economic impacts of marcellus shale in pennsylvania

EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein2009

©2011PennStateExtensionandPennCollegewww.msetc.org1

EconomicImpactsofMarcellus

ShaleinPennsylvania:EmploymentandIncomein2009

August2011

www.msetc.org

MarcellusShaleEducation&TrainingCenter(MSETC)isacollaborationofPennsylvaniaCollegeofTechnologyandPennStateExtension



EconomicImpactsofMarcellusShaleinPennsylvania:EmploymentandIncomein

2009

TimothyW.Kelsey(PennState),MartinShields(ColoradoState),JamesR.Ladlee(PennState),andMelissaWard(PennState),incooperationwithTracyL.Brundage(PennCollege),JeffreyF.Lorson

(PennCollege),LarryL.Michael(PennCollege),andThomasB.Murphy(PennState)

TheauthorswanttothankreviewersKathrynJ.Brasier(PennState),StevenC.Deller(UniversityofWisconsin),DavidL.Kay(CornellUniversity),ThomasKnapp(PennState),andStephenSmith(Penn

State)fortheirvaluablecommentsandsuggestionstoimprovethereport.Thefindingsandconclusions

inthisstudyaresolelythoseoftheauthors.



AbouttheAuthors:

TimothyW.Kelsey,Ph.D.,isProfessorofAgriculturalEconomicsatThePennsylvaniaStateUniversity,andStateProgramLeader,EconomicandCommunityDevelopment,PennStateCooperativeExtension.

MartinShields,Ph.D.,isProfessorofEconomicsatColoradoStateUniversity.

JamesR.LadleeisCountyExtensionDirector,ClintonCounty,PennStateCooperativeExtension,andDirectorofSpecialInitiatives,MarcellusShaleEducation&TrainingCenter.

MelissaWardisagraduatestudentintheDepartmentofAgriculturalEconomicsandRuralSociology,

ThePennsylvaniaStateUniversity.

MarcellusShaleEducation&TrainingCenter(MSETC)isacollaborationof

PennsylvaniaCollegeofTechnologyandPennStateExtension



EconomicImpactsofMarcellusShaleinPennsylvania:

EmploymentandIncomein2009

Abstract

ThisstudyexamineshowseveralkeyunexploredaspectsofMarcellusShalenaturalgasdevelopmentin

PennsylvaniawillaffecttheoveralleconomicimpactoccurringintheCommonwealth.Whereleasingandroyaltydollarsareactuallygoing,andhowtheyarebeingspent,hasnotbeenexaminedinpreviouseconomicstudies.Theeconomicimpactwillbeverydifferentdependinguponhowmanydollarsgoto

Pennsylvaniahouseholds,tothestategovernment,andtonon‐residents.Inaddition,howmanyofthosedollarsareimmediatelyspentbyrecipients,andhowmanydollarsaresaved,similarlywillaffecttheeconomicimpacts,aswilltheproportionofwagesbeingpaidtonon‐Pennsylvaniaworkers.

Thestudyincludessurveysoflandowners,localbusinesses,andlocalgovernmentofficials,andaGISanalysisoflandownershippatternsrelatedtoPennsylvaniaresidents,non‐residents,andtheCommonwealth.Wecombinedthisinformationwithindustryspendingdatatoestimatethe

distributionofnaturalgascompanyspending,bothspatiallyandtemporally.Thesenumberswerethenenteredintoaninput‐outputmodelofthePennsylvaniaeconomygeneratedwiththeeconomicimpacttoolIMPLANsowecouldestimatethemultipliereffects.

Accordingtoouranalysis,approximately51percentofthelandinMarcelluscountiesisownedby

residentswithinthecounty,25percentisownedbysomeonelivingelsewhereinPennsylvania,and7.7percentisownedbypeoplelivingoutsideofPennsylvania.Theremaining17percentisownedbythe

publicsector,primarilytheCommonwealth.Thesurveyof1,000landownerswithinathousandfeetofactiveMarcelluswellsinBradfordandTiogacounties(501replies,foraresponserateof50.1percent)suggeststhatlandownerssaveorinvestabout55percentofthetotalleasingdollarsintheyearthey

receivesuchpayments,ratherthanspendingthemimmediately.Theyalsosaveorinvestabout66percentofalltheroyaltydollarstheyreceive.ThismeansasignificantportionofleasingandroyaltydollarsarenotspentinPennsylvaniaintheyearthosedollarsarereceived,reducingtheirpotential

economicimpactintheyearthecompaniespaymineralrightownersforleasesandroyalties.

Weestimatedtheeconomicimpactofthesedollarsundertwoalternativescenariosofout‐of‐stateownership(7.7percentand15.4percent),butsuspectthatbothmayunderestimatetheamountofleasingandroyaltydollarsimmediatelyleavingPennsylvaniabecausemineralrightownershippatterns

donotcorresponddirectlywithlandownershippatterns.Manyoftheserightswereseveredgenerationsagoandhavesubsequentlybeenpasseddownthroughfamilies,splinteringintomultipleownershipacrosschildrenandgrandchildren,manyofwhomlikelynolongerliveinPennsylvania.

Wesurveyed1,000randomlyselectedbusinessesinbothBradfordandWashingtoncounties(foratotalof2,000businesses)toidentifytheimpactstheyareexperiencingfromMarcellusShaledevelopment(619replies,foraresponserateof31percent).Questionswereaskedaboutpossiblenegativeand



positiveimpacts.Thesurveyresponsesindicatedpositiveeconomicimpactsareoccurringbroadlyacrosstheeconomyinthecommunitieswheredrillingisveryactivelyoccurring.Aboutone‐thirdofall

thebusinessesinBradfordCounty,forexample,reportedthattheirsaleshadincreasedduetonaturalgasdevelopment,andonly3percentreportedsaleshaddeclined.Businessesacrosstheeconomyreportedpositiveeffects,thoughhotels,construction,transportation,eatinganddrinkingplaces,

wholesaletrade,andfinancialservicebusinessesweremostlikelytoreporthighersales.

Wealsosurveyedall494municipalgovernmentsinthe12PennsylvaniacountieswiththemostMarcellusShaleactivity(293replies,foraresponserateof59percent).Onehundredthirty‐oneofthe

governmentssaidthatMarcellusdevelopmentactivitywasoccurringintheirjurisdiction.Therewaslittlepatterntotheiranswersinrelationtotheamountofdrillingactivityoccurringwithintheirjurisdiction.Only18percentofthegovernmentsexperiencingMarcellusdevelopmentactivitysaidtheir

taxrevenueshadincreased,whichindicatesthatmostlocalgovernmentsbeingaffectedarenotseeingmoretaxrevenueasaresult.Incomparison,26percentofthelocalgovernmentsindicatedthattheircostshadincreased,particularlyrelatedtoroadexpenses.Thisconfirmsthatconsideringboth

revenuesandcostsiscriticalforhavingacompleteunderstandingoftheimpactsofMarcellusShale.Thesefindingsfromlocalofficialscontrastwithprioreconomicstudieswhichpredictedthattherewouldbelargelocaltaximpacts,butwhichdidnotverifywhatisactuallyoccurring.

Weusedtheeconomicinput‐outputmodelIMPLANtolookattheeconomy‐wideimpacts,modifyingthe

informationwithresultsfromtheGISanalysisandsurveys.WeuseddetailedpublishednaturalgascompanyspendinginformationinPennsylvaniafrom2008,scalingitupto2009usingotherpublisheddataabouthowspendingchangedbetweenthetwoyears.Wemodifiedpayrollspending,usingdata

fromarecentMarcellusworkforcestudywhichindicatedthatabout37percentoftheMarcellusworkforcearenon‐Pennsylvaniaresidents.Weestimatedtwoalternativescenariosaboutthepayroll

goingtonon‐Pennsylvanians,recognizingthatworkersfromoutofstatesendsomeoftheirincomebacktotheirhomestatecommunity;thisincludedassumingthatnon‐Pennsylvaniaworkersspend50percentoftheirMarcellus‐earningsinsidePennsylvania,andalternatively,thattheyspend75percentof

theirearningshere.Wealsoaccountedforhowtheirspendinglikelydiffersfromtypicalresidentworkers.

OurfindingssuggestthattheeconomicimpactofMarcellusShaleinPennsylvaniaduring2009rangedbetween23,385and23,884jobs,and$3.1and$3.2billioninthatyear.Thisincludedabout$1.2billion

inlaborincomeandalmost$1.9billioninvalueaddedtothePennsylvaniaeconomy.Inaddition,therewillbeadditionaleconomicimpactsof2009MarcellusShaleactivityinfutureyearsasmineralrightownersspendtheleasingandroyaltyincometheyreceivedin2009butsavedforlateruse.Theseare

largeeconomicimpacts,especiallysincemuchofthisimpactisoccurringinrelativelysmallcounties.WedidnotestimatetaximpactsofMarcellusShaleactivitybecausewewerenotcomfortablewiththereliabilityofIMPLAN’staxanalysis.

