Report weighs costs, benefits of fracking

By Tom McParland


Before the shale industry came to town in 2011, rural Carroll County was struggling to dig its way out of the recession as local economic-development efforts floundered, the unemployment rate soared and young people left an area void of local opportunities.

But then came the oil and gas landmen offering impressive signing bonuses in exchange for subsurface mineral rights. Next came the wells and the workers, and the work, business and much-needed sales-tax revenue that followed.

“Now oil- and gas-related companies are coming to the county without being solicited, and industry activity is supporting locally owned businesses, gas stations, hotels and farms,” researchers from Policy Matters Ohio found.

The nonprofit joined with other members of the five-state Multi-State Shale Research Collaborative to conduct case studies of four counties in Ohio, Pennsylvania and West Virginia to gauge the overall impact of shale development.

Policy Matters Ohio studied Carroll County, the most-active drilling county in the state, and discovered there is more to the county’s relationship with the shale industry than a jump-started economy.

“The story, however, is complicated,” the April 10 report read.

On the one hand, those initial signing bonuses — sometimes worth upward of $5,000 — and the royalty checks that followed pumped new wealth back into the struggling economy.

Farmers, especially, cashed in on their payments by purchasing upgrades to their equipment and property, and car sales spiked by 16.5 percent from 2011 to 2012 as residents and some drilling companies snatched up new vehicles and parts.

Out-of-state workers poured money into local businesses, gas stations, bars and restaurants, leading to a 31 percent increase in sales-tax revenue for the county from 2011 to 2012.

Despite a sharp increase in economic activity, the number of new shale- related jobs in Carroll County fell far below industry promises, Policy Matters Ohio said.

The report found that shale-related employment in Ohio topped out around 3,000 jobs, a far cry from the 40,000 estimated early on by one leading industry group. The biggest growth has been in ancillary shale industries that support drilling companies and their supply chains.

The county’s 7.7 unemployment rate in February had decreased from the recession peak of 14 percent, but it still lagged behind its pre-recession level of 5.8 percent in July 2007.

Most jobs have gone to transient, out-of-state workers, who follow drilling rigs from place to place, and the temporary nature of their work created high demand for temporary housing. The interest has spurred the construction of two new hotels in Carrollton and saturated local campgrounds and rental markets.

The housing demand caused rental income to shoot up for owners, but squeezed lower-income residents who couldn’t afford to pay higher rent, researchers said.

Residents and leaders expressed concern about rising water prices as the community competes with a high industry demand for water essential to fracking operations. Other environmental issues included air and noise pollution, the potential for contaminated drinking water and a possible threat to the ecosystem and biodiversity.

The most-common complaint among the four affected counties, researchers said, was the industry’s impact on roads and traffic.

An influx of heavy trucks transporting materials created congestion and led to a spike in road-maintenance costs.

To offset some of those costs, the county and companies sign Road Use Management Agreements, which ensure companies share the cost of maintaining the local infrastructure.

RUMAs have been effective in improving road conditions when a company comes into an area, but have so far lacked the ability to follow through on long-term maintenance efforts, said Amanda Woodrum, a researcher.

“It’s the potential best practice for other states,” but “it doesn’t completely address the problem,” she said. “It doesn’t necessarily leave us where we started when the industry leaves.”

Meanwhile, straddled for money after the last state budget cut funding to local governments, Carroll County and the surrounding areas are still strapped for revenue to compensate for road maintenance and other costs incurred from drilling, despite growing sales-tax receipts.

“It is not enough to cover a lot of the costs” amid missing state funds, Woodrum said.

In the report, Policy Matters Ohio called for the Ohio Legislature to establish a severance of 5 percent on the gross value of oil and gas extracted by a horizontally drilled well.

An industry-backed bill initially proposed a 2 percent tax on drillers, and a revised proposal later countered with a rate of 2.25 percent and no longer excluded producers from paying the Commercial Activities Tax, an annual levy imposed on the privilege of doing business in Ohio.

The new proposal drew the ire of some industry representatives, and the severance tax is “temporarily on hold,” according to Wendy Patton, senior project director.

As proposed so far, the severance-tax revenue would go toward funding both the state’s oil and gas regulatory framework and the Ohio Department of Natural Resources. The rest would go toward a statewide income-tax reduction.

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