivitydoesnotseemcloselyrelatedtowhetheramunicipalityreportedhigher revenues(seetable6).thereweredifferencesbetweenmunicipalitiesbaseduponthenumberofwells beingdrilled,butduetotherelativelysmallnumbersinsomecategories,thesedifferencesarenot significantandshouldbeviewedwithcaution.ofthe23municipalitiesreportinghigherrevenues,only5 2011PennStateExtensionandPennCollegewww.msetc.org27

28 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 saidtheirearnedincometaxcollectionshadincreased,5reportedhigherrealpropertytaxcollections, and3reportedthelocalservicestaxhadincreased.anadditionalfivereportedhigherpermitfee collections. Table6.MunicipalRevenuesandLevelofDrillingActivity HasdevelopmentordrillingofMarcellusShaleaffectedthetaxornontaxrevenuesyourmunicipalityreceives?Percent(number)responding DrillingActivityin Municipality Nochange Revenues IncreasedOverall Revenues Decreased Overall Don tknow Nowells 82%(18) 18%(4) 1 10wells 74%(57) 18%(14) 8%(6) 11 25wells 77%(10) 8%(1) 8%(1) 8%(1) 26 50wells 40%(2) 60%(3) 51 75wells 100%(1) Over75wells 100%(1) Thenumberofmunicipalitiesreportinghigherearnedincomeandlocalservicestaxcollectionsseems unusuallylow,sincehigheremploymentinthesetownshipstodrillthewellsshouldincreasethe numberofworkersandresidentsowingbothtaxes.thelowresponsesmaybeoccurringforseveral reasons,includinghowtaxesarepaidwhenemployeesworkinmultiplemunicipalities,thatnotall municipalitieslevythesetaxes,orproblemswithwithholdingandsubmittingthetaxes.theycouldalso occurifthelocalofficials perceptionswereinaccurate. Statelawspecifiesthattaxpayersworkinginmultiplemunicipalitiesonlypaythesetwotaxesinone municipality,ratherthanineachmunicipalitywheretheywork.earnedincometaxispaidtothe municipalitywherethetaxpayerlives,regardlessofwheretheywork,unlesstheyworkinphiladelphia orunlessthatjurisdictiondoesnotlevythetax(inwhichcaseitispaidtothejurisdictionwherethey primarilywork),andthelocalservicestaxalsoispaidtotheirprimarilyplaceofoccupation.because naturalgasdevelopmentworkmovesfrequentlyfromsitetosite,withoutregardformunicipal boundaries,manycompanyemployeestypicallyworkinmanydifferentmunicipalitieseachyear.only onewillreceivetheirearnedincometaxandlocalservicestaxpayments.thelocaltaximpactsclearly requiremorestudytoclarifywhatisoccurringandwhy.regardlessofthecause,thelownumbersof municipalofficialsreportinghighertaxrevenuesindicatethatthemajorityofmunicipalitieswhere drillingisoccurringbelievetheyarenotreceivingmoretaxrevenuesasaresultoftheactivity. Taxesareonlyonehalfofthepotentialfinancialimpactonlocalgovernments.Equallyimportantare theimpactsonlocalservicesandonlocalgovernmentexpenditures.about67percentofthe131 municipalitiesexperiencingmarcellusactivitysaidtheservicestheyprovidehavenotchanged.about 28percentreportedtheirserviceshaveincreasedduetonaturalgasdevelopmentactivityand4percent (5municipalities)saidtheirserviceshavedecreasedoverallduetoMarcellusdevelopmentactivity.The surveydidnotaskaboutthesizeofsuchincreasesordecreases,sowearenotabletodescribehow 2011PennStateExtensionandPennCollegewww.msetc.org28

29 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 significantthesechangeswere.allmunicipalitieswhohadtoincreaseservicesidentifiedroadsasbeing affectedand13(10percentofallthe131municipalities)saidbuildingandcodeenforcementhad increased.fourpercentsaidpoliceserviceneedshadincreased,asdid2percentwhocitedfireand emergencyservices.thelatterrelativelylowpercentagelikelyreflectsthatfewmunicipalities themselvesdirectlyprovidefireandemergencyservicesandinsteadrelyuponvolunteers,sotheyeither maybeunawareofsuchchangeorconsidersuchchangesasnotaffectingtheirlocalgovernment. Ofthemunicipalitiesindicatingtheneedformunicipalserviceshaddecreased,foursaidthatmunicipal roadserviceshaddecreased,andonesaidtheneedforvegetationcontrolhaddecreased.theroad serviceresponseslikelyreflectthatgascompaniesarerepairingandrebuildingroadsinaffected communities,andsotheneedforthemunicipalityitselftodosuchrepairsinthesefourjurisdictionshas decreased.thereareserviceneeddifferencesbetweenthemunicipalitiesbasedupontheamountof drillingactivity(seetable7),butthesedifferencesarenotsignificant. Table7.MunicipalServicesandLevelofDrillingActivity HasdevelopmentordrillingofMarcellusShaleaffectedtheservices yourmunicipalityprovides?percent(number)responding ServicesProvided HaveIncreased Overall ServicesProvided HaveDecreased Overall DrillingActivityin Municipality Nochange Don tknow Nowells 78%(18) 22%(5) 1 10wells 65%(47) 28%(20) 6%(4) 1%(1) 11 25wells 38%(5) 46%(6) 8%(1) 8%(1) 26 50wells 80%(4) 20%(1) 51 75wells 100%(1) Over75wells 100%(1) About71percentofthemunicipalitieswithMarcellusactivityindicatedtheirlocalgovernment stotal expenditureshadnotbeenaffectedbythegasdevelopment.twenty sixpercentsaidexpenditureshad increasedoverall,andonereportedthatexpenditureshaddecreased.threeofthemunicipalities(2 percent)didnotknowhowgasdevelopmenthadaffectedtheirexpenditures.mostoftherespondents reportinghigherexpenditurescitedgreaterroadmaintenancecosts,andindeed,thiswas22percentof allthemunicipalitieswithmarcellusactivity.higherspendingonclericalservices(8percentofall municipalities),permittingandcodeenforcement,legalservices(both3percent),andpolice(2percent) werealsomentionedbyrespondents.therewerenoclearpatternsofexpenditureswhenanalyzedby thelevelofdrillingactivity(seetable8). 2011PennStateExtensionandPennCollegewww.msetc.org29

30 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Table8.MunicipalExpendituresandLevelofDrillingActivity HasdevelopmentordrillingofMarcellusShaleaffectedyourmunicipality stotal expenditures?percent(number)responding DrillingActivityin Municipality Nochange Expenditures IncreasedOverall Expenditures DecreasedOverall Don tknow Nowells 74%(17) 26%(6) 1 10wells 71%(52) 26%(19) 3%(2) 11 25wells 62%(8) 31%(4) 8%(1) 26 50wells 100%(5) 51 75wells 100%(1) Over75wells 100%(1) Thelackofclearpatternsbylevelofdrillingactivityacrossrevenues,services,andexpendituresmay occurbecausedrillingisonlyoneofmultipleactivitiesrelatedtomarcellusthatcanaffectmunicipal budgets.priortoawellbeingdrilled,significantworkmustbedoneconductingseismicandother studies,obtainingpermits,creatingaccessroadsandwellpads,andcreatingstagingareasfor companiesandworkers.theseoftenoccurinneighboringmunicipalities,ratherthandirectlywherethe drillingistakingplace.inaddition,trafficandpipelinesbynecessitycrossmunicipalboundaries.the perwell focusintables6,7,and8thusmaybetoonarrowtoadequatelyrepresentthelevelof Marcellusactivityinacommunityandthusitsimpactonthelocalgovernment. IV.EconomicImpactResults BelowwediscusstheresultsfromeachtypeofeconomicimpactfromMarcellusShaledevelopmentand thenreporttheoverallestimatedeconomicimpact.detailedtablesforeachappearintheappendix.it isimportanttonotethattheseimpactsarethoseestimatedtohaveoccurredin2009duetoactivitiesin thatyear,nottheoverallimpact,whichwilloccurinsubsequentyearsasdollarssavedin2009laterare spent. Thedirectimpactsrepresentthedirectincreaseinthenumberofjobsduetothespendingbynatural gascompanies,includinglandmen,geologists,roustabouts,governmentrelationsspecialists,andother companyemployees.theindirectimpactsmeasuretheadditionaljobsandoutputgainedinthose sectorsfromwhomthenaturalgasindustrycontractsorpurchasestodevelopmarcellusshale,suchas seismicandwellcompletioncompanies,truckingandconstructioncompanies,gasprocessing,andeven janitorialservices.inducedimpactsmeasuretheadditionaljobsduetoanincreaseinhouseholdand governmentexpenditures.thetotaleconomicimpactisthecombinationofthesedirect,indirect,and inducedeffects. 2011PennStateExtensionandPennCollegewww.msetc.org30

31 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Employmentisthenumberofjobscreatedasaresultoftheactivity.LaborIncome(sometimesreferred toas EmployeeCompensation )inimplanistotalpayrollcostpaidbytheemployer,includingwages andsalary,allbenefits,andpayrolltaxes.totaloutputisthevalueofindustryproduction,whichissales minusinventorychangesformanufacturers,totalsalesforservicesectors,andgrossmarginforretail andwholesaletrade.valueaddedisthedifferencebetweentotaloutputandthecostofinputs,soin manywaysisthebestmeasureofoveralleconomicimpact. A.CompanySpendingandPayroll Naturalgascompanyspendinghasimpactonbothgeneralspendingonpurchasesandservices,and spendingontheworkforceviapayroll.basedupontheamountofnon payrollindustryspendingin2009 reportedbyconsidine(2010),weestimatethatthetotalemploymenteffectwas13,626jobs.this included6,741pennsylvaniajobsdirectlywithinthemajorgascompaniesandanadditional6,885 indirectorinducedjobs(seetable9). Table9.EconomicImpactofNaturalGasCompanyNon PayrollSpending,2009 ImpactType Employment LaborIncome ValueAdded Output DirectEffect 6,741 $398,405,378 $626,335,174 $1,200,667,093 IndirectEffect 2,631 $146,829,148 $250,664,416 $428,097,138 InducedEffect 4,254 $184,097,066 $316,891,277 $517,027,001 TotalEffect 13,626 $729,331,592 $1,193,890,867 $2,145,791,232 Spendingbytheseworkerscreatedanadditional704or817jobs,dependinguponhowmuchnon PennsylvaniaworkersspendwithintheCommonwealthorsendhometotheirstateofresidence(see Table10). Table10.EconomicImpactofNaturalGasCompanyPayroll,2009 ImpactType Employment LaborIncome ValueAdded Output If50percentofnon residentemployeeincomestaysinpa TotalEffect 704 $30,955,834 $52,988,161 $86,952,840 If75percentofnon residentemployeeincomestaysinpa TotalEffect 817 $34,850,239 $59,674,181 $97,772, PennStateExtensionandPennCollegewww.msetc.org31