TheseresultsareabouthalfthesizeofthoseestimatedinpreviouseconomicimpactstudiesofMarcellus,butthisisnotsurprisingbecausewehadmoredetailedinformationaboutleasingandroyaltyincome.OurfindingsareconsistentwithseveralotherrecentemploymentstudiesofMarcellusShale



whichfocusedonindustryspending.OurresultsconfirmthatwhereleasingandroyaltydollarsaregoinghasasignificanteffectontheestimatedoveralleconomicimpactsofMarcellusShale

development.BecauseonlyabouthalfofthelandinatypicalMarcelluscountyisownedbyresidentsofthatcounty,itwouldsuggestthatalargeportionoftheeconomicbenefitsimmediatelyleavesthecommunitiesbeingimpactedbydrilling.

WedidnottrytoquantifymanyimportantbutevenmoredifficulttomeasurecostsofMarcellusShaledevelopment,suchaseffectsontheenvironmentandhealth.Wehopethatfutureeconomicstudiescanconsidersuchcostsasbetterinformationbecomesavailableabouttheincidenceandextentofsuch

impacts.Inaddition,wedidnotaddressthedistributionofbenefitsandcosts,eventhoughtheequityofhowthesearedistributedunderliesmuchofthecurrentpolicydebateaboutMarcellusShale.ThelongrunimplicationsofMarcellusShaledevelopmentareasofyetstillunknown.Jobsandincomein

theshortrunareimportant,butmanywouldarguethatotherfactorsareequally(ifnotmore)important,suchascleanwater,healthyforestsandotherecosystems,cleanair,andgoodpublichealth.Inadditiontoaffectingqualityoflife,theseareimportantresourcesforthefutureofPennsylvania

communities,includingfutureeconomicopportunities,socialandphysicalinfrastructure,well‐functioninglocalgovernmentandinstitutions,andcommunitywell‐being.Webelieveourresultsmustbeviewedasapreliminary,short‐runviewoftheeconomicimpactsofMarcellusShaleandbeplacedin

abroadercontextoftheseotherimportantconcerns.



TableofContents

Abstract ........................................................................................................................................................4

I. Introduction........................................................................................................................................10

II. WhatAffectstheEconomicImpactsofMarcellusShale? ..................................................................10

A. Timing,Scale,andPace ..................................................................................................................11

1. TimingandLeasing/RoyaltyIncome...........................................................................................122. TimingandWorkforce ................................................................................................................12

3. OtherTimingIssues ....................................................................................................................13

B. Leakage...........................................................................................................................................13

1. LeakageandLeasing/RoyaltyIncome........................................................................................142.LeakageofEmployeeWagesandSalaries..................................................................................15

3.LeakageofBusinessActivity.......................................................................................................15

III.StudyMethods...................................................................................................................................16

A.CompanySpending............................................................................................................................16

1.GeneralSpending........................................................................................................................162.Workforce ...................................................................................................................................17

B.LeasingandRoyalties........................................................................................................................18

1.GISAnalysisofOwnership...........................................................................................................182.SurveyofLandowners.................................................................................................................21

i.WheretheOwnersLive ...........................................................................................................21

ii.DollarsReceivedforLeasing....................................................................................................21iii.UseofLeasingandRoyaltyDollars .........................................................................................22

3.AllocationofLeasingandRoyaltyDollarsintheStudy ...............................................................23

C.LocalBusinessEffects .......................................................................................................................24

1.BusinessImpacts .........................................................................................................................252.ChangesbyBusinessType...........................................................................................................25

D.LocalGovernmentEffects................................................................................................................26



IV.EconomicImpactResults.......................................................................................................................30

A.CompanySpendingandPayroll..........................................................................................................31B.LeasingandRoyalties ........................................................................................................................32

1.PennsylvaniaGovernment ..........................................................................................................322.PennsylvaniaHouseholds............................................................................................................33

C.OverallEconomicImpact ...................................................................................................................34

1.TotalImpact ................................................................................................................................342.Multiplier ....................................................................................................................................353.EconomicImpactonaPerWellBasis .........................................................................................35

V.Discussion/Implications..........................................................................................................................36

A.LimitationsofOurStudy....................................................................................................................38B.WhatNoOneKnows(ButShouldbeKnown)....................................................................................39

1.Costs............................................................................................................................................39

2.WhoIsBenefitingandWhoIsBearingtheCosts ........................................................................403.Long‐RunImplications.................................................................................................................404.WhatIsActuallyOccurring..........................................................................................................41

VI.Conclusions............................................................................................................................................42

VII.References............................................................................................................................................44

VIII.Appendices ..........................................................................................................................................46

Appendix1.MarcellusNaturalGasIndustrySpendingResults .............................................................46Appendix2.MarcellusNaturalGasIndustryPayrollImpacts:Scenario1 .............................................49

Appendix3.MarcellusNaturalGasIndustryPayrollImpacts:Scenario2 .............................................52Appendix4.RoyaltyPaymentstoPrivateMineralRightOwners..........................................................55Appendix5.PaymentstoPrivateMineralRightOwners.......................................................................58

Appendix6.MethodologyandDefinitions ............................................................................................61



TableofTables

Table1.NaturalGasCompanySpendinginPennsylvania,2009................................................................17Table2.PercentofAcresinMarcellusCounties,byOwnershipType .......................................................20Table3.MineralRightOwners’UseofLeasingDollars ..............................................................................22

Table4.ChangesinBusinessActivity .........................................................................................................25Table5.ChangesinBusinessActivitybyBusinessType .............................................................................26Table6.MunicipalRevenuesandLevelofDrillingActivity ........................................................................28

Table7.MunicipalServicesandLevelofDrillingActivity...........................................................................29Table8.MunicipalExpendituresandLevelofDrillingActivity...................................................................30Table9.EconomicImpactofNaturalGasCompanyNon‐PayrollSpending,2009.....................................31

Table10.EconomicImpactofNaturalGasCompanyPayroll,2009...........................................................31Table11.EconomicImpactofLeaseandRoyaltyPaymentstoStateGovernment,2009 .........................32Table12.EconomicImpactofLeaseandRoyaltyPaymentstoPennsylvaniaHouseholds,2009 ..............33

Table13.SummaryofEconomicImpactsandTotalEconomicImpact,2009 ............................................34Table14.TotalEconomicImpactbyWell,2009.........................................................................................35



I. Introduction

ThepotentialoftheMarcellusShaleregiontobecomeamajornationalsourcefornaturalgashas

generatedsignificantinterestinPennsylvaniaoverthepastseveralyears.CountiesacrosstheMarcellusShaleregionoftheCommonwealthhaveexperiencedsignificanteconomicactivityasnaturalgascompanieshavebeguntoexploreandthenactivelydeveloptheresource.Thepaceofdevelopment

variesacrosstheregion,withsomecounties,suchasBradford,Tioga,Susquehanna,Washington,andGreene,becomingamajorfocusforgasdrillingactivity.Othercounties,suchasLycoming,arebecomingmajorhubsforthecompaniesworkingonMarcellus,whileothershaveseensignificant

pipelineconstructionrequiredtogetthegastomarket.DrillingactivityisexpandingintheCommonwealth,growingfrom27wellsin2007,to1,445wellsin2010(DEP).

TravelthroughthesecountiesandanecdotesfromresidentsandothersindicatethatthedevelopmentofMarcellusShaleisbringingmajorchange,includingmanynewdollarstomineralrightownerstolease

theirresourcefordevelopmentandsubsequentroyaltydollarstothemoncewellsbecomeactive.Additionally,manycommunitiesareseeingnewsalesandexpandedactivityforexistingbusinessesworkingwiththegascompaniesorprovidingservicestotheirworkers,newjobswithinthecommunity

forbothresidentsandnon‐residents,andmuchmorelocalspending.Inadditiontotheseincomeandjobeffects,therearenon‐monetaryeffects,suchassignificantincreasesintruckandothertraffic,roaddamage,andnewroads,wellpads,andpipelinescuttingthroughforestandfarmland,withpotential

health,environment,social,andotherimpacts.

PublicdebateoverMarcellusShaledevelopmentseemsincreasinglypolarizedbetweenthosewhobelieveitisgoodforPennsylvaniaandotherswhobelievethatitisnot.Becausedevelopmentisstillin

itsearlystages,muchisnotknownabouttheshort‐orlong‐runeffects,soitiscriticalthatwhatisoccurringbestudiedtohelppolicymakers,communities,andcitizensunderstanditsfullimplications.Thisstudyusesthewell‐knownandwidely‐usedeconomicimpactmodelIMPLANandresultsfrom

surveysoflandowners,localbusinesses,andmunicipalgovernments,pairedwithGISanalysisoflandownershippatterns,tobetterunderstandthecurrentjobandincomeimpactsofMarcellusShaledevelopment.Economicanalysisisusefultohelpunderstandwhatinfluencestheimpactofchange,and

inmanywaysthisismoreimportantthantheactualjobandincomeestimatesthateconomicmodelingcreates.ThisstudyexploreshowseveralkeyandunexploredaspectsofnaturalgasdevelopmentinPennsylvaniawillaffecttheoveralleconomicimpacts.

II. WhatAffectstheEconomicImpactsofMarcellusShale?

DevelopmentoftheMarcellusShaleregionwillaffectPennsylvania’seconomythroughseveralprimarymeans,including(1)leasingandroyaltyincomepaidtomineralrightowners;(2)purchasingofservices

andequipment,andemploymentbythecompaniesdirectlyinvolvedinthedevelopmentofthegasplay(e.g.thosebusinessesthatfind,extract,andprocessthegas);(3)employmentandpurchasesby



companiesthatmaymovetoPennsylvaniabecauseofthesupplyofnaturalgas(e.g.thosebusinessesthatwanttousethegas);and(4)effectsofgasdevelopmentonbusinesses,communities,and

residentsthataffecttheircompetitivenessandqualityoflife,suchaslossofqualifiedemployeestogasindustryjobs,increasesinlocalgovernmentcosts,changesinenvironmentalorwaterquality,healtheffects,andotherimpactsofproduction.

