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Energy

Ask a trail guide: How much could New York make from gas drilling?

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Emma Jacobs
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WSKG
Well pads like this one could soon be a source of economic development in New York - but they could also be an economic burden.

Recently a reader sent us what seems like a fairly straight-forward question:

What does New York actually stand to make from hydrofracking? How much money, for the state, and for individual landowners/secondary businesses/drilling firms?

Unfortunately, in the Marcellus Shale, there are no simple answers. 

We ran this one by a couple of people we thought might offer some answers. Bernard (Bud) Weinstein was the lead author of the 2009 economic assessment prepared for the Broome County Legislature on the potential economic impacts the county could expect from gas drilling.

Weinstein responded by email:

Based on our assessment of impacts on Broome County alone, I would conservatively estimate that development of the Marcellus shale statewide would contribute $150 to $200 billion to the New York economy over a ten-year period. These expenditures, in turn, would produce about one-billion of new tax revenue for the State and a like amount for local governments and school districts each year. Importantly, about 150,000 jobs would be supported by drilling activities and another 10,000 from on-going production operations and servicing of wells.

At the time, Weinstein directed the Center for Economic Development and Research at the University of North Texas in Denton. He's since moved to Southern Methodist University's Maguire Energy Institute. Weinstein's initial study stirred up some dissenters (this editorial, "Economic study on gas drilling is full of holes" is pretty typical) who said it failed to include potential costs associated with a ramping up of drilling activity.

Weinstein continues: 

But apparently, the state’s politicians don’t care about economic development. I understand the New York State Assembly just passed the Senate bill imposing a 6-month moratorium in the issuance of new permits. Drilling companies now have another reason to sell their assets in New York State and move operations to Pennsylvania, West Virginia, Kentucky and other states sitting atop the Marcellus. New York’s taxpayers will be the losers.

We put the same question to Susan Christopherson, who's leading a team at Cornell trying to gauge the total impact drilling could have on New York State. Christopherson didn't have precise figures yet, but she says there does seem "to be quite a lot of misunderstanding about the money that is supposedly going to flow into the state with natural gas drilling."

If the state doesn’t enact a severance tax, it will incur expenses (permitting, drill site monitoring, emergency preparedness etc.) without the funds to pay for them. There will be some increase in personal income taxes from people employed in retail and construction jobs and in the actual drilling operations but it is unclear what this will amount to and how long it will last. The largest proportion of the money coming into the state will go to land owners in the form of leasing bonuses and royalty payments (approximately 70% of the total). These will be taxed as income. Local governments will receive a form of property-based severance tax that will go to local governments. The amount and duration of these taxes will depend, as does everything else, on the pace and scale of drilling. At this point, given that New York does not have a severance tax, I would say that the returns to the state would be modest, especially when measured against necessary costs to support the drilling industry.

Christopherson's study is funded in large part by the Pittsburgh-based Heinz Endowments and Ithaca-based Park Foundation, which has a giant waterfall on its homepage. She expects to have more precise results in the spring.

The Broome County study was conducted with county economic development funds, which were routed through the county legislature.

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