32 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 B.LeasingandRoyalties LeasingandroyaltydollarsbeingpaidbythegascompaniesasaresultofMarcellusShaledevelopment inpennsylvaniaprimarilygotothecommonwealthofpennsylvaniaandtoprivatehouseholds.we discusstheestimatedimpactofeachinturn. 1.PennsylvaniaGovernment LeasingdollarsreceivedbytheCommonwealthofPennsylvaniasupportedapproximately5,409total jobsin2009(seetable11).thisincludedapproximately$268millionintotalwagesand$477millionin totaloutput.royaltydollarstothecommonwealthwereestimatedtohavesupportedabout171total job,andalmost$16millionintotaloutput(seetable11).inreality,theseimpactsin2009likelywere lowerbecausethecommonwealthsavedsomeoftheseleasingandroyaltydollarsforfutureuse. Table11.EconomicImpactofLeaseandRoyaltyPaymentstoStateGovernment,2009 LeasePaymentstoStateGovernment,2009 ImpactType Employment LaborIncome ValueAdded Output DirectEffect 3,718 $193,319,220 $227,647,326 $259,010,759 IndirectEffect 203 $9,640,917 $15,046,706 $26,648,423 InducedEffect 1,488 $64,765,566 $114,898,509 $191,686,833 TotalEffect 5,409 $267,725,703 $357,592,541 $477,346,015 RoyaltyPaymentstoStateGovernment,2009 ImpactType Employment LaborIncome ValueAdded Output DirectEffect 118 $6,366,637 $7,497,164 $8,723,184 IndirectEffect 6 $317,495 $495,519 $883,007 InducedEffect 47 $2,132,939 $3,783,978 $6,302,518 TotalEffect 171 $8,817,071 $11,776,661 $15,908, PennStateExtensionandPennCollegewww.msetc.org32

33 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein PennsylvaniaHouseholds TheleaseandroyaltydollarsreceivedbyPennsylvaniahouseholdssimilarlygeneratednewjobsand greatereconomicoutput.ourestimatesrangedfrom3,360to3,733newjobscreatedbyleasingdollars receivedin2009,dependingupontheassumptionaboutout of statemineralrightownership(seetable 12),andbetween114and127newjobscreatedbytheroyaltydollars.Sincenotmanywellswereonlineduring2009,itwouldbeexpectedthattheamountofroyaltyincomegoingtohouseholdswill increasesignificantlyinlateryears,andthusthenumberofjobswillincrease,whilejobscreateddueto leasingwilldeclineasleasingactivitywanes. Table12.EconomicImpactofLeaseandRoyaltyPaymentstoPennsylvaniaHouseholds,2009 LeasePaymentstoPennsylvaniaHouseholds,2009 ImpactType Employment LaborIncome ValueAdded Output If15.4percentofmineralrightsareownedout of state DirectEffect 1,939 $97,098,174 $129,963,234 $213,731,744 IndirectEffect 523 $24,836,241 $39,103,622 $69,483,690 InducedEffect 898 $39,084,680 $69,369,287 $115,692,020 TotalEffect 3,360 $161,019,095 $238,436,143 $398,907,454 If7.7percentofmineralrightsareownedout of state DirectEffect 2,154 $107,886,860 $144,403,593 $237,479,715 IndirectEffect 581 $27,595,823 $43,448,469 $77,204,100 InducedEffect 998 $43,427,422 $77,076,986 $128,546,689 TotalEffect 3,733 $178,910,105 $264,929,048 $443,230,504 RoyaltyPaymentstoHouseholds,2009 ImpactType Employment LaborIncome ValueAdded Output If15.4percentofmineralrightsareownedout of state TotalEffect 114 $5,006,261 $8,605,902 $14,088,728 If7.7percentofmineralrightsareownedout of state TotalEffect 127 $5,575,826 $9,585,000 $15,691, PennStateExtensionandPennCollegewww.msetc.org33

34 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 C.OverallEconomicImpact 1.TotalImpact TheestimatedtotaleconomicimpactofMarcellusShaledevelopmentactivityinPennsylvaniain2009 rangedbetween23,385and23,884jobsand$3.1and$3.2billion(seetable13).thisincludedabout $1.2billioninlaborincomeandalmost$1.9billionintotalvalueadded.Wedidnotestimatetax impactsofmarcellusshaleactivitybecausewewerenotcomfortablewiththereliabilityofimplan stax analysis. Table13.SummaryofEconomicImpactsandTotalEconomicImpact,2009 ImpactType Employment LaborIncome ValueAdded Output SummaryofEconomicImpacts NaturalGasCompany Non PayrollSpending 13,626 $729,331,592 $1,193,890,867 $2,145,791,232 NaturalGasCompany Payroll LeasePaymentstoState Government RoyaltyPaymentsto StateGovernment LeasePaymentsto Pennsylvania Households RoyaltyPaymentsto Pennsylvania Households $30,955,834 $34,850,239 $52,988,161 $59,674,181 $86,952,840 $97,772,457 5,409 $267,725,703 $357,592,541 $477,346, $8,817,071 $11,776,661 $15,908,709 3,360 3, $161,019,095 $178,910,105 $5,006,261 $5,575,826 $238,436,143 $264,929,048 $8,605,902 $9,585,000 $398,907,454 $443,230,504 $14,088,728 $15,691,609 TotalEconomicImpact LowerBound:if50%ofnon residentemployeeincomestaysinpaand15.4%ofmineralrightsare ownedout of state TotalEconomicImpact 23,385 $1,202,855,556 $1,863,290,275 $3,138,994,978 UpperBound:if75%ofnon residentemployeeincomestaysinpaand7.7%ofmineralrightsare ownedout of state TotalEconomicImpact 23,884 $1,225,210,536 $1,897,448,298 $3,195,740, PennStateExtensionandPennCollegewww.msetc.org34

35 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Multiplier Theeconomicmultiplierweestimatedvariesbetweenthesetwoscenarios,rangingfrom1.86to1.90, dependinguponnon residentworkerspendingandmineralrightownershippatterns.ourresults suggestthatforevery$1inmarcellusindustryspendinginthestatebetween$1.86and$1.90intotal economicoutputisgenerated. 3.EconomicImpactonaPerWellBasis Thetotaleconomicimpactsin2009,dividedbythenumberofwellsdrilledin2009,suggestthateach newmarcelluswellgenerated30jobsinpennsylvaniaduring2009andaround$4millionintotaloutput withinpennsylvania seconomy(seetable14).thisincludesthejobscreatedbydirectgasindustry spendingandindirectlythroughthecompanieswithwhomtheycontract,byworkerspendingof earnings,andbymineralrightownerspendingofleasingandroyaltydollars.thisestimatelikelywill changeasthemarcellusplaydevelopsandtheproportionofleasingincomedeclineswhileroyalty incomeincreases.theestimateisconsistentwiththebrundageetal.studiesofperwellworkforce needs,whichsuggestapproximately13fulltimejobsarecreatedperwell.unlikethoseworkforceneed studies,thiseconomicimpactanalysisincludestheemploymentimpactsresultingfromleasingand royaltyincome,andindirectandinducedemploymentoccurringfromworkerspendingwithinthelocal economy. TheeconomicimpactswithinanyindividualPennsylvaniacountyorcommunitywillbemuchlessona perwellbasisbecausealargershareofthebusinessspending,payroll,andleasingandroyaltyincome willgooutsidethoseboundariesthanoccursatthestatelevel.ourgisanalysissuggeststhatan averageofonly51percentoflandinmarcelluscountiesisownedbyresidentswithineachcounty, whichmeansabouthalfofleasingandroyaltydollarsimmediatelyleavethecommunity.yetas suggestedbythesurveyoflocalbusinesses,theeconomicactivitylikelywillbemuchmorevisiblein smallcommunitiesduetothescaleandsizeofmarcellusdevelopmentactivity. Table14.TotalEconomicImpactbyWell,2009 ImpactType Employment LaborIncome ValueAdded Output LowerBound:if50%ofnon residentemployeeincomestaysinpaand15.4%ofmineralrightsare ownedout of state TotalEconomicImpact 30 $1,532,300 $2,373,618 $3,998,720 LowerBound:if75%ofnon residentemployeeincomestaysinpaand7.7%ofmineralrightsare ownedout of state TotalEconomicImpact 30 $1,560,778 $2,417,132 $4,071, PennStateExtensionandPennCollegewww.msetc.org35