Currentlyavailableinformationonlyallowseconomiststoexaminetheeconomicimpactsofleasingandroyaltyincomeandofgascompanyspending,somostpreviouseconomicstudiesofMarcellusShale(asdoesthisstudy)havefocusedonjustthesetwodriversofeconomicchange.Thelatterimpactsmight

belargeinthelongrun,whichiswhymanylocalandregionaleconomicdevelopmentgroupsarebeginningtofocusonencouraginggrowthofbusinessesthatusenaturalgas,andmanyenvironmentalagenciesandorganizationsarefocusingonbetterunderstandingtheenvironmentalimplicationsofgas

development.Eventhoughthelatterimpactshavenotbeenmodeled,theyareimportanttokeepinmindandshouldbethesubjectofadditionaleconomicstudies.

SeveralkeyelementswillaffecttheeconomicimpactofMarcellus,suchasthetimingofdevelopment,includingitsscaleandpace.Theseelementsareimportantforthefullrangeofimpacts,andstrongly

influencethesubsetofimpactsfocusedoninthisstudy.Inaddition,howmanyofthedollarsremaininthecommunityversusimmediatelyleave(whateconomistcall‘leakage’)alsoplaysacriticalroleininfluencingthemagnitudeoftheeconomicimpacts.Eachwillbediscussedinturn.

A. Timing,Scale,andPace

ItiscriticaltorecognizethattheeconomicimpactswillchangethroughoutthedevelopmentoftheMarcellusShaleplay,mostparticularlyrelatedtoleasingandroyaltyincome,andworkforce.In

addition,naturalgasdevelopmentbyitsnaturehasalimitedtimespanbecauseitisanon‐renewableresource.Expertsdon’tagreeonhowmanyyearsMarcellusShaledrillingwilloccurinPennsylvania,butmanyestimatesare20yearsormore.OthershalesunderPennsylvaniahavethepotentialofextending

naturalgasdrillingactivity,sonaturalgasdevelopmentcouldbealongerprocess,butatsomepointthegaswillbegoneorotherwisewillnolongerbecommerciallyviable.Manyfactorswillinfluencepaceandscale,includingthehealthoftheeconomyasawhole,theproductivityofshalewells,technological

changeandinnovation,foreignpolicy,domesticenergypolicy,andtherelativepricesofdifferentfuels.



1. TimingandLeasing/RoyaltyIncome

Intheearlyyearsofagasplay,alargeshareofspendingbygascompaniesisforleasepaymentsto

mineralrightownerstoacquiretherighttoexploreanddevelopwells.Leasingdollarsaremostlyupfront,earlyinthedevelopmentoftheplayascompaniescompetetogaincontroloftheresource.Aswellsaredrilledandcomeon‐line,themineralrightownersreceiveroyaltypaymentsinsofarastheir

wellsareproductive.Pennsylvanialawspecifiesthatmineralrightownersmustreceiveatleastoneeighthofthevalueofproduction,butsomeownershavenegotiatedforhigherroyaltyvalues.Themajorityoftheseroyaltydollarsgotomineralrightownersinthefirstfewyearsofawell’sactivelife,

becauseproductionfromindividualMarcelluswellsdropsveryquicklybeforelevelingofftoaslowbutsteadydecline.ThismeansthatthemajorityofalltheroyaltydollarswillbepaidtomineralrightownersduringtheactivedrillingphaseoftheMarcellusShaleplayandwilldeclinequicklyoncedrilling

ends.

ThetimingoftheuseofthoseleasingandroyaltydollarsbymineralrightownershasimportantimplicationsfortheeconomicimpactsfromMarcellusShaledevelopment.PriorstudiesoftheeconomicimpactsofMarcellusShaleinPennsylvaniahaveassumedthatsuchownersspendleasingand

royaltydollarsonthesamegoodsandservices,andinthesameproportion,astheyspendtheircurrentincome.Thisisaparticularlystronganduntestedassumptionbecauseitimpliesthatmostofthosedollarsimmediatelybegincirculatingthroughtheeconomy.Bycomparison,anecdotesfromindividuals

receivingthosedollarsandfromlocalbankerssuggestthatmineralrightownersarespendingmoremoneyondifferentkindsofgoodsandsavingmuchofthemoneythey’rereceivingforlateryears.Thisisgoodfromalong‐runeconomicdevelopmentperspective,sinceitmeansthattheeconomicimpacts

ofMarcellusShaledevelopmentwillbespreadoveralongertimewithinacommunity,ratherthanoccurringonlyinthoseyearswhereleasingandroyaltydollarsarereceived,potentiallysmoothingthe

boom/bustcycle.Italsomaymeanthereismorecapitalwithinthecommunity,spurringmorelocalinvestment,withlong‐runbenefits.Butsuchsavingsresultinalowercurrenteconomicimpact,soitisimportanttoaccountforthemasaccuratelyaspossibleineconomicimpactstudies.

2. TimingandWorkforce

Laborrequirementsaresignificantlydifferentduringthedrillingphaseofgasdevelopmentthaninthesubsequentproductionphase,whichoccursonceallwellshavebeendrilled.Brundageetal(2010),forexample,foundthateachwetgaswellinsouthwestPennsylvaniarequirestheequivalentof13.1full

timejobs,spreadacrossalmost150occupationsand420individuals,duringtheyearwhendrillingandwellcompletionoccuronthewellsite,butonly0.18fulltimejobequivalentsduringeachofthatwell’ssubsequentproducingyears.Laborrequirements(andthereforemostoftheemployment‐based

economicdevelopment)arehighestduringtheactivedrillingyearsandlargelyaredrivenbythenumberofwellsdrilledperyear.Thispaceofdrillinghasimportantconsequencesforotherimpactsofgasdevelopment,includingtheneedforworkerhousing,thenumberoftrucksontheroad,other



infrastructurerequirements,thequantityofwaterusedandneedingtobedisposedof,andotherenvironmentaleffects.

3. OtherTimingIssues

TheeconomicimpactofMarcellusShaledevelopmentwithinanindividualcommunitywilldependuponthescaleandpaceofactivitywithinthatcommunity,notnecessarilythedurationofdrillingactivitystatewide.Eventhoughsomeestimatethatitmaytake20ormoreyearstodrillalltheplanned

MarcellusShalewells,thedrillingphaseinanyonecommunitylikelywillbeshorter,asthecrewscompleteworkinoneareabeforemovingontoanother.Whethertheworkerslivewithinthecommunitieswherethedrillingisoccurringsimilarlyisimportant,becausetheresidenceoftheworkers

determineswhichmunicipalityandschooldistrictreceivetheirearnedincometaxandwheretheworkersandtheirfamilieswilltendtospendmuchoftheirearnings.

Afastpaceofdevelopment,withahighnumberofwellsdrilledinasingleyear,meansthedrilling

activitywithinacommunitywillbeconcludedmorequicklythanifthedrillingactivityoccursoveralongertimeframe.Becausethelaborrequirementsperwellarerelativelyconstant,afasterpacemeansmoreworkersareneededperyear,withmoretrucktraffic,higherhousingandotherlocalinfrastructure

needs,andgreaterdifficultyforthecommunitytoeasilyaccommodatethescaleofactivity.Aslowerpaceofdevelopmentthusgenerallywillbelessdisruptiveandwillextendthebenefitsoveralongerperiodoftime,thoughitmayaffectcompanycostsandthereforelandownerreturns.

B. Leakage

Whenconsideringtheeconomicimpactsofanactivity,suchasdevelopmentofMarcellusShale,itisimportanttotrackwherethedollarsareactuallygoing.Moneyimmediatelyleavingthecommunity,

suchaspurchasesfrombusinessesoutsideoftheregion,haslesslocalimpactthanmoneyspentatlocalbusinesses.ThespatialdistributionofthenewdollarsfromMarcellusShaleactivitythuscanbeasimportantasthetotalnumberofdollarsinvolved.Leakageisparticularlyanissuewithleasingand

royaltydollars,andwithworkerpayroll.



1. LeakageandLeasing/RoyaltyIncome

Whoactuallyreceivesleasingandroyaltydollars,andhowthosedollarsarespent,hasanimportant

influenceontheeconomicimpactsofgasdevelopment.Notallmineralrightownerslivewithinthecommunitywheretheyowntherights,sotheleasingandroyaltydollarstheyreceiveimmediatelyleavethecommunity.Althoughthisisverysignificantforcounty‐leveleconomicimpactanalysis,froma

statewideeconomicimpactperspective(whichistheframeworkforthisstudy),itdoesnotmatterwhetherthemineralrightownerlivesinthecountywheretheyowntheirparcel,providedtheyliveelsewhereintheCommonwealth,sincemostofthosedollarswillcirculatesomewhereinthe

Pennsylvaniaeconomy.LeasingandroyaltypaymentstoownerswholiveoutsideofPennsylvania,incontrast,havelittlelocalorstateimpactsincethosedollarsimmediatelyleavetheCommonwealth.