36 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 V.Discussion/Implications ThestudyresultsindicatethatdevelopmentofMarcellusShaleinPennsylvaniaishavingsignificant employmentandincomeeffectsinpennsylvania.weexaminedtheimpactsin2009,asdrillingactivity begantoincreasesubstantiallyinthecommonwealth,soitwouldbeexpectedthattheeconomic impactsareevengreatertodayastheindustryactivityhasgrown.atotalof785marcelluswellswere drilledin2009,andthisnumberincreasedby85percentto1,445newwellsin2010(padep).ifthe per welleconomicimpactsfrom2009areconsistentwiththeimpactsin2010,thiswouldsuggestthat thetotalemploymentimpactofmarcellusshaleactivityinpennsylvaniain2010wasaround44,000jobs (thisnumberincludesthe23,000plusjobssupportedin2009). TheeconomicimpactresultingfromMarcellusShaledevelopmentactivityin2009willbespreadover multipleyears,ratherthanalloccurringin2009,becauseoursurveyofhouseholdsindicatedtheyare savingmorethanhalfoftheirleaseandroyaltydollarsforlateruse.ourestimatesfocusonlyonthe economicimpactactuallyoccurringwithin2009duetodrillingactivityinthatyear.howmuchimpact thesesaveddollarshadin2010andwillhaveinfutureyearsdependsuponhowquicklythehouseholds spendthosedollarsandhowmanyofthosedollarsarespentinpennsylvania(forexample,ifsome landownersaresavingthemoneytoretireinflorida).therehasbeensomeconcernthatmarcellus Shaledevelopmentcouldbeaboom/bustcycle,similartowhatPennsylvaniaexperiencedwithprior naturalresource basedeconomicdevelopment.thefactthathouseholdsaresavingasignificant portionoftheirleasingandroyaltydollarsshouldhelpspreadtheeconomicimpactsacrossmultiple years,irrespectiveofdrillingactivity,helpingsomewhatreduceanyboom/bustphenomenon. Theseresults,likeothereconomicimpactstudies,dependcriticallyupontheassumptionsusedinthe analysis.ourestimatesoftheeconomicimpactsofleasingandroyaltyincomemayoverestimatethe actualimpactsbecausedataisunavailableaboutwhospecificallyownsthemineralrights,andthuswho isreceivingthosedollars.weestimatedundertwoscenarios(7.7percentand15.4percentownership outofstate),butbothcouldstillbesomewhatlow.inaddition,anecdotalevidencesuggeststhatsome ofthemineralrightsinsouthwestpennsylvaniaareownedbycoalandothercompanies,sothose leasingandroyaltydollarswouldnothavethesameimpactasiftheygotohouseholds. OurresultsalsooverestimatetheimpactofthedollarstheCommonwealthitselfreceivesinleasingand royaltydollars,sinceweassumedthatthestatespentallthosedollarsin2009.thisassumptionhada largeeffectontheoverallresultsbecausestateleasereceiptsaccountedforaround23percentofallthe estimatedjobcreationandaround15percentoftotaleconomicoutput.theactualeconomicimpacts willbelessintheyearthedollarsarereceived,dependingupontheextentthatthestateagenciesand commissionsreceivingthosedollarssavethemforlateruse. Wehadtomakeassumptionsabouttheproportionofwagesandsalarynon residentworkersspendin Pennsylvaniaandrantheanalysisusingboth50percentand75percent.Thereweredifferencesinthe resultsbetweenthescenarios,butonlyof113workers.thisisanapproximate16percentdifferencein totalpayroll relatedimpacts,sotheassumptionsdonotappeartohaveameaningfulimpactonour overallresults.ourresultslikelyunderstatetheimpactofgascompanynon payrollspendingsincewe 2011PennStateExtensionandPennCollegewww.msetc.org36

37 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 couldnotaccuratelyreflecttheircurrentpurchasingpatternsandparticularlyhowthegrowthofthe industryandsupportingbusinessesinpennsylvaniawillhaveincreasedtheamountofindustryspending whichstayswithinpennsylvania. Theresponsestothesurveyoflocalbusiness,witharelativelylargenumberoffirmssayingthatthey areexperiencinghighersalesduetomarcellusshaledevelopment,supportstheimplanresultsthatgas developmentactivityishavingbroadeffectsacrosstheeconomy.thisincludesallsectors,notjust thosewithadirectrelationshiptothedrillingcompanies. Ourfindingsarelessthanwhatseveralpreviousstudieshaveestimatedastheeconomicimpactof MarcellusShaledevelopmentinPennsylvania,butthisisnotsurprisingbecausewewereabletouse moredetailedinformationonwhereleasing,royalty,andpayrollweregoing,andthuswereableto directlyconsidertheassociatedleakage.ouremploymentestimateofbetween23,385and23,884new jobsisabout52percentofthe44,098jobsconsidine,watsonandblumsack(2010)estimatedfor2009. Weconductedsomesensitivityanalysisofourresultsanddeterminedthatroughlyhalfofthis differenceoccursduetoourmorespecificleasing,royalty,andpayrolldata.wewereabletobetter accountforhowmanysuchdollarsactuallyremainwithinthepennsylvaniaeconomyandwerespentin 2009.Webelievethattheremainingdifferenceoccursbecauseoftheupdatestheywereabletomake toimplanbaseduponthepurchasingdatacompaniesprovidedthem.despitethesedifferencesin estimatedtotalimpact,theeconomicmultipliersweestimated(1.86and1.90,dependingupon scenario)areconsistentwithwhattheyfound. Thedifferenceinthefindingsbetweenthesestudiesindicatesthatwhereleasingandroyaltydollarsgo substantiallyaffectstheeconomicimpactsofmarcellusactivity.thiswillbeevenmoresignificant whenconsideringeconomicimpactsatacountylevelorregionallevel.becauseonlyabouthalfofland inatypicalmarcelluscountyisownedbyresidentsofthatcounty,itwouldsuggestthatamajorportion oftheeconomicbenefitsimmediatelyleavethecommunitiesbeingimpactedbydrilling. Importantly,ourfindingsareconsistentwithseveralotherrecentemploymentstudiesofMarcellus Shalewhicheitherrelieduponcompanyinterviewsaboutemploymentneeds(Brundage,etal.2011)or directobservationofhiringandemploymenttrends(herzenberg,2011,usingpennsylvaniadepartment oflaborandindustrydata).brundage,etalestimatedthat8,752directandindirectjobswerecreated asaresultofindustryspendingondrillingactivityinpennsylvaniaduring2009,whichcomparestoour estimateof6,741directjobsresultingfromindustryspendingandanadditional2,631indirectjobs,fora totalof9,372jobs.theiranalysisdidnotincludetheimpactsofleasingandroyaltyincomenorall indirectandinducedeconomicimpactsasindustry,worker,andmineralownerdollarsflowthroughthe economy,soisnotdirectlycomparabletoouroverallestimatedimpactofaround23,000jobs. HerzenbergusedPennsylvaniaDepartmentofLaborandIndustrydataaboutnewjobcreationand calculatedthatbetweenthefourthquarterof2007andthefourthquarterof2010,therewere9,288 newjobswithinthemarcelluscoreindustry.thisissomewhatlowerthanourestimateandspans severalyearsratherthanjust2009.butthedefinitionof MarcellusCore industryisnarrowerthanthe actualbusinessrelationshipsnaturalgascompanieshavewithinpennsylvaniacommunities,andwhich 2011PennStateExtensionandPennCollegewww.msetc.org37

38 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 IMPLANmodels,sotheLaborandIndustrynumbersundercountrelatedemployment.Inaddition,the dataandherzenberg sanalysisdonotconsiderleasingandroyaltydollars,soisnotdirectlycomparable toouroverallestimatedeconomicimpacts. Thesurveyresponsesfrommunicipalgovernmentssimilarlysuggestthatthelocaltaximpactsof MarcellusShaledevelopmentaresignificantlylowerthanreportedinpriorstudies,whichhadsimply estimatedthosetaximpactswithoutverifyingwhatisactuallyoccurring.incontrast,oursurveyresults providedirectinsightsfromlocalgovernmentofficialsthatarebasedontheiractualexperience, includingimpactsonbothrevenuesandexpenditures,whichareessentialtoconsidertogethertohave acompletepictureoftheeffectsonlocalgovernments. A.LimitationsofOurStudy Wheninterpretingtheresultsofthisstudy,thereareimportantlimitationsthatmustbekeptinmind. Thisstudyestimatedimpactsin2009,veryearlyinthedevelopmentofMarcellus.Thepaceofdrilling activityincreasedin2010,andallindicationsarethatitwillcontinuetoincreaseinfutureyears.the longruneconomicimpactsofmarcellusshaledevelopment,particularlyforresource dependentsectors oftheeconomyliketourismandagriculture,likelywillbeverydifferentthanwhatoccursintheearly yearsofdevelopmentduetocumulativeandscaleeffectsasthenumberofwellsdrilledandin operationincrease.somehavearguedthattourismwilldecline(eitherbecauseofactualphysical changestothelandscapeorbecausecontroversyoverdrillingscarestouristsaway),thoughothershave arguedthattourismmayincreasebecauseaccessroadsandpipelinerightsofwayareopeningup previouslyinaccessiblehuntinglandsandcreatingbetterecosystemsforwhitetaileddeer,whichcould attractmorehunters. Inaddition,thecompositionofcompanyspendingwillchangesignificantlyastheplaydevelopswith leasingactivitydecliningandroyaltydollarsincreasing.theproportionofworkerspendingremaining withinpennsylvaniawillriseastheshareofpennsylvaniaworkersincreases.likewise,asthemarcellus playmatures,theproportionofgas relatedcompanieslocatedinpennsylvanialikelywillincrease, reducingleakageofdollarsoutofthecommonwealthandincreasingtheeconomicimpact.state economicpolicycaninfluencethis. Theeconomicimpactmodelweusedforconductingtheanalysis,IMPLAN,hasbeenwidelyusedby economistsforawidevarietyofeconomicimpactstudiesandisgenerallyrecognizedasworkingwell whenstudyingsmallchangeswithinaneconomy.itswidespreaduseallowssomeconsistencyfor comparingacrossdifferentstudiesonthesametopic.inaddition,manyeconomistsarefamiliarwith itsstrengthsandweaknesses.itdoeshavelimitationsforstudyingsignificantlylargeeconomicchanges whichaffectcorerelationshipswithintheeconomybecausethemodelassumesthatthoserelationships donotchange.thisisthesituationwithmarcellusshale,whichmeanstheresultsofanyimplan based economicanalysisofmarcellusshaleneedtobeviewedwithcaution.despitethislimitation,wechose touseimplanforthestudybecausewewantedtoinvestigatetheinfluenceofleasingandroyalty 2011PennStateExtensionandPennCollegewww.msetc.org38