Howthedollarsarespentalsohasimportantimplicationsfortheeconomicimpacts.Giventherelativelylargesizeofsomeofthechecksmineralrightownersarereceiving,itisexpectedthatmany

householdswilltreatlump‐sumpaymentsdifferentlythanregularincome.AnecdotesfromareaswithsubstantialMarcellusactivitysuggestthatmanylandownersarespendingmoreonconsumerdurables,orsavingorinvestingthedollars.Forexample,newtractors,vehicles,andfourwheelersarebeing

purchased,manyhousesandbarnsarebeingrepaired,andmineralrightownersareotherwiseusingthedollarsinspecialways.

TheCommonwealthofPennsylvaniaitselfownsasignificantshareofthemineralrightsbeingleased,

suchasonstateforestandstategameland.LeasingandroyaltydollarsfortheselandsgototheCommonwealth,immediatelyleavingthecommunitieswheredrillingisoccurring.Theeconomicimpactofthesedollarsisdifferentthantheimpactofpaymentsgoingtoprivateindividualsbecausethestate

spendsthosedollarsverydifferentlythandoindividualhouseholds.Somelocalgovernmentsandschooldistrictslikewisehaveleasedtheirmineralrights,andtheiruseofthosedollarssimilarlydiffersfromhouseholdspending.

PrioreconomicimpactstudiesofMarcellusShaleinPennsylvaniahavenotaddressedthedistributionofleasingandroyaltyincome,norhowthosedollarsarespent,butinsteadhaveassumedthatallthedollarsaccruetoPennsylvaniahouseholdsandarespentlikenormalincome.Thishasthepotentialof

significantlyaffectingoverallresults,since69percentoftotalindustryspendingin2008wasleasingandroyaltypayments(Considine,etal.2009)andabout38percentoftotalspendingin2009(Considineetal.2010),andthusthesedollarsareaverylargedriveroftheoveralleconomicimpact.

Severalstudiesofgasdevelopmentinotherstateshaveattemptedtoconsidertheinfluenceofsavings.

InastudyoftheHaynesvilleShaleinLouisiana,Scott(2009)assumedonly5percentofleasingandroyaltypaymentswerespentintheyearreceived.IntheirstudyofWestVirginia,theNationalEnergyTechnologyLab(2010)insteadestimatedhowmuchwassavedbyassumingthatpeoplesavedleasing

androyaltydollarsinthesameproportionastheydoregularincome.Nostudiestodatehavebasedtheirestimatesontheobservedoractualbehaviorofleaseandroyaltyrecipients,animportantlimitationwhichthisstudybeginstoremedy.



2.LeakageofEmployeeWagesandSalaries

Lossofeconomicimpactalsooccurstotheextentthatworkersreceivingwages,salaries,andother

compensationspendtheirincomesoutsideofthecommunity–aneventualitythatismuchmorelikelyiftheyliveelsewhere.Wagestotransientworkerstypicallydohavesomelocaleconomicimpact,sincesuchworkersspendpartoftheirincomeintheareawheretheyaretemporarilyliving(suchasrent,

hotelorcampgroundfees,food,entertainment,andotherbasiclivingexpenses).Butsincetheirpermanentresidenceiselsewhere,alargershareoftheirearningsimmediatelyleavethecommunitythandowagesgoingtolocalworkers.

Theproportionofnaturalgasworkerswhoarefromoutofstatehasbeenasourceofcontroversyand

sensitivityinsomeregionsofPennsylvania,inpartbecauselittleconcreteinformationhasbeenavailableabouttheresidenceofsuchworkers.Thereislittledoubtthatmanyworkersinhighlyspecializedfields,suchasdirectionaldrillers,perforators,andwellcompletionsupervisors,currentlyare

fromoutsidetheCommonwealth.RelativelyfewPennsylvanianshavetheskillsortrainingtoimmediatelyfillsuchpositions,anduntillocaltrainingprogramsrampupandPennsylvaniansgeton‐the‐jobexperiencetodothesejobssafely,suchjobslikelywillremainlargelyheldbynon‐residents.At

thesametime,however,thereisalsolittledoubtthatasubstantialnumberofthenewjobsinthegasindustryaregoingtoPennsylvanians.ManyofthejobsareinoccupationsalreadyexistingwithinPennsylvania,suchasconstruction,commercialdrivers,anddieselmechanics,soPennsylvanianshave

theskillsandexperienceforthesenewjobopenings.

Identifyingtheportionofgas‐relatedworkerswhoarePennsylvaniaresidentsisimportantfromaneconomicimpactperspective,sinceitaffectshowmanywageandsalarydollarsremainwithinthe

Commonwealth.Aswithleasingandroyaltydollars,fromastatewideeconomicimpactperspectiveitdoesn’tmatterwhetherworkers’permanentresidenceisinthecountywheretheyworkoriftheirpermanentresidenceiselsewhereinPennsylvania,sincethosedollarswillcirculatesomewherein

Pennsylvania.Workersretaininganout‐of‐statepermanentresidencetypicallywillspendtheirincomedifferently,withalargershareimmediatelyleavingtheCommonwealth.

3.LeakageofBusinessActivity

WhetherthebusinessesprovidingservicestothenaturalgasindustryarelocatedinPennsylvaniaoroutsidetheCommonwealthhassimilareffectsontheeconomicimpactofsuchspending.Moreofthedollarsgoingtolocalbusinessestypicallywillre‐circulatewithinthePennsylvaniaeconomythanwill

dollarsgoingtofirmslocatedoutsideoftheCommonwealth.Locallyownedbusinessesmeantheprofitsaremorelikelytoremaininthecommunity.Locationofthebusinessalsomayaffectthecompositionoftheworkforce,particularlythesharethatarelong‐termresidents.



III. StudyMethods

Thiseconomicimpactstudyusedseveralmeanstoestimatetheemploymentandincomeimpactsof

MarcellusShaledevelopment.Wereliedupontheeconomicinput‐outputmodelIMPLANasthemaintoolofanalysis,modifyingtheinformationwithresultsfromseveralsurveysthatweconducted.IMPLANisamongthemostcommonlyusedeconomicimpactmodels,andhasbeenfrequentlyusedto

estimatethejobandincomeeffectsofnaturalgasdevelopment(CenterforBusinessandEconomicResearch,2008;Considine,Watson,andBlumsack,2010;Considine,Watson,Entler,andSparks,2009;NationalEnergyTechnologyLab,2010;PennsylvaniaEconomyLeague,2008;ScottandAssociates,

2009).Yetthereareclearcautionstoitsuseandinterpretationfornaturalgasdevelopment(Kay,2011;Kinnaman,2011).

Ourstudyincludedsurveysoflandowners,localbusinesses,andlocalgovernmentofficialstobetterunderstandhowtheyareusingdollarsandtheimpactstheyareseeing.WeusedGeographic

InformationSystem(GIS)datatoanalyzelandownershippatternsrelatedtoPennsylvaniaresidents,non‐residents,andtheCommonwealth.Wecombinedthisinformationwithindustryspendingdatatoestimatethedistributionofnaturalgascompanyspending,bothspatiallyandtemporally.These

numberswerethenenteredintotheinput‐outputmodelIMPLANtoestimatethemultipliereffects.

A.CompanySpending

1.GeneralSpending

Weattemptedtogatherinformationfromthemajorgascompaniesabouttheireconomicactivity,but

noneultimatelyprovidedsuchinformationforuseinthisstudy.Wethusrelieduponpublishedcompanyspendinginformation,ascollectedandreportedbyConsidine,WatsonandBlumsack(2009

and2010).Weadjustedthespendingimpactstoreflect2009activitylevels,usingthe2008proportionsshowninTable1oftheir“EmergingGiant”reportandappliedtothe2009totalspendingfromthe"Update"report.

Considineetal.reportedthattheir2010surveywascompletedbytwelvecompanies,whocollectively

accountedforabout74percentoftotalwellsstartedduring2009.Sincetheirresponsesaccountedforsuchalargepercentageofdrillingactivity,theeffectofnon‐responsebiasislikelytobelow.Theyusedtheseresponsestoestimatetotalindustryspendingthatyear.Toprovideasecondaryverification

source,weusedPennsylvaniaDepartmentofEnvironmentalProtectiondataonthenumberofwellsdrilledin2009toestimatetheperwellcostthattheirdataimpliesandfoundthatitwasapproximately$3.6millionperwell.Thisisconsistentwiththe$3to$4millionperwellcostthatcompanies

independentlyhavereportedinpublicpresentationsandpersonalconversations.



Table1.NaturalGasCompanySpendinginPennsylvania,2009

LeaseandBonus $1,728,765,000Exploration $243,831,000

Upstream:DrillingandCompletion $1,700,435,000

Midstream:PipelineandProcessing $695,801,000Royalties $54,683,000

Other $111,787,000Source:Considine,WatsonandBlumsack,2010

WeusedIMPLAN’smodeledindustryproductionfunctionofpurchasingrelationshipsbetweenbusiness

sectors,whicharelargelybaseduponthelevelofgasdrillingactivityinPennsylvaniapriortoMarcellus.TheselikelyunderrepresentthenumberandtypeofsupportingbusinessesthathaveeitherexpandedormovedintotheCommonwealthduetoMarcellusactivity.Asaresult,ourestimatesoftheeconomic

impactsofgeneralspendingbythenaturalgascompaniesmayoverestimatetheamountofbusinessspendingleavingPennsylvania.

2. Workforce

Wagesandsalariespaidtonaturalgascompanyandsubcontractoremployeeshaveadditionaleconomic

impactsbecausetheseworkersspendtheirearningsonfood,housing,recreation,andotherhouseholdneeds.Thesizeofthesemultipliereffects,however,dependsuponwherethoseworkerslive,andthuswheretheyspendthosedollars.Thisdistinctioniscriticaltounderstandingthedegreeofeconomic

impactproducedbythedevelopmentoftheregion.Ifnaturalgascompanyemployeesmaintaintheirprimaryresidenceinthecommunitywherethedrillingisoccurring,orelsewhereinPennsylvania,workerswillbespendingasignificantamountoftheirwagesandsalarieswithintheCommonwealth,

resultinginadditionaleconomicimpactasthosedollarscirculatethroughtheeconomy.Iftheworkersarenon‐Pennsylvaniaresidents,someoftheirearningswillimmediatelyleavetheCommonwealthas

theysendwagesback‘home’tofamily.

Forthisstudy,theproportionofresidentandnon‐residentworkerswassetusingdatafromaMarcellusShaleEducation&TrainingCenteronlinesurveyofgascompaniesconductedin2010aspartofaworkforceneedsassessment(Brundageetal,2011).Theresponsesindicatedthat62.7percentofthe

workersarePennsylvaniaresidentsand37.3percentarenon‐residents.ThispercentagelikelyslightlyoverestimatestheactualpercentageofPennsylvaniaworkersin2009,andthusourresultslikelyslightlyoverestimatetheeconomicimpactofpayrollspending.

Totalcompanypayrollspendingin2009wasestimatedbytakingthe$66milliontotalpayrollin2008

reportedbyConsidineetal(2009)andadjustingitupwardsby40percent,basedupontheir2010reportthatcompanies’totalgasexpendituresincreasedbyabout40percentbetween2008and2009.Thistotalpayroll,includingbenefitsandtaxes,wasdividedbetweenPennsylvaniaandnon‐Pennsylvania



laborusingtheproportionsfromtheonlinesurvey.ThepayrollgoingtoPennsylvaniaworkerswasaddedtoIMPLANasnewtax‐adjustedhouseholdincome.Becausespendingpatternsdifferby

householdincome,weassumedworkerstypicallywereinthemedianfamilyoffourincomecategory(whichisabout$72,000ayear).1

Wegeneratedtwoscenariosaboutpayrollgoingtonon‐Pennsylvanians,inrecognitionthatworkersfromoutofstatesendsomeoftheirincomebacktotheirhomestatecommunity.Weranthemodel

undertheassumptionthatnon‐Pennsylvaniaworkersspend50percentoftheirMarcellus‐earningsinsidePennsylvania,andalternativelythattheyspend75percentoftheirearningshere.Becausenon‐residentworkerslikelyhavedifferentlocalspendingpatternsthantypicalresidentworkers,we

estimatedtheimpactsoftheirspendingusingalowerincomecategoryintheIMPLANmodelmoretypicalofrentinghouseholds.

B.LeasingandRoyalties

Notallleasingandroyaltydollarsareimmediatelyspentinthelocalorstateeconomy,sincesomeofthedollarsgotonon‐Pennsylvaniaresidents(andthusimmediatelyleavethestate),andmineralrightownerstypicallysaveatleastaportionofsuchdollarsforuseinlateryears.Inaddition,howdollarsare

spenthasimportantimplicationsforthateconomicimpact.TheCommonwealthofPennsylvaniaitselfisasignificantmineralrightowner,andthusisreceivingsignificantleasingandroyaltydollars.Itsuseofthesedollarsdiffersfromhouseholds,soithasitsowneconomicimpactwhichmustbeanalyzed

separately

WeusedGISanalysisandasurveyofhouseholdsreceivingleasingandroyaltyincometoestimatehowmanyleasingandroyaltydollarswenttoPennsylvaniahouseholds,howmanywenttothe

Commonwealth,andhowhouseholdsspentthosefunds.Eachofthesewillbeexplainedinturn.

1.GISAnalysisofOwnership

InPennsylvania,asinmostotherstates,surfacelandownersdonotnecessarilyownthemineralrightsundertheirland.Surfaceandmineralrightscanbesevered,andbeowned(andsold)separatelyfrom

eachother.ThisisrelativelycommoninareasofPennsylvaniawhichhistoricallyhaveexperiencedcoalminingandnaturalgasorpetroleumdevelopment.Manyoftheserightswereseveredgenerationsago

1Perthesuggestionofanoutsidereviewer,weconductedsensitivityanalysisonthe“incometype”ofhouseholdthatreceivestheroyaltypayments.Were‐rantheanalysisprovidingidenticalincomeshockstoIMPLANhouseholdincomecohortsimmediatelybelow($35,000‐$50,000)andabove($75,000‐$100,000)themediancohort.Theresultingdifferencesintotalemploymentimpactswereverysmall(lessthan10jobs)comparedtotheresultswhenweusedthemedianincomecategory.



whenresourcedevelopmentfirstbeganthere.Mineralrightscanbeownedbycompanies(suchascoalcompanies)orbyprivateindividuals.

Wecouldfindnopubliclyavailabledocumentationthattracksownershipofmineralrights,otherthanonadeed‐by‐deedbasis.Wetalkedwithseveralcountytaxassessors,andtheyconfirmedthattheywereunawareofanyresourcethatprovidesclearinformationaboutwhoownsmineralrights.Indeed,

thisiswhynaturalgascompaniesareconductingintensivedeedresearchoneachparceltheywanttolease.ThereisnoeasywaytoidentifywhatpercentageofmineralrightsareownedbytheCommonwealth,bycompanies,andbyprivateindividuals(muchlesswhatpercentageofthese

individualsareresidentsofthecounty,residentselsewhereinPennsylvania,orliveoutsidePennsylvania).

Unlikemineralrights,allcountygovernmentsmaintainactiverecordsofsurfaceownership,compiledsoitispossibletoclearlyandeasilyidentifyownersofparcelsandtoidentifyaggregatepatternsof

ownership.GISdataonlandownershipisavailableineachcountywithintheMarcellusregion,whichallowedustocalculatethepercentageoflandownedbythestateandbytheprivatesector.ForsixoftheprimaryMarcelluscounties(Bradford,Fayette,Greene,Lycoming,Tioga,andWashingtoncounties,

whichcollectivelyaccountedfor68percentofallPennsylvaniaMarcellusShalewellsdrilledfrom2007throughfall2010),availabledatafromtheConservationBiologyInstitute’sUnitedStatesProtectedAreasshapefileallowedustofurthersplitprivateownershippatternsintothepercentageofland

ownedbyresidentsofeachcounty,ownedbyresidentselsewhereinPennsylvania,andownedbypeoplelivinginotherstates.Weweightedthisinformationbyacreagetocalculateanaverageproportionalbreakdownofprivateownershippatternsandassumedthattheseproportionsappliedin

othercounties(seeTable2).



Table2.PercentofAcresinMarcellusCounties,byOwnershipType

PercentPublic

PercentPrivate

PercentPrivate,OwnedinCounty

PercentPrivate,Owned

ElsewhereinPA

PercentPrivate,

OwnedOut‐of‐State

CalculationsBasedUponGISAnalysis

AllcountieswithMarcellus 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%

PrivateOwnershipEstimatesbasedupontheGISAnalysisWeightedestimateforallcountieswithMarcellus* 50.6% 24.7% 7.7%

*Numbersdonotaddtothe‘PercentPrivate’ownershipduetoroundingerror

Weassumedthatleasingandroyaltydollarsaredistributedacrosslandownersbaseduponthese

ownershippercentages,eventhoughtheproductivityofindividualwellswillvary,andactualleasevaluesandroyaltypercentagesvarybaseduponwhenmineralrightownerssignedandhowwelltheywereabletonegotiate.Thisshouldnotmakeadifferencefortheoverallimpactsofhousehold

spending,butitdoesmeanthatthestudylikelyoverestimatestheamountofdollarsgoingtosuchhouseholdsandunderestimatestheamountgoingtothestate,sincetheCommonwealthhasbeenabletonegotiatebetterleasingtermsthanmanymineralrightowners.



2.SurveyofLandowners

Howleasingandroyaltydollarsarebeingspentwasestimatedthroughahouseholdsurveywesentto

1,000landownerslocatedwithinonethousandfeetofactiveMarcelluswellsinPennsylvania’sBradfordandTiogacounties.Inbothcounties,mostlandownersdoowntheirmineralrights,makingitpossibletouselandownershiprecordstocontactmineralrightowners.WeidentifiedthelandownersusingGIS

propertyrecordsanddrewa1,000footradiuscirclearoundactivewellsinthetwocountiesusingthewells’longitudeandlatitudeinformationlistedinPennsylvaniaDepartmentofEnvironmentalProtectionreports.Onethousandlandownerswererandomlyselectedfromthislist,andtheyweresentpaper

surveysinthefallof2010.Thesampleincluded516landownersfromBradfordCountyand484fromTiogaCounty.Twofollowupremindersweresenttonon‐responders.