39 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 dollars,andoutofstateworkers,anditsuseallowedustodirectlycompareourresultstoprevious studiesofmarcelluswhichwerenotabletoconsiderthesefactors. Mostimportantly,thisstudyonlyfocusedonthejobandincomeeffectsofgasindustryspending.These economicelementsmustbeunderstoodinbalancewithothersignificanteffects,suchasimpactsonthe environment,humanhealth,society,localgovernment,andqualityoflife.thefullextentofthese impactsisnotyetknown(norlikelywillbeknownuntillaterintheplay),butcurrentexperience suggeststhatsuchchangeswillbeoccurring.undoubtedly,theeffectofmarcellusdevelopmentonthe environmentandtheseotherimportantissueswillhaveeconomicimplications,butitistooearlyinthe developmentoftheplaytoreliablyidentifytheincidenceofsuchcostsandbenefits. B.WhatNoOneKnows(ButShouldbeKnown) Duringthecourseofthisstudy,webecameincreasinglyawareofseveralcriticaleconomicaspects relatedtomarcellusshaledevelopmentthatareeithermisunderstoodorcompletelyunknown,butyet areessentialforacompleteandcomprehensiveunderstandingoftheimplicationsandimpactsof MarcellusShale.Theseincludethecostsassociatedwithdevelopment,thedistributionofcostsand benefits,thelong runimplications,andwhatisactuallyoccurringonareal timebasis. 1.Costs ExistingeconomicimpactstudiesofMarcellusdevelopment,includingthisone,havefocusedalmost exclusivelyonjobandincomecreationresultingfromgasindustryspending,includingleasingand royaltypayments,payroll,andpurchasesfromotherbusinesses.incontrast,noeconomicstudyhas includedthepotentialcostsofmarcellusshaledevelopment,suchastheimpactonexistingbusinesses losingemployeesduetomarcellusactivity,damageandcleanupcostsresultingfromaccidentsor environmentaldegradation,orhigherstateandlocalgovernmentcostsduetoactivity.thereclearlyare andwillbecostsassociatedwithmarcellusshaledevelopment,bothout of pocketandnon monetary (suchastheecosystemeffectsofforestfragmentationorwaterqualityimpacts).theremayalsobe opportunitycosts,suchasbusinesseswhomaychoosenottolocateorexpandwithinpennsylvaniadue tothechangesresultingfrommarcellusshaledevelopment.yetbecausepennsylvaniaisstillrelatively earlyinthemarcellusplay,thesecurrentlycannotbefullyidentifiedorquantified.somecostsmaynot showupuntilmuchlaterinthedevelopmentoftheplay,suchaswhentheamountofactivitypasses currentlyunknownthresholdsorachievesacriticalmass.thatthecostscurrentlycannotbe comprehensivelymeasureddoesnotmeanthatsuchcostsdonotorwillnotexist,butrathermeansitis vitaltoinvestigateandidentifythem.tofocusonlyonjobs,income,ortaxrevenuewithoutputting thoseintoabroadercontextcanbeverymisleadingandcostlyinthelongrun. 2011PennStateExtensionandPennCollegewww.msetc.org39

40 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein WhoIsBenefitingandWhoIsBearingtheCosts ThedistributionofthebenefitsandthecostsassociatedwithMarcellusShaledevelopmenthasnot beenfullyinvestigated.economicinput Outputmodels,suchasIMPLAN,estimatetotaldollarsacross sectorsandcategories,butdonotidentifyhowthosedollarsaredistributedwithinthosesectors.in addition,sincethemodelingignorescosts,studiesdonothelpunderstandhowcostsrelatetothe benefits,andmostparticularly,whobearsthecostsandwhogetsthebenefits.yetmuchofthepublicly expressedconcernaboutmarcellusdevelopmentrelatesdirectlytosuchequityissues,whichsome wouldcharacterizeas socialjustice. Thedistributionofbenefitsandcostsmatterstomany Pennsylvanians. Equityissues(andconflicts)aboutMarcellusShalecanoccuratmultiplelevels,includingwithinfamilies whosemembersdisagreeonwhethertolease,betweenneighborswhohavedifferentvisionsforthe communityandforqualityoflife,betweentheownerofthesubsurfacemineralrightsandtheownerof thelandabovethatparcel,betweennewcomersandlong termresidents,betweentraffic impacted boroughswithfewwellsandsurroundingtownshipswithmanywells,betweenregionswithin Pennsylvania(suchasbetweenPhiladelphiaandupstreamcommunitieswithMarcellus),andeven betweencurrentandfuturegenerations. WearenotarguingherefororagainstthefairnessofMarcellusactivity,butratherwearestressingthat differingviewpointsaboutitsfairnessdoexist.indeed,judgmentsaboutequityandfairnessalready underliemuchoftherhetoricandpublicpolicydebateaboutthemarcellusshalegasplay,suchas whetheraseverancetaxisneeded(andifitis,howthedollarsshouldbedistributed),towhatextent localgovernmentsshouldbeallowedtoregulateandcontrolgasdevelopment,andwhethermineral rightownersundersomecircumstancesshouldbeforcedtoallowdrilling(e.g.forcedpooling). ObjectiveinformationaboutthecostsANDthebenefitsofMarcellusShaledevelopment,and particularlyhowthesearedistributed,shouldhelppeoplemakeinformedvaluejudgmentsabout whetherorhowpolicyshouldchange.currentlythesedistributionissuesarenotadequatelyknown. 3.Long RunImplications MostoftheexistinguncertaintyaboutMarcellusShaledevelopmentrelatestoitspossiblelong term effects,includingwaterquality,landuse,forest,health,andsocialimpacts.inaddition,thereis uncertaintyaboutwhethertheeconomicactivitywillconformtotheboom/bustcyclesthathave occurredwithenergydevelopmentinthewestandwhichhavecharacterizedpennsylvania sprior experiencewithtimber,coal,andpetroleumdevelopment.muchofthisdependsuponthescaleand paceofthedevelopment,pluswhetherthereareunforeseencumulativeeffectsastheplayisdeveloped andthenumberofwells(andsupportingaccessroads,milesofpipeline,andotherinfrastructure) increases.inaddition,itdependsuponhowindividualsandcommunitiesrespond(forexample,towhat extentwillrecipientsofleasesandroyaltiessellthesurfacerightsandmoveawaywiththatstreamof income,takingtheeconomicbenefitwiththem?willcommunitiesusethecurrenteconomicbenefitsto 2011PennStateExtensionandPennCollegewww.msetc.org40

41 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 strategicallyinvestforthefuture?)andwhetherthegasismostlyexportedandusedout of state,orifit insteadisusedtoattractotherindustries,andthushelpsbuildamorediversifiedandstrongeconomyin thecommonwealth.nooneknowstheanswerstothesequestionsbecausemuchofthiswilloccurin thefuture,butitisimportanttobegatheringappropriateinformationnowsowecanpredictand anticipatetheseearlierratherthanlater.inaddition,local,state,andfederalpolicywillinfluencethis future. 4.WhatIsActuallyOccurring AvarietyofsecondarydataisbeingcollectedthatprovidesinsightsintotheimpactsofMarcellusShale, suchasatthestatelevelbythedepartmentofenvironmentalprotection,thedepartmentofrevenue, andthedepartmentoflaborandindustry,andatthefederallevelbytheu.s.censusbureau.such datacollectionandmonitoringiscriticaltoidentifyanyproblemsbeforetheygrowtoolargeandto identifyopportunitieswhenthereistimetotakefulladvantageofthem.yetexistingdatasetsoftenlag byseveralyears,whichmeansourknowledgeisofthepastratherthanofthepresent,whichcanbe misleadingwithfast paceddevelopmentlikemarcellus.inaddition,therehasbeenlittleefforttodate tobringthesedifferentdatasetstogethertoprovideacomprehensiveunderstanding(andmonitoring) ofactivities. Ofgreaterconcernisthatsomeimportantdatacurrentlyarenotbeingcollectedoraggregated,which meanstherearesignificantthingswedonotknow,muchlesshaveameansofknowing.thisincludes howmuchleasinghasoccurred,andthuswhatpercentageoflandareapotentiallycouldbeaffectedby drilling;whotheworkersareandhowmanyarepennsylvaniaresidentsversusfromout of state; baselineenvironmentalmonitoringofgroundwaterquality,forestecosystemdiversity,airquality,and othernaturalresourcespotentiallybeingaffectedbydevelopment;baselinemonitoringofsocialand communityimpacts,suchaseffectsonrentersandlowincomeresidents,familywell being,housing affordabilityandaccess,andsocialservices;andmonitoringofhumanandanimalhealthnearactive sites. Mostimportantlyfortheeconomicdevelopmentimpacts,informationaboutwhoactuallyownsthe mineralrightsisnotbeingcomprehensivelycollected,andthusnooneknowswhereleasingandroyalty dollarsaregoing.neitherthecommonwealthnorcountygovernmentstrackmineralrightownership, unlikeownershipofsurfacerights,whichcountiescompileintocomprehensiverecords.theresultis thatinplaceswheresurfaceandmineralrightshavebeensevered,nooneknowswhereleasingand royaltydollarsaregoing,bothbytypeofrecipient(e.g.privatehousehold,publicsector,orbusiness) andbylocation(e.g.livingwithinthecommunity,livingelsewhereinpennsylvania,orlivingoutsideof thecommonwealth).ownershipofsuchrightsisimportanttoknowfromeconomicdevelopmentand equityperspectivesbecauseitaffectshowmuchoftheeconomicbenefitstayswithinthecommunity wheredrillingactivitiesareoccurring(andthustowhatextentthepeoplelivingwiththeinconveniences arereceivingpositivebenefitsfromthatactivity). 2011PennStateExtensionandPennCollegewww.msetc.org41