Surveyswerereceivedbackfrom501landowners,foraresponserateof50.1percent.Surveyswerereturnedfrom23peoplewhosaidtheiroilandgasrightshadnotbeenleasedfornaturalgasdrillingin

theMarcellusShale;theiranswersweredroppedfromtheanalysis.Thefinalbreakdownofresponseswas254fromBradfordCounty,and224fromTiogaCounty.

i.WheretheOwnersLive

About71percentoftheBradfordCountylandwasownedbyrespondentswhoseprimaryresidencewasinthatcounty,and65percentoftheTiogaCountylandwasownedbyrespondentswhoseprimaryresidencewasinthatcounty.About6percentoftherespondentsreportedthattheirprimaryresidence

wasoutsideofPennsylvania,withthemostcommonstatesbeingNewJersey(10respondents),NewYork(6respondents),andFlorida(5respondents).Thepercentageoflocallandownersdiffersfromthecounty‐wideGISanalysisoflandownership,butitisn’tclearifthedifferenceisduetoresponsebias

(e.g.BradfordandTiogacountyresidentsweremorelikelytorespondtothesurveythanwereownerslivingoutsidethecounty),iftheownershippatternsaroundtheactivewellsinthosecountiesarenotrepresentativeofpatternsacrosseachcounty,orifnon‐countyresidentstendtoownlargerparcels

thanlocalresidents.

ii.DollarsReceivedforLeasing

Theamountofleasingdollarsreceivedperacrevarieddramaticallyamongstlandowners,rangingfrom

$1peracreto$5,750peracre.Equalpercentagesoflandownersreportedreceivingeitherlessthan$50peracreorfrom$1,000to$3,000peracre(about30percent,respectively).ThesepercentagesareaboutequalacrossbothBradfordandTiogacounties.Themajorityofthelessthan$50peracreleases

weresignedin2006,whilethemajorityofthe$1,000to$3,000peracreleasesweresignedin2008.About70percentoftheleasesreceivingover$3,000peracreweresignedin2009.



iii.UseofLeasingandRoyaltyDollars

Fourhundredandtwelveoftherespondentshadleasedtheirlandfornaturalgasdrilling(ratherthana

priorownerhavingdoneso).Thevastmajorityreceivedtheirleasepaymentasaone‐timepayment,withonly15percentreceivingthepaymentsplitovermultipleyears.Ofthoselandownersleasingtheirrights,161respondentshadreceivedroyaltyincome,withthevastmajorityreceivingroyalties(73

percent)reportingtheyreceived$25,000orlesssofar.Abouttenpercentofrespondentsreportedreceiving$100,000ormoreinroyalties,andfour(2percent)saidtheyhadreceived$250,000ormoreinroyalties.Manyoftheparcelswhichhadbeenleasedbypriorownershadbeenleaseddecades

previously.

Whenweightedbytheamountofdollarseachlandownerwaspaid,about55percentofthetotalleasingdollarsweresavedintheyeartheywerereceived(seeTable3),ratherthanbeingimmediatelyspent.About66percentofalltheroyaltydollarsweresimilarlysavedforthefuture.Othercommonuses

includedpayingstateandfederaltaxes(17percentofleasingdollars),purchasingvehicles(9percentofleasingdollars),andrealestate(5percentofleasingdollars).Otherthanthestateandfederaltaxes,thesearenottypicalconsumerspending,indicatingthathouseholdsreceivingleaseandroyaltydollars

areusingthesedollarsdifferentlythannormalincome.

Table3.MineralRightOwners’UseofLeasingDollars

Sectors TotalSpent %

ConsumerGoods $4,738 0.2%Food $229 0.01%

Farming $103,191 4.36%MotorVehicles $213,658 9.02%

HealthServicesandInsurance $38,977 1.65%

Investments,Savings,&Finances $1,307,501 55.19%NewBuildingConstruction/HomeImprovements $41,561 1.75%

RealEstate $122,100 5.15%

Taxes $415,130 17.52%Vacations,Travel,&Entertainment $8,430 0.36%

Other $113,387 4.79%

Total $2,368,902 100.00%

N=42

Thespendingon‘farming’reflectsthatmuchoftheleasingandroyaltydollarsaregoingtofarmers,whichisnotsurprisinggiventhatfarmersownasignificantproportionofPennsylvania’sland.Suchspendingisconsistentwithanecdotesandwrittencommentsinthesurveythatmanyfarmersareusing

Marcellusdollarstobuynewtractors,fixbarns,andbuildnewstructures.



WeestimatedtheimpactsofhouseholdspendingbyincreasinghouseholdexpendituresusingthecategoriesidentifiedinTable3.WesubsequentlyaggregatedtheIMPLANsectorsrepresentingeachof

thebroaderspendingcategories.WeapplieddefaultIMPLANmarginstotheconsumergoods,food,automotive,andhealthservicescategory.Forfarmspending,withinIMPLANweseparatedouthardexpenses(machineryandbuildings)fromoperatingexpensesandcalculatedtheratioofmachineryand

buildingexpensestooperatingexpenses,whichwasabout2:1.Wethenusedthisratiotoallocatefarmspendingbetweenthesetwocategoriesoffarminvestments.

Fromaneconomicimpactperspective,spendingon‘realestate’primarilyinvolvessimplyshifting

existingassetsbetweenownersratherthancreatingneweconomicvalue.Thecommissionspaidtorealtors,financingcosts,deedsearches,andothercostsassociatedwithbuyingandsellingrealestatedohaveaneconomicimpact,however,sincethesearepaymentsforservices.Forthisstudy,we

assumedthat10percentofthespendingonrealestatewentforsuchcommissionsandactivities,andtheremaining90percentwassimplyatransferofexistingassetsbetweenowners.Improvementstorealestate,suchasnewbuildingconstructionandhomeimprovements,alsohaveaneconomicimpact,

sincethesearespendingtocreateassets,butthiswasaseparatecategoryinthesurveyandwasincludeddirectlyintheanalysis.

3.AllocationofLeasingandRoyaltyDollarsintheStudy

WeallocatedleasingandroyaltydollarswithinthestudybasedupontheGISandsurveyanalysis.For

thepurposesofthisstudy,weassumedthatmineralrightownershippatternsareidenticaltolandownershippatterns,butwebelievethatthislikelyoverestimatestheamountofleasingandroyaltydollarsgoingtoPennsylvaniansandthustheeconomicimpactofsuchdollars.Manyoftheserights

wereseveredgenerationsagoandhavesubsequentlybeenpasseddownthroughfamilies,splinteringintomultipleownershipacrosschildrenandgrandchildren.Giventherelativelyhighamountof

outmigrationfromPennsylvaniaoverthepastdecades,itisexpectedthatmanyofthecurrentmineralrightownersdonotliveintheCommonwealth.

Becauseoftheuncertaintyabouthowmineralrightownershipvariesfromsurfacerightownership,weestimatedtwoscenariosabouttheimpactsofleasingandroyaltypaymentsonprivatepropertyowners.

ThefirstscenariousedtheGISanalysisaboutout‐of‐statelandownershiptoassumethat7.7percentofallleasingandroyaltypaymentsgotonon‐Pennsylvaniaresidents(asinTable2),whilethesecondscenarioassumedthat15.4percentofallthosepaymentsgoout‐of‐state.

TheGISanalysisindicatedthatseventeenpercentoflandinPennsylvaniacountieswithMarcellusisownedbythepublicsector,whichprimarilyistheCommonwealth.Intheanalysis,wethusallocated17percentofallleasingandroyaltydollarsdirectlytothestate.Weassumedthatthesedollarswent

directlyintotheGeneralFundandwerespentthesamewayasotherGeneralFundmonies.ThisassumptionoverestimatesthecurrenteconomicimpactoftheleasingandroyaltydollarstheCommonwealthisreceivingbecausemanyofthosedollarsareinsteadgoingintotheOilandGasFund,



orsimilarsavingsfundsmanagedbythePennsylvaniaGameCommissionorotheragencies,andthuswerenotspentin2009.

Weestimatedtheimpactofleasingdollarsbyincreasinghouseholdexpendituresinthespendingcategoriesidentifiedfromthehouseholdsurvey.Incometherespondentssaidtheypaidintaxeswasallocatedbetweenfederalandstatetaxesbasedupontheratioofindividualfederalincometaxespaid

byPennsylvanians(InternalRevenueService)andpersonalincometaxcollectionsreportedbythePennsylvaniaDepartmentofRevenue.MostlocalmunicipalitiesandschooldistrictsinPennsylvanialevyanearnedincometax,butsinceleasingdollarsarenotsubjecttothattax,wedidnotincludeitinthe

ratio.Accordingtothesecalculations,about18percentoftotalpersonalincometaxespaidinPennsylvaniawenttotheCommonwealthwiththeremaindergoingtotheFederalgovernment.Wedividedstatetaxpaymentsbetweennon‐educationstategovernmentspendingandeducationstate

spendingusingtheactualproportionsofGeneralFundspendingin2009‐2010(63percentand37percent,respectively)(CommonwealthofPennsylvania,2009).BecausethespendingdetailfromthelandownersurveydoesnotmatchupwellwithaggregatedIMPLANspendingcategories,thescenario

hadtoberuninIMPLAN’sdisaggregatedmodel,whoselevelofdetailisdifficulttoincludeinareport.Wethusonlypresentthetotaleffectsratherthanallthedetail.