42 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 VI.Conclusions OurstudyoftheeconomicimpactofMarcellusShaleindicatesthatithadmajorimpactwithin Pennsylvaniaduring2009.AswithpriorstudiesofMarcellusShaleinPennsylvania,werelieduponthe standardinput OutputeconomicmodelIMPLANtoestimatethedirect,indirect,andinducedeffects acrosstheeconomyandfoundthatmarcellusshale relatedactivityaccountedforapproximately24,000 newjobsand$3billionofeconomicoutputinpennsylvaniaduring2009. TheseestimatesaresmallerthanprioreconomicstudiesofMarcellus,primarilybecausewewereable toaccountforhowleasingandroyaltyincomearebeingused.oursurveyoflandownersandthegis analysisoflandownershippatternsallowedustoestimatehowmanyleasingandroyaltydollarsare goingdirectlytopennsylvaniaresidents,thecommonwealth,andtonon residentpropertyownersand howthosedollarsareactuallybeingspent.ourresultsconfirmthatwhereleasingandroyaltydollars aregoinghassignificanteffectontheoveralleconomicimpactsofmarcellusshaledevelopment,soitis vitaltopaycloseattentiontosuchpaymentstohaveanaccurateviewonthedistributionofeconomic benefitsandcostsfrommarcellusshaledevelopment.becauseonlyabouthalfoflandinatypical Marcelluscountyisownedbyresidentsofthatcounty,itwouldsuggestthatamajorportionofthe economicbenefitsimmediatelyleavethecommunitiesbeingimpactedbydrilling. Inaddition,weaccountedforhowmanyMarcellusworkersarenon Pennsylvanian,andthushowmuch payrollisnotgoingtopennsylvaniahouseholds.suchworkersdospendsomeoftheirincomein Pennsylvania,buttheytendtospenditdifferentlythandoresidents,whichaffectstheoveralleconomic impacts. Ourstudyincludedasurveyoflocalbusinesses,whichconfirmedtheIMPLANresultsthatpositive economicimpactsareoccurringbroadlyacrosstheeconomyinthecommunitieswheredrillingisvery activelyoccurring.aboutone thirdofallthebusinessesinbradfordcounty,forexample,reportedthat theirsaleshadincreasedduetonaturalgasdevelopmentandonly3percentreportedsaleshad declined. WealsosurveyedPennsylvanialocalgovernmentsintheMarcellusShaleregiontoidentifywhetherthey areexperiencingnewtaxrevenues,newservicedemands,ornewcostsasaresultoftheearlystagesof MarcellusShaledevelopment.Anumberoflocalgovernmentsreportedthatthesehadincreased,but therewaslittlepatterntotheirresponsesinrelationtotheamountofdrillingactivityoccurringwithin theirjurisdiction.only18percentofthegovernmentsexperiencingmarcellusdevelopmentactivitysaid theirtaxrevenueshadincreased,whichindicatesthatmostlocalgovernmentswithmarcellusactivity arenotseeingmoretaxrevenueasaresult.incomparison,26percentofthelocalgovernments indicatedthattheircostshadincreased,particularlyrelatedtoroadexpenses.thisconfirmsthat consideringbothrevenuesandcostsiscriticalforhavingacompleteunderstandingoftheimpactsof MarcellusShale. WedidnotattempttoquantifythecostsofMarcellusShaledevelopment,suchaseffectsonthe environmentandhealth.wehopethatfutureeconomicstudiescanconsidersuchcostsasbetter 2011PennStateExtensionandPennCollegewww.msetc.org42

43 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 informationbecomesavailableabouttheincidenceandextentofsuchimpacts.inaddition,wedidnot addressthedistributionofbenefitsandcosts,eventhoughtheequityofhowthesearedistributed underliesmuchofthecurrentpolicydebateaboutmarcellusshale.thelongrunimplicationsof MarcellusShaledevelopmentarestillunknown.Jobsandincomeintheshortrunareimportant,but manywouldarguethatotherfactorsareequally(ifnotmore)important,suchascleanwater,healthy forestsandotherecosystems,cleanair,andgoodpublichealth.inadditiontoaffectingqualityoflife, theseareimportantresourcesforthefutureofpennsylvaniacommunities,includingfutureeconomic opportunities,socialandphysicalinfrastructure,well functioninglocalgovernmentandinstitutions,and communitywell being.webelieveourresultsmustbeviewedasapreliminary,short runviewofthe economicimpactsofmarcellusshale,andbeplacedinabroadercontextoftheseotherimportant concerns. ThisworkwasfundedbythePennsylvaniaEconomicDevelopmentFinancingAuthority(Pennsylvania DepartmentofCommunityandEconomicDevelopment)ContractNo PennStateExtensionandPennCollegewww.msetc.org43

44 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 VII.References Baker,RoseM.andDavidL.Passmore,(2010). BenchmarksforAssessingthePotentialImpactofa NaturalGasSeveranceTaxonthePennsylvaniaEconomy. UniversityPark,PA:ThePennsylvaniaState University,InstituteforResearchinTrainingandDevelopment. Brundage,TracyL.,JeffreyJacquet,TimothyW.Kelsey,JamesR.Ladlee,JaniceLobdell,JeffreyF. Lorson,LarryL.Michael,andThomasB.Murphy.(2011). PennsylvaniaStatewideMarcellusShale WorkforceNeeds. Williamsport,PA:MarcellusShaleEducationandTrainingCenter. Brundage,TracyL.,JeffreyJacquet,TimothyW.Kelsey,JamesR.Ladlee,JeffreyF.Lorson,LarryL. Michael,andThomasB.Murphy.(2010). SouthwestPennsylvaniaMarcellusShaleWorkforceNeeds Assessment. Williamsport,PA:MarcellusShaleEducationandTrainingCenter. CenterforBusinessandEconomicResearch.(2008). ProjectingtheEconomicImpactofthe FayettevilleShalePlayfor Fayetteville,AR:SamM.WaltonCollegeofBusiness. CenterforWorkforceInformationandAnalysis.(2011). MarcellusShaleFastFact. Harrisburg,PA: PennsylvaniaDepartmentofLaborandIndustry.April. CommonwealthofPennsylvania.(2009) BudgetinBrief. Harrisburg,PA:Commonwealth ofpennsylvania. Considine,TimothyJ.,RobertWatson,RebeccaEntler,andJeffreySparks(2009) AnEmergingGiant: ProspectsandEconomicImpactsofDevelopingtheMarcellusShaleNaturalGasPlay. UniversityPark, PA:ThePennsylvaniaStateUniversity,Dept.ofEnergyandMineralEngineering.August. Considine,TimothyJ.,RobertWatson,andSethBlumsack(2010). TheEconomicImpactsofthe PennsylvaniaMarcellusShaleNaturalGasPlay:AnUpdate. UniversityPark,PA:ThePennsylvaniaState University,Dept.ofEnergyandMineralEngineering.May. Costanzo,Charles,andTimothyW.Kelsey.(2011). StateTaxImplicationsofMarcellusShale:Whatthe PennsylvaniaDataSayin2010. UniversityPark,PA:ThePennsylvaniaStateUniversity,PennState Extension. Herzenberg,Stephen.(2011). DrillingDeeperintoJobClaims:TheActualContributionofMarcellus ShaletoPennsylvaniaJobGrowth. Harrisburg,PA:KeystoneResearchCenter. Jacobson,Michael,andTimothyW.Kelsey(2011). ImpactsofMarcellusShaleDevelopmenton MunicipalGovernmentsinSusquehannaandWashingtonCounties,2010. UniversityPark,PA:The PennsylvaniaStateUniversity,PennStateExtension. Kay,DavidL.(2011). TheEconomicImpactofMarcellusShaleGasDrilling:WhatHaveWeLearned? WhatAretheLimitations? Ithaca,NY:CornellUniversity. 2011PennStateExtensionandPennCollegewww.msetc.org44

45 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Kinnaman,ThomasC.(2011). TheEconomicImpactofShaleGasExtraction:AReviewofExisting Studies. EcologicalEconomics70: NationalEnergyTechnologyLab(NETL).(2010). ProjectingtheEconomicImpactofMarcellusShaleGas DevelopmentInWestVirginia:APreliminaryAnalysisUsingPubliclyAvailableData. Morgantown,W.V.: U.S.DepartmentofEnergy. Olson,DouglasC. UsingSocialAccountstoEstimateTaxImpacts. (1999).PaperpresentedattheMid ContinentRegionalScienceAssociationMeetings.Minneapolis,MN. PennsylvaniaDepartmentofEnvironmentalProtection.(2011). 2010WellsDrilledByCountyasof 02/11/2011. Harrisburg,PA.:PennsylvaniaDepartmentofEnvironmentalProtection. PennsylvaniaDepartmentofRevenue.(2011). DrillingIndustryPaidMoreThan$1BillioninStateTaxes Since2006. Harrisburg,PA.:PennsylvaniaDepartmentofRevenue. PennsylvaniaDepartmentofRevenue.(2010). TaxCompendium ;through Harrisburg,PA:PennsylvaniaDepartmentofRevenue. PennsylvaniaDepartmentofRevenue.(2010). PersonalIncomeStatistics, 2007and2008.Harrisburg, PA.:PennsylvaniaDepartmentofRevenue. PennsylvaniaEconomyLeague.(2008). TheEconomicImpactoftheOilandGasIndustryin Pennsylvania. Pittsburgh,PA:PennsylvaniaEconomyLeague. Scott,LorenC.andAssociates.(2009). TheEconomicImpactoftheHaynesvilleShaleontheLouisiana Economyin2008. BatonRouge,LA:LouisianaDepartmentofNaturalResources. U.S.CensusBureau.(2010). AmericanCommunitySurvey:Five YearEstimates( ). Washington,D.C.:U.S.DepartmentofCommerce. U.S.CensusBureau.(2010). CountyBusinessPatterns:2008. Washington,D.C.:U.S.Departmentof Commerce. U.S.CensusBureau.(2007). CensusofGovernments.Washington,D.C.:U.S.Departmentof Commerce. U.S.DepartmentofAgriculture.(2009). 2007CensusofAgriculture. Washington,D.C.:U.S. DepartmentofAgriculture. Ward,MelissaandTimothyW.Kelsey.(2001). LocalBusinessImpactsofMarcellusShaleDevelopment: TheExperienceinBradfordandWashingtonCounties,2010. UniversityPark,PA:ThePennsylvania StateUniversity,PennStateExtension. 2011PennStateExtensionandPennCollegewww.msetc.org45

46 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 VIII.Appendices Appendix1.MarcellusNaturalGasIndustrySpendingResults Output Sector Description Direct Indirect Induced Total 0 Total $1,200,667,093 $428,097,138 $517,027,001 $2,145,791, Ag,Forestry,Fish&Hunting $4,706,562 $1,401,464 $1,158,103 $7,266, Mining $474,430,258 $17,521,225 $1,043,333 $492,994, Utilities $5,675,796 $12,752,545 $12,038,327 $30,466, Construction $378,171,901 $6,242,481 $2,149,609 $386,563, Manufacturing $9,013,135 $60,938,528 $34,427,891 $104,379, WholesaleTrade $194,407,911 $34,324,793 $25,103,738 $253,836, Retailtrade $9,303,714 $13,850,988 $46,663,562 $69,818, Transportation&Warehousing $37,593,267 $28,914,245 $13,871,566 $80,379, Information $425,882 $20,771,076 $18,586,472 $39,783, Finance&insurance $572,142 $33,375,849 $66,491,790 $100,439, Realestate&rental $842,046 $54,479,472 $89,572,925 $144,894, Professional scientific&tech services $70,525,649 $76,160,148 $24,394,990 $171,080, Managementofcompanies $0 $24,259,451 $5,698,687 $29,958, Administrative&wasteservices $9,794,052 $19,843,289 $12,200,535 $41,837, Educationalservices $1,309,237 $284,576 $12,227,617 $13,821, Health&socialservices $1,303,644 $39,703 $92,871,967 $94,215, Arts entertainment&recreation $579,029 $1,631,571 $7,829,442 $10,040, Accommodation&foodservices $717,045 $5,488,889 $24,271,390 $30,477, Otherservices $1,295,823 $8,021,215 $17,554,423 $26,871, Government&nonNAICs $0 $7,795,630 $8,870,635 $16,666,266 Valueadded Sector Description Direct Indirect Induced Total 0 Total $626,335,174 $250,664,416 $316,891,277 $1,193,890, Ag,Forestry,Fish&Hunting $1,553,659 $462,630 $382,295 $2,398, Mining $226,303,866 $8,400,164 $500,203 $235,204, Utilities $3,279,844 $7,401,126 $6,986,619 $17,667, Construction $176,414,670 $3,009,539 $1,036,340 $180,460, Manufacturing $2,541,090 $17,125,363 $9,675,162 $29,341, WholesaleTrade $131,192,812 $22,589,089 $16,520,728 $170,302, Retailtrade $7,917,929 $11,680,779 $39,352,191 $58,950, Transportation&Warehousing $19,737,700 $15,476,604 $7,424,878 $42,639, Information $225,655 $11,058,350 $9,895,285 $21,179, Finance&insurance $326,404 $19,276,801 $38,403,488 $58,006, Realestate&rental $593,583 $38,147,930 $62,721,270 $101,462, Professional scientific&tech services $47,235,368 $52,500,219 $16,816,437 $116,552, Managementofcompanies $0 $15,970,647 $3,751,598 $19,722, PennStateExtensionandPennCollegewww.msetc.org46

47 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Administrative&wasteservices $6,084,957 $12,568,111 $7,727,433 $26,380, Educationalservices $767,889 $171,855 $7,384,237 $8,323, Health&socialservices $737,597 $23,031 $53,872,749 $54,633, Arts entertainment&recreation $339,804 $981,029 $4,707,677 $6,028, Accommodation&foodservices $361,707 $2,810,475 $12,427,675 $15,599, Otherservices $720,642 $4,545,952 $9,948,811 $15,215, Government&nonNAICs $0 $6,464,724 $7,356,199 $13,820,923 LaborIncome Sector Description Direct Indirect Induced Total 0 Total $398,405,378 $146,829,148 $184,097,066 $729,331, Ag,Forestry,Fish&Hunting $1,243,058 $370,143 $305,868 $1,919, Mining $102,756,963 $3,814,231 $227,125 $106,798, Utilities $950,784 $2,145,490 $2,025,330 $5,121, Construction $150,200,762 $2,562,344 $882,347 $153,645, Manufacturing $1,396,083 $9,408,729 $5,315,565 $16,120, WholesaleTrade $76,418,158 $13,157,859 $9,623,115 $99,199, Retailtrade $4,764,601 $7,028,890 $23,680,119 $35,473, Transportation&Warehousing $14,570,645 $11,425,045 $5,481,148 $31,476, Information $114,213 $5,597,050 $5,008,379 $10,719, Finance&insurance $164,397 $9,709,010 $19,342,413 $29,215, Realestate&rental $46,330 $2,977,484 $4,895,457 $7,919, Professional scientific&tech services $38,495,755 $42,786,489 $13,705,015 $94,987, Managementofcompanies $0 $13,107,316 $3,078,985 $16,186, Administrative&wasteservices $4,741,450 $9,793,179 $6,021,281 $20,555, Educationalservices $728,465 $163,032 $7,005,119 $7,896, Health&socialservices $681,535 $21,280 $49,778,051 $50,480, Arts entertainment&recreation $232,351 $670,808 $3,219,014 $4,122, Accommodation&foodservices $253,111 $1,966,678 $8,696,480 $10,916, Otherservices $646,719 $4,079,632 $8,928,271 $13,654, Government&nonNAICs $0 $6,044,460 $6,877,981 $12,922,441 Employment Sector Description Direct Indirect Induced Total 0 Total 6, , , , Ag,Forestry,Fish&Hunting Mining 1, , Utilities Construction 2, , Manufacturing WholesaleTrade , Retailtrade , Transportation&Warehousing Information Finance&insurance Realestate&rental Professional scientific&tech services , PennStateExtensionandPennCollegewww.msetc.org47

48 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Managementofcompanies Administrative&wasteservices Educationalservices Health&socialservices Arts entertainment&recreation Accommodation&foodservices Otherservices Government&nonNAICs PennStateExtensionandPennCollegewww.msetc.org48

49 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Appendix2.MarcellusNaturalGasIndustryPayrollImpacts:Scenario1 Scenario1:If50PercentofNon ResidentWorkerIncomeLeavesPennsylvania Output Sector Description Direct Indirect Induced Total 0 Total $0 $0 $86,952,840 $86,952, Ag,Forestry,Fish&Hunting $0 $0 $200,818 $200, Mining $0 $0 $182,838 $182, Utilities $0 $0 $2,156,805 $2,156, Construction $0 $0 $362,199 $362, Manufacturing $0 $0 $5,925,582 $5,925, WholesaleTrade $0 $0 $4,452,032 $4,452, Retailtrade $0 $0 $6,732,106 $6,732, Transportation&Warehousing $0 $0 $2,264,402 $2,264, Information $0 $0 $3,161,565 $3,161, Finance&insurance $0 $0 $10,928,098 $10,928, Realestate&rental $0 $0 $15,020,759 $15,020, Professional scientific&tech services $0 $0 $4,166,232 $4,166, Managementofcompanies $0 $0 $975,913 $975, Administrative&wasteservices $0 $0 $2,055,236 $2,055, Educationalservices $0 $0 $1,943,453 $1,943, Health&socialservices $0 $0 $16,603,941 $16,603, Arts entertainment&recreation $0 $0 $1,288,409 $1,288, Accommodation&foodservices $0 $0 $4,002,456 $4,002, Otherservices $0 $0 $3,014,620 $3,014, Government&nonNAICs $0 $0 $1,515,374 $1,515,374 Valueadded Sector Description Direct Indirect Induced Total $52,988,161 0 Total $0 $0 $52,988, Ag,Forestry,Fish&Hunting $0 $0 $66,291 $66, Mining $0 $0 $87,658 $87, Utilities $0 $0 $1,251,733 $1,251, Construction $0 $0 $174,619 $174, Manufacturing $0 $0 $1,665,248 $1,665, WholesaleTrade $0 $0 $2,929,875 $2,929, Retailtrade $0 $0 $5,677,302 $5,677, Transportation&Warehousing $0 $0 $1,212,041 $1,212, Information $0 $0 $1,683,191 $1,683, Finance&insurance $0 $0 $6,311,713 $6,311, Realestate&rental $0 $0 $10,517,922 $10,517, Professional scientific&tech services $0 $0 $2,871,949 $2,871, PennStateExtensionandPennCollegewww.msetc.org49

50 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Managementofcompanies $0 $0 $642,470 $642, Administrative&wasteservices $0 $0 $1,301,722 $1,301, Educationalservices $0 $0 $1,173,648 $1,173, Health&socialservices $0 $0 $9,631,539 $9,631, Arts entertainment&recreation $0 $0 $774,693 $774, Accommodation&foodservices $0 $0 $2,049,377 $2,049, Otherservices $0 $0 $1,708,509 $1,708, Government&nonNAICs $0 $0 $1,256,663 $1,256,663 Laborincome Sector Description Direct Indirect Induced Total 0 Total $0 $0 $30,955,834 $30,955, Ag,Forestry,Fish&Hunting $0 $0 $53,038 $53, Mining $0 $0 $39,802 $39, Utilities $0 $0 $362,861 $362, Construction $0 $0 $148,672 $148, Manufacturing $0 $0 $914,892 $914, WholesaleTrade $0 $0 $1,706,615 $1,706, Retailtrade $0 $0 $3,416,307 $3,416, Transportation&Warehousing $0 $0 $894,746 $894, Information $0 $0 $851,927 $851, Finance&insurance $0 $0 $3,178,976 $3,178, Realestate&rental $0 $0 $820,934 $820, Professional scientific&tech services $0 $0 $2,340,574 $2,340, Managementofcompanies $0 $0 $527,283 $527, Administrative&wasteservices $0 $0 $1,014,313 $1,014, Educationalservices $0 $0 $1,113,391 $1,113, Health&socialservices $0 $0 $8,899,476 $8,899, Arts entertainment&recreation $0 $0 $529,719 $529, Accommodation&foodservices $0 $0 $1,434,087 $1,434, Otherservices $0 $0 $1,533,252 $1,533, Government&nonNAICs $0 $0 $1,174,968 $1,174,968 Employment Sector Description Direct Indirect Induced Total 0 Total Ag,Forestry,Fish&Hunting Mining Utilities Construction Manufacturing WholesaleTrade Retailtrade Transportation&Warehousing Information Finance&insurance Realestate&rental PennStateExtensionandPennCollegewww.msetc.org50