Surveyrespondentsindicatedthattheysavedabout66percentoftheroyaltydollarstheyreceived.Savingsgenerateaminoramountofneweconomicactivityforthefinancialfirmshandlingthefunds,so

inouranalysisweassumedthatsavingswouldgenerateservicefeesof1.5percent,generatingnewactivitywithinthefinancialservicessector.Forty‐tworespondentscompletedthequestionaboutthepercentageofroyaltyincometheyspentintheyeartheyreceivedthosedollars,butonly10completed

thedetailedquestionsaboutwheretheyactuallyspentthose34percentofroyaltydollars.Duetothisrelativelysmallnumberofresponses,weestimatedtheimpactoftheroyaltydollarsrespondentsspent

in2009byincreasinghouseholdincomeinthemedianincomehouseholdspendingcategoryforPennsylvania.

C.LocalBusinessEffects

IMPLANestimatesthesecondaryeconomicimpactsacrossalleconomicsectorsbyextrapolatingfrom

economicrelationshipswithinthemodel.Asameansofverifyingwhethersuchsecondaryimpactsareoccurring,aspartofthisstudywesurveyed1,000businessesinbothBradfordandWashingtoncounties(foratotalof2,000businesses).Businesseswererandomlyselectedusingacommerciallyavailablelist

ofactivebusinesseshavinganofficeorlocationphysicallywithinthecounty.BradfordCountywasselectedbecauseithasexperiencedthemostMarcellusdrillingactivityofanyPennsylvaniacountythroughtheendof2010,with482wellsdrilledsince2008(and355ofthesein2010).Washington

CountywasselectedbecauseithasexperiencedthethirdhighestamountofMarcellusdrillingactivityandthemostofanycountyinsouthwestPennsylvania.Thecountyhashad305Marcelluswellsdrilledsince2008,with135in2010.Becauseofthesignificantpopulationsizedifferencebetweenthetwo

counties(60,384residentsinBradfordCountyin2009,accordingtotheU.S.Census,comparedto



200,505inWashingtoncounty),weexpectedthatbusinessimpactswouldbemorevisibleinBradfordCountythaninWashingtonCounty.

ThepapersurveywasmailedtobusinessownersorlocalbranchmanagersduringOctober2010,andtwofollow‐upremindersweresenttonon‐responders.Surveyswerereceivedbackfrom619businesses,foraresponserateof31percent.Thisincluded360responsesfromBradfordCountyand

259fromWashingtonCounty.Surveyswerereturnedfrom82peoplewhosaidtheydidnotownormanagethebusiness;theiranswersweredroppedfromtheanalysis.Theoverallresponsesweregenerallyconsistentwiththeactualbusinesscompositionofeachcounty’seconomy,sotheyare

representativeofactualconditions.

1.BusinessImpacts

One‐thirdofalltheBradfordCountybusinessessaidthattheirsaleshaveincreasedduetodrillingactivity,andonly3percentreportedthatsaleshaddeclined.About23percentoftheWashington

Countybusinessesreportedincreasedsales,andonly2percentreporteddecreasedsales.(SeeTable4)

Table4.ChangesinBusinessActivityPercent(number)responding“yes”

Allresponses BradfordCounty

WashingtonCounty

Haveyourbusinessactivitieschangedduetonaturalgasdrilling?

17%(89) 22%(70) 9%(19)

Haveyourannualsaleschangedduetonaturalgasdrilling?

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).EightypercentofthehotelsandcampgroundsinBradfordCountyreportedthattheirbusinessactivityhaschangedduetonaturalgasdrilling,and100percentreportedhighersales.Construction(35percent),transportation(30percent),

eatinganddrinkingplaces(29percent),andwholesaletradeandfinancialservicesfirms(both28percent)inBradfordCountysimilarlyweremorelikelytoreportchangesinbusinessactivitythanwereotherbusinesstypes.HalfofthefinancialbusinessesinBradfordCountyreportedhighersalesdueto

naturalgasactivity,asdid44percentofretailtrade,38percentofeatinganddrinkingplaces,and33percentofwholesaletradeandbusinessservicesestablishments.



Table5.ChangesinBusinessActivitybyBusinessType

Haveyourbusinessactivitieschangeddueto

naturalgasdrilling?

Haveyourannualsalesincreasedduetonatural

gasdrilling?Percent(number)saying

“yes”Percent(number)saying

“yes”

BusinessTypeBradfordCounty

WashingtonCounty

BradfordCounty

WashingtonCounty

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,Utilities

30%(3) 0% 22%(2) 0%

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)

Thedifferencesbetweenthetwocountiessuggestthateconomicimpactsaremuchmorevisibleinsmallerthaninlargercommunities.BusinessesinBradfordCountytypicallyweremorelikelytoreportimpactsassociatedwithMarcellusactivitythanwerebusinessesinWashingtonCounty.Thoughwedid

notattempttoplacedollarvaluesonthesesurveyresponses,theresultsconfirmindependentlyfromIMPLANthatmanylocalbusinesses,irrespectiveofsector,areexperiencingsalesincreasesduetoMarcellusactivity.Naturalgascompany,worker,andmineralrightownerspendingrelatedtoMarcellus

ShaleisbroadlyaffectinglocaleconomiesinPennsylvania.

D.LocalGovernmentEffects

IMPLANcanestimatetheimpactofeconomicactivityonstateandlocaltaxcollections,andthissometimesisreportedwitheconomicanalysis.Yetwithinacademiccircles,theassumptionsand

methodIMPLANusestomakethesetaxestimatesisrecognizedaspotentiallyoverlystrong,particularlyrelatedtoindirectandinducedeffects,sosomeanalystschoosetonotuseorreportthisinformation.

Becauseoftheseconcerns,welikewisedidnotestimatestateorlocaltaximplicationsaspartofthisstudy. Asanalternative,wesurveyedmunicipalgovernmentsinPennsylvaniacountieswithMarcellusShaleactivitytoaskthemdirectlyhowtheirtaxrevenuesarebeingaffectedbygasdevelopment.We



alsoaskedthemhowtheirservicesandcostshavechanged,becausenewtaxrevenuesmustbecomparedtonewcoststomorecompletelyunderstandtheimpactonlocalgovernments.

Thesurveyincludedalltownships,boroughs,andcitiesinBradford,Clinton,Fayette,Greene,Lycoming,Somerset,Sullivan,Susquehanna,Tioga,Washington,Westmoreland,andWyomingcounties,whichtotaled494jurisdictions(seeMap1).Atthetimeofthestudy,thesecountiesaccountedfor76percent

ofalltheMarcellusShalewellsthathaddrilledinPennsylvaniafrom2008untilfall2010.ApapersurveywassenttotheChairoftheTownshipSupervisorsorBoroughorCityCouncilPresidentineachmunicipalityduringfall2010,andafollowuppostcardandsubsequentletterweresenttonon‐

respondents.Responseswerereceivedfrom293ofthesemunicipalgovernmentsforanoverallresponserateof59percent.

Ofthe293responses,131reportedthatMarcellusdevelopmentactivityisoccurringwithintheir

jurisdiction.Suchactivityincludeddrilling,butcanincludepipelineconstruction,majortrucktraffic,pipeyardsorotherstagingareas,workerhousing,orotherMarcellus‐relatedactivity.Ofthesemunicipalitiesdirectlyexperiencingdevelopmentactivities,about75percentsaidthatMarcellusShale

developmenthadnotaffectedtheirtaxornon‐taxrevenue.About18percentsaidthatrevenueshadincreased,andonereportedrevenueshaddecreasedduetoMarcellusdevelopment.Another6percentdidnotknowhowrevenueshadchanged.

Thelevelofdrillingactivitydoesnotseemcloselyrelatedtowhetheramunicipalityreportedhigherrevenues(seeTable6).Thereweredifferencesbetweenmunicipalitiesbaseduponthenumberofwellsbeingdrilled,butduetotherelativelysmallnumbersinsomecategories,thesedifferencesarenot

significantandshouldbeviewedwithcaution.Ofthe23municipalitiesreportinghigherrevenues,only5

Map1.MunicipalGovernmentSurveyCounties



saidtheirEarnedIncomeTaxcollectionshadincreased,5reportedhigherRealPropertyTaxcollections,and3reportedtheLocalServicesTaxhadincreased.Anadditionalfivereportedhigherpermitfee

collections.

Table6.MunicipalRevenuesandLevelofDrillingActivity

HasdevelopmentordrillingofMarcellusShaleaffectedthetaxornon‐taxrevenuesyourmunicipalityreceives?Percent(number)responding

DrillingActivityinMunicipality Nochange

RevenuesIncreasedOverall

RevenuesDecreasedOverall 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)

Thenumberofmunicipalitiesreportinghigherearnedincomeandlocalservicestaxcollectionsseemsunusuallylow,sincehigheremploymentinthesetownshipstodrillthewellsshouldincreasethenumberofworkersandresidentsowingbothtaxes.Thelowresponsesmaybeoccurringforseveral

reasons,includinghowtaxesarepaidwhenemployeesworkinmultiplemunicipalities,thatnotallmunicipalitieslevythesetaxes,orproblemswithwithholdingandsubmittingthetaxes.Theycouldalsooccurifthelocalofficials’perceptionswereinaccurate.