51 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Professional scientific&tech 367 services Managementofcompanies Administrative&wasteservices Educationalservices Health&socialservices Arts entertainment&recreation Accommodation&foodservices Otherservices Government&nonNAICs PennStateExtensionandPennCollegewww.msetc.org51

52 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Appendix3.MarcellusNaturalGasIndustryPayrollImpacts:Scenario2 Scenario2:If25PercentofNon ResidentWorkerIncomeLeavesPennsylvania Output Sector Description Direct Indirect Induced Total 0 Total $0 $0 $97,772,457 $97,772, Ag,Forestry,Fish&Hunting $0 $0 $225,661 $225, Mining $0 $0 $203,541 $203, Utilities $0 $0 $2,378,908 $2,378, Construction $0 $0 $403,551 $403, Manufacturing $0 $0 $6,653,629 $6,653, WholesaleTrade $0 $0 $5,282,446 $5,282, Retailtrade $0 $0 $7,970,945 $7,970, Transportation&Warehousing $0 $0 $2,573,400 $2,573, Information $0 $0 $3,555,716 $3,555, Finance&insurance $0 $0 $12,384,450 $12,384, Realestate&rental $0 $0 $16,654,562 $16,654, Professional scientific&tech services $0 $0 $4,680,622 $4,680, Managementofcompanies $0 $0 $1,098,486 $1,098, Administrative&wasteservices $0 $0 $2,299,910 $2,299, Educationalservices $0 $0 $2,099,477 $2,099, Health&socialservices $0 $0 $18,238,675 $18,238, Arts entertainment&recreation $0 $0 $1,442,831 $1,442, Accommodation&foodservices $0 $0 $4,537,129 $4,537, Otherservices $0 $0 $3,394,428 $3,394, Government&nonNAICs $0 $0 $1,694,089 $1,694,089 Valueadded Sector Description Direct Indirect Induced Total 0 Total $0 $0 $59,674,181 $59,674, Ag,Forestry,Fish&Hunting $0 $0 $74,492 $74, Mining $0 $0 $97,583 $97, Utilities $0 $0 $1,380,634 $1,380, Construction $0 $0 $194,554 $194, Manufacturing $0 $0 $1,869,848 $1,869, WholesaleTrade $0 $0 $3,476,369 $3,476, Retailtrade $0 $0 $6,722,036 $6,722, Transportation&Warehousing $0 $0 $1,377,435 $1,377, Information $0 $0 $1,893,034 $1,893, Finance&insurance $0 $0 $7,152,854 $7,152, Realestate&rental $0 $0 $11,661,954 $11,661, Professional scientific&tech services $0 $0 $3,226,539 $3,226, Managementofcompanies $0 $0 $723,163 $723, Administrative&wasteservices $0 $0 $1,456,690 $1,456, PennStateExtensionandPennCollegewww.msetc.org52

53 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Educationalservices $0 $0 $1,267,871 $1,267, Health&socialservices $0 $0 $10,579,808 $10,579, Arts entertainment&recreation $0 $0 $867,544 $867, Accommodation&foodservices $0 $0 $2,323,145 $2,323, Otherservices $0 $0 $1,923,761 $1,923, Government&nonNAICs $0 $0 $1,404,867 $1,404,867 Laborincome Sector Description Direct Indirect Induced Total 0 Total $0 $0 $34,850,239 $34,850, Ag,Forestry,Fish&Hunting $0 $0 $59,600 $59, Mining $0 $0 $44,309 $44, Utilities $0 $0 $400,228 $400, Construction $0 $0 $165,645 $165, Manufacturing $0 $0 $1,027,301 $1,027, WholesaleTrade $0 $0 $2,024,941 $2,024, Retailtrade $0 $0 $4,044,975 $4,044, Transportation&Warehousing $0 $0 $1,016,842 $1,016, Information $0 $0 $958,136 $958, Finance&insurance $0 $0 $3,602,627 $3,602, Realestate&rental $0 $0 $910,227 $910, Professional scientific&tech services $0 $0 $2,629,556 $2,629, Managementofcompanies $0 $0 $593,509 $593, Administrative&wasteservices $0 $0 $1,135,065 $1,135, Educationalservices $0 $0 $1,202,776 $1,202, Health&socialservices $0 $0 $9,775,670 $9,775, Arts entertainment&recreation $0 $0 $593,209 $593, Accommodation&foodservices $0 $0 $1,625,661 $1,625, Otherservices $0 $0 $1,726,424 $1,726, Government&nonNAICs $0 $0 $1,313,538 $1,313,538 Employment Sector Description Direct Indirect Induced Total 0 Total Ag,Forestry,Fish&Hunting Mining Utilities Construction Manufacturing WholesaleTrade Retailtrade Transportation&Warehousing Information Finance&insurance Realestate&rental Professional scientific&tech services PennStateExtensionandPennCollegewww.msetc.org53

54 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Managementofcompanies Administrative&wasteservices Educationalservices Health&socialservices Arts entertainment&recreation Accommodation&foodservices Otherservices Government&nonNAICs PennStateExtensionandPennCollegewww.msetc.org54

55 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Appendix4.RoyaltyPaymentstoPrivateMineralRightOwners Scenario1:If7.7PercentofMineralRightsareOwnedOut of State Output Sector Description Direct Indirect Induced Total 0 Total $0 $0 $15,691,609 $15,691, Ag,Forestry,Fish&Hunting $0 $0 $35,264 $35, Mining $0 $0 $31,994 $31, Utilities $0 $0 $374,205 $374, Construction $0 $0 $65,348 $65, Manufacturing $0 $0 $1,043,014 $1,043, WholesaleTrade $0 $0 $867,268 $867, Retailtrade $0 $0 $1,256,269 $1,256, Transportation& Warehousing $0 $0 $407,857 $407, Information $0 $0 $570,032 $570, Finance&insurance $0 $0 $1,998,997 $1,998, Realestate&rental $0 $0 $2,723,444 $2,723, Professional scientific&tech services $0 $0 $745,767 $745, Managementofcompanies $0 $0 $175,910 $175, Administrative&wasteservices $0 $0 $368,143 $368, Educationalservices $0 $0 $352,288 $352, Health&socialservices $0 $0 $2,909,503 $2,909, Arts entertainment& recreation $0 $0 $229,570 $229, Accommodation&foodservices $0 $0 $738,610 $738, Otherservices $0 $0 $529,298 $529, Government&nonNAICs $0 $0 $268,827 $268,827 ValueAdded Sector Description Direct Indirect Induced Total 0 Total $0 $0 $9,585,000 $9,585, Ag,Forestry,Fish&Hunting $0 $0 $11,641 $11, Mining $0 $0 $15,339 $15, Utilities $0 $0 $217,176 $217, Construction $0 $0 $31,504 $31, Manufacturing $0 $0 $293,115 $293, WholesaleTrade $0 $0 $570,748 $570, Retailtrade $0 $0 $1,059,433 $1,059, Transportation& Warehousing $0 $0 $218,309 $218, Information $0 $0 $303,480 $303, Finance&insurance $0 $0 $1,154,556 $1,154, Realestate&rental $0 $0 $1,907,026 $1,907, PennStateExtensionandPennCollegewww.msetc.org55

56 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Professional scientific&tech services $0 $0 $514,087 $514, Managementofcompanies $0 $0 $115,806 $115, Administrative&wasteservices $0 $0 $233,170 $233, Educationalservices $0 $0 $212,746 $212, Health&socialservices $0 $0 $1,687,731 $1,687, Arts entertainment& recreation $0 $0 $138,036 $138, Accommodation&foodservices $0 $0 $378,190 $378, Otherservices $0 $0 $299,975 $299, Government&nonNAICs $0 $0 $222,932 $222,932 LaborIncome Sector Description Direct Indirect Induced Total 0 Total $0 $0 $5,575,826 $5,575, Ag,Forestry,Fish&Hunting $0 $0 $9,314 $9, Mining $0 $0 $6,965 $6, Utilities $0 $0 $62,956 $62, Construction $0 $0 $26,823 $26, Manufacturing $0 $0 $161,038 $161, WholesaleTrade $0 $0 $332,453 $332, Retailtrade $0 $0 $637,512 $637, Transportation& Warehousing $0 $0 $161,159 $161, Information $0 $0 $153,603 $153, Finance&insurance $0 $0 $581,507 $581, Realestate&rental $0 $0 $148,845 $148, Professional scientific&tech services $0 $0 $418,969 $418, Managementofcompanies $0 $0 $95,044 $95, Administrative&wasteservices $0 $0 $181,688 $181, Educationalservices $0 $0 $201,823 $201, Health&socialservices $0 $0 $1,559,452 $1,559, Arts entertainment& recreation $0 $0 $94,386 $94, Accommodation&foodservices $0 $0 $264,645 $264, Otherservices $0 $0 $269,204 $269, Government&nonNAICs $0 $0 $208,439 $208,439 Employment Sector Description Direct Indirect Induced Total 0 Total Ag,Forestry,Fish&Hunting Mining Utilities Construction Manufacturing WholesaleTrade Retailtrade PennStateExtensionandPennCollegewww.msetc.org56

57 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Transportation& Warehousing Information Finance&insurance Realestate&rental Professional scientific&tech services Managementofcompanies Administrative&wasteservices Educationalservices Health&socialservices Arts entertainment& recreation Accommodation&foodservices Otherservices Government&nonNAICs PennStateExtensionandPennCollegewww.msetc.org57