Statelawspecifiesthattaxpayersworkinginmultiplemunicipalitiesonlypaythesetwotaxesinonemunicipality,ratherthanineachmunicipalitywheretheywork.Earnedincometaxispaidtothemunicipalitywherethetaxpayerlives,regardlessofwheretheywork,unlesstheyworkinPhiladelphia

orunlessthatjurisdictiondoesnotlevythetax(inwhichcaseitispaidtothejurisdictionwheretheyprimarilywork),andtheLocalServicesTaxalsoispaidtotheirprimarilyplaceofoccupation.Becausenaturalgasdevelopmentworkmovesfrequentlyfromsitetosite,withoutregardformunicipal

boundaries,manycompanyemployeestypicallyworkinmanydifferentmunicipalitieseachyear.OnlyonewillreceivetheirEarnedIncomeTaxandLocalServicestaxpayments.Thelocaltaximpactsclearlyrequiremorestudytoclarifywhatisoccurringandwhy.Regardlessofthecause,thelownumbersof

municipalofficialsreportinghighertaxrevenuesindicatethatthemajorityofmunicipalitieswheredrillingisoccurringbelievetheyarenotreceivingmoretaxrevenuesasaresultoftheactivity.

Taxesareonlyonehalfofthepotentialfinancialimpactonlocalgovernments.Equallyimportantare

theimpactsonlocalservicesandonlocalgovernmentexpenditures.About67percentofthe131municipalitiesexperiencingMarcellusactivitysaidtheservicestheyprovidehavenotchanged.About28percentreportedtheirserviceshaveincreasedduetonaturalgasdevelopmentactivityand4percent

(5municipalities)saidtheirserviceshavedecreasedoverallduetoMarcellusdevelopmentactivity.Thesurveydidnotaskaboutthesizeofsuchincreasesordecreases,sowearenotabletodescribehow



significantthesechangeswere.Allmunicipalitieswhohadtoincreaseservicesidentifiedroadsasbeingaffectedand13(10percentofallthe131municipalities)saidbuildingandcodeenforcementhad

increased.Fourpercentsaidpoliceserviceneedshadincreased,asdid2percentwhocitedfireandemergencyservices.Thelatterrelativelylowpercentagelikelyreflectsthatfewmunicipalitiesthemselvesdirectlyprovidefireandemergencyservicesandinsteadrelyuponvolunteers,sotheyeither

maybeunawareofsuchchangeorconsidersuchchangesasnotaffectingtheirlocalgovernment.

Ofthemunicipalitiesindicatingtheneedformunicipalserviceshaddecreased,foursaidthatmunicipalroadserviceshaddecreased,andonesaidtheneedforvegetationcontrolhaddecreased.Theroad

serviceresponseslikelyreflectthatgascompaniesarerepairingandrebuildingroadsinaffectedcommunities,andsotheneedforthemunicipalityitselftodosuchrepairsinthesefourjurisdictionshasdecreased.Thereareserviceneeddifferencesbetweenthemunicipalitiesbasedupontheamountof

drillingactivity(seeTable7),butthesedifferencesarenotsignificant.

Table7.MunicipalServicesandLevelofDrillingActivity

HasdevelopmentordrillingofMarcellusShaleaffectedtheservicesyourmunicipalityprovides?Percent(number)responding


ServicesProvidedHaveIncreased

Overall

ServicesProvidedHaveDecreased

Overall Don’tKnowNowells 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’stotalexpenditureshadnotbeenaffectedbythegasdevelopment.Twenty‐sixpercentsaidexpenditureshadincreasedoverall,andonereportedthatexpenditureshaddecreased.Threeofthemunicipalities(2

percent)didnotknowhowgasdevelopmenthadaffectedtheirexpenditures.Mostoftherespondentsreportinghigherexpenditurescitedgreaterroadmaintenancecosts,andindeed,thiswas22percentofallthemunicipalitieswithMarcellusactivity.Higherspendingonclericalservices(8percentofall

municipalities),permittingandcodeenforcement,legalservices(both3percent),andpolice(2percent)werealsomentionedbyrespondents.Therewerenoclearpatternsofexpenditureswhenanalyzedbythelevelofdrillingactivity(seeTable8).



Table8.MunicipalExpendituresandLevelofDrillingActivity

HasdevelopmentordrillingofMarcellusShaleaffectedyourmunicipality’stotalexpenditures?Percent(number)responding


ExpendituresIncreasedOverall

ExpendituresDecreasedOverall 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

occurbecausedrillingisonlyoneofmultipleactivitiesrelatedtoMarcellusthatcanaffectmunicipalbudgets.Priortoawellbeingdrilled,significantworkmustbedoneconductingseismicandotherstudies,obtainingpermits,creatingaccessroadsandwellpads,andcreatingstagingareasfor

companiesandworkers.Theseoftenoccurinneighboringmunicipalities,ratherthandirectlywherethedrillingistakingplace.Inaddition,trafficandpipelinesbynecessitycrossmunicipalboundaries.The‘perwell’focusinTables6,7,and8thusmaybetoonarrowtoadequatelyrepresentthelevelof

Marcellusactivityinacommunityandthusitsimpactonthelocalgovernment.

IV.EconomicImpactResults

BelowwediscusstheresultsfromeachtypeofeconomicimpactfromMarcellusShaledevelopmentand

thenreporttheoverallestimatedeconomicimpact.DetailedtablesforeachappearintheAppendix.Itisimportanttonotethattheseimpactsarethoseestimatedtohaveoccurredin2009duetoactivitiesinthatyear,nottheoverallimpact,whichwilloccurinsubsequentyearsasdollarssavedin2009laterare

spent.

Thedirectimpactsrepresentthedirectincreaseinthenumberofjobsduetothespendingbynaturalgascompanies,includinglandmen,geologists,roustabouts,governmentrelationsspecialists,andother

companyemployees.TheindirectimpactsmeasuretheadditionaljobsandoutputgainedinthosesectorsfromwhomthenaturalgasindustrycontractsorpurchasestodevelopMarcellusShale,suchasseismicandwellcompletioncompanies,truckingandconstructioncompanies,gasprocessing,andeven

janitorialservices.Inducedimpactsmeasuretheadditionaljobsduetoanincreaseinhouseholdandgovernmentexpenditures.Thetotaleconomicimpactisthecombinationofthesedirect,indirect,andinducedeffects.



Employmentisthenumberofjobscreatedasaresultoftheactivity.LaborIncome(sometimesreferredtoas“EmployeeCompensation”)inIMPLANistotalpayrollcostpaidbytheemployer,includingwages

andsalary,allbenefits,andpayrolltaxes.TotalOutputisthevalueofindustryproduction,whichissalesminusinventorychangesformanufacturers,totalsalesforservicesectors,andgrossmarginforretailandwholesaletrade.ValueAddedisthedifferencebetweentotaloutputandthecostofinputs,soin

manywaysisthebestmeasureofoveralleconomicimpact.

A.CompanySpendingandPayroll

Naturalgascompanyspendinghasimpactonbothgeneralspendingonpurchasesandservices,and

spendingontheworkforceviapayroll.Basedupontheamountofnon‐payrollindustryspendingin2009reportedbyConsidine(2010),weestimatethatthetotalemploymenteffectwas13,626jobs.Thisincluded6,741Pennsylvaniajobsdirectlywithinthemajorgascompaniesandanadditional6,885

indirectorinducedjobs(seeTable9).

Table9.EconomicImpactofNaturalGasCompanyNon‐PayrollSpending,2009ImpactType Employment LaborIncome ValueAdded OutputDirectEffect 6,741 $398,405,378 $626,335,174 $1,200,667,093IndirectEffect 2,631 $146,829,148 $250,664,416 $428,097,138InducedEffect 4,254 $184,097,066 $316,891,277 $517,027,001TotalEffect 13,626 $729,331,592 $1,193,890,867 $2,145,791,232

Spendingbytheseworkerscreatedanadditional704or817jobs,dependinguponhowmuchnon‐

PennsylvaniaworkersspendwithintheCommonwealthorsendhometotheirstateofresidence(seeTable10).

Table10.EconomicImpactofNaturalGasCompanyPayroll,2009

ImpactType Employment LaborIncome ValueAdded Output

If50percentofnon‐residentemployeeincomestaysinPATotalEffect 704 $30,955,834 $52,988,161 $86,952,840If75percentofnon‐residentemployeeincomestaysinPATotalEffect 817 $34,850,239 $59,674,181 $97,772,457



B.LeasingandRoyalties

LeasingandroyaltydollarsbeingpaidbythegascompaniesasaresultofMarcellusShaledevelopment

inPennsylvaniaprimarilygototheCommonwealthofPennsylvaniaandtoprivatehouseholds.Wediscusstheestimatedimpactofeachinturn.

1.PennsylvaniaGovernment

LeasingdollarsreceivedbytheCommonwealthofPennsylvaniasupportedapproximately5,409total

jobsin2009(seeTable11).Thisincludedapproximately$268millionintotalwagesand$477millionintotaloutput.RoyaltydollarstotheCommonwealthwereestimatedtohavesupportedabout171totaljob,andalmost$16millionintotaloutput(seeTable11).Inreality,theseimpactsin2009likelywere

lowerbecausetheCommonwealthsavedsomeoftheseleasingandroyaltydollarsforfutureuse.

Table11.EconomicImpactofLeaseandRoyaltyPaymentstoStateGovernment,2009

LeasePaymentstoStateGovernment,2009ImpactType Employment LaborIncome