58 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Appendix5.PaymentstoPrivateMineralRightOwners Scenario2:If15.4PercentofMineralRightsareOwnedOut of State Output Sector Description Direct Indirect Induced Total 0 Total $0 $0 $14,088,728 $14,088, Ag,Forestry,Fish&Hunting $0 $0 $31,662 $31, Mining $0 $0 $28,726 $28, Utilities $0 $0 $335,981 $335, Construction $0 $0 $58,672 $58, Manufacturing $0 $0 $936,471 $936, WholesaleTrade $0 $0 $778,677 $778, Retailtrade $0 $0 $1,127,942 $1,127, Transportation& Warehousing $0 $0 $366,195 $366, Information $0 $0 $511,804 $511, Finance&insurance $0 $0 $1,794,802 $1,794, Realestate&rental $0 $0 $2,445,247 $2,445, Professional scientific&tech services $0 $0 $669,588 $669, Managementofcompanies $0 $0 $157,941 $157, Administrative&wasteservices $0 $0 $330,537 $330, Educationalservices $0 $0 $316,302 $316, Health&socialservices $0 $0 $2,612,300 $2,612, Arts entertainment& recreation $0 $0 $206,120 $206, Accommodation&foodservices $0 $0 $663,162 $663, Otherservices $0 $0 $475,231 $475, Government&nonNAICs $0 $0 $241,367 $241,367 ValueAdded Sector Description Direct Indirect Induced Total 0 Total $0 $0 $8,605,902 $8,605, Ag,Forestry,Fish&Hunting $0 $0 $10,452 $10, Mining $0 $0 $13,772 $13, Utilities $0 $0 $194,991 $194, Construction $0 $0 $28,286 $28, Manufacturing $0 $0 $263,174 $263, WholesaleTrade $0 $0 $512,446 $512, Retailtrade $0 $0 $951,213 $951, Transportation& Warehousing $0 $0 $196,009 $196, Information $0 $0 $272,480 $272, Finance&insurance $0 $0 $1,036,619 $1,036, Realestate&rental $0 $0 $1,712,225 $1,712, PennStateExtensionandPennCollegewww.msetc.org58

59 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Professional scientific&tech services $0 $0 $461,574 $461, Managementofcompanies $0 $0 $103,977 $103, Administrative&wasteservices $0 $0 $209,352 $209, Educationalservices $0 $0 $191,014 $191, Health&socialservices $0 $0 $1,515,331 $1,515, Arts entertainment& recreation $0 $0 $123,935 $123, Accommodation&foodservices $0 $0 $339,559 $339, Otherservices $0 $0 $269,333 $269, Government&nonNAICs $0 $0 $200,159 $200,159 LaborIncome Sector Description Direct Indirect Induced Total 0 Total $0 $0 $5,006,261 $5,006, Ag,Forestry,Fish&Hunting $0 $0 $8,362 $8, Mining $0 $0 $6,253 $6, Utilities $0 $0 $56,525 $56, Construction $0 $0 $24,083 $24, Manufacturing $0 $0 $144,588 $144, WholesaleTrade $0 $0 $298,494 $298, Retailtrade $0 $0 $572,391 $572, Transportation& Warehousing $0 $0 $144,697 $144, Information $0 $0 $137,912 $137, Finance&insurance $0 $0 $522,107 $522, Realestate&rental $0 $0 $133,641 $133, Professional scientific&tech services $0 $0 $376,172 $376, Managementofcompanies $0 $0 $85,335 $85, Administrative&wasteservices $0 $0 $163,129 $163, Educationalservices $0 $0 $181,207 $181, Health&socialservices $0 $0 $1,400,156 $1,400, Arts entertainment& recreation $0 $0 $84,744 $84, Accommodation&foodservices $0 $0 $237,612 $237, Otherservices $0 $0 $241,705 $241, Government&nonNAICs $0 $0 $187,147 $187,147 Employment Sector Description Direct Indirect Induced Total 0 Total Ag,Forestry,Fish&Hunting Mining Utilities Construction Manufacturing WholesaleTrade Retailtrade PennStateExtensionandPennCollegewww.msetc.org59

60 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein Transportation& Warehousing Information Finance&insurance Realestate&rental Professional scientific&tech services Managementofcompanies Administrative&wasteservices Educationalservices Health&socialservices Arts entertainment& recreation Accommodation&foodservices Otherservices Government&nonNAICs PennStateExtensionandPennCollegewww.msetc.org60

61 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Appendix6.MethodologyandDefinitions Methodology Inthisanalysis,weuseaneconomicimpactsoftwareprogramknownasIMPLAN(ImpactAnalysisfor Planning).OriginallydevelopedbytheUSForestService,IMPLANisaninput outputmodelthatiswidely usedtoquantifyhowbusinessesusetechnology,laborandmaterials(i.e.,inputs)toproduceaproduct (i.e.,output).theimplansoftwareanddatabase( economicactivityintermsofmorethan450sectors.inpractice,theimplanmodelisusedinevery stateandhundredsofcommunitiesacrossthenationtocatalogeconomicactivityandpredicttheeffect ofalternativepoliciesandvariouseconomicchanges. Definitions Multipliers Input outputmodelsaredrivenbyfinalconsumption(orfinaldemand).industriesrespondtomeet demandsdirectlyorindirectly(bysupplyinggoodsandservicestoindustriesrespondingdirectly).each industrythatproducesgoodsandservicesgeneratesdemandforothergoodsandservicesandsoon, roundbyround.thesesocalledrippleeffectsaredescribedbymultipliers.amultiplierexamineshow muchspinoffeconomicactivityisgeneratedbyamarginalchangeinanindustry.forexample, multiplierscandescribehowmanytotaljobsintheeconomyarecreatedwhenanindustryaddsone newjob.ingeneral,input outputmodelersdescribethreetypesofmultipliereffectswhenexamining theroleofanindustryinthecountyeconomy. 1. Thedirecteffectisthecontributionoftheindustryitself.Itmayrepresentthetotalrevenue (output),employment,oremployeecompensation.thevalueofthedirecteffectmultiplierisalways1. 2. Theindirecteffectsareeffectsoftheindustryonitssuppliers.Thismultipliercapturesthe additionalactivityinbusinessesthatprovideinputstotheindustryofinterest. 3. Theinducedeffectscapturetheimpactsofchangesinspendingfromhouseholdsasincome changesduetothedirecteffect.thiseffectcapturestheimpactofspendingbya)employeesofthe industrybeingstudied,andb)employeesoftheinputsupplyingbusinesses.theseeffectsusuallyshow upinretailandserviceindustries.inthestudyhere,thesecondaryeffectsarethesumoftheindirect andinducedeffects. InthisstudyweusetheIMPLANtypeSAMmultipliers.TheTypeSAMmultiplierisobtainedaccordingto thefollowingformula: TypeSAMmultiplier=(directeffect+indirecteffect+inducedeffect) directeffect 2011PennStateExtensionandPennCollegewww.msetc.org61

62 EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009 Input outputanalysisisameansofexaminingtherelationshipswithinaneconomybothbetween businessesandbetweenbusinessesandfinalconsumers.itcapturesallmonetarytransactionsfor consumptioninagiventimeperiod.theresultingmathematicalformulaeallowonetoexaminethe effectsofchangeinoneorseveraleconomicactivitiesonanentireeconomy. Industryoutputisasinglenumberindollarforeachindustry.Thedollarsrepresentthevalueofan industry stotalproduction.inimplan,theoutputdataarederivedfromanumberofsourcesincluding BureauofCensuseconomiccensusesandtheBureauofLaborStatisticsemploymentprojections. Anotherwaytothinkaboutindustryoutputisasthetotalrevenuegeneratedbyanindustry. Employmentistotalnumberofwageandsalaryemployeesandself employedjobsinaregion.it includesbothfull timeandpart timeworkersandismeasuredintotaljobs.thedatasetsusedtoderive employmenttotalsintheimplanmodelarethees 202data,CountyBusinessPatterns,andthe RegionalEconomicInformationSystem(REIS)data. Whileoutputcapturesthetotaldollarvalueofeconomicactivity,itsuseasameasureofeconomic activitycanbeovercountedinthatitcapturesthevalueofallintermediatestagesoftheproduction processaswell.forexample,thepriceonepaysforacaratthelocalautodealershipinlargepart representseconomicactivitythatoccurredintheproductionprocess.ifoneweretoconsidertheprice onepaidforacarasthecontributiontothelocaleconomy,thenonewouldlikelybeoverstatingits impact.thisiscalleddoublecounting.toavoiddoublecounting,economistsusuallyexamineeconomic contributionsintermsofvalueadded.atthelocallevel,valueaddedisequivalenttotheconceptof GrossDomesticProductinthatitexaminestheuniquecontributionofanindustrytotheoverall economy.ininput outputanalysis,valueaddedconsistsoffourcomponents. 1. Employeecompensationiswageandsalarypaymentsaswellasbenefitsincludinghealthand lifeinsurance,retirementpayment,andanyothernon cashcompensation.itincludesallincometo workerspaidbyemployers. 2. Proprietaryincomeconsistsofpaymentsreceivedbyself employedindividualsasincome.this isincomerecordedonfederaltaxform1040c.thisincludesincomereceivedbyprivatebusiness owners,doctors,lawyers,andsoforth.anyincomeapersonreceivesforpaymentofself employed workiscountedhere.note:laborincomeisthesumofemployeecompensationandproprietary income. 3. Otherpropertytypeincomeconsistsofpaymentsforinterest,rent,royalties,dividends,and profits.thisincludespaymentstoindividualsintheformofrentsreceivedonproperty,royaltiesfrom contracts,anddividendspaidbycorporations.thisalsoincludescorporateprofitsearnedby corporations. 4. Indirectbusinesstaxesconsistprimarilyofexciseandsalestaxespaidbyindividualsto businesses.thesetaxesoccurduringthenormaloperationofthesebusinessesbutdonotincludetaxes onincomeorprofit. 2011PennStateExtensionandPennCollegewww.msetc.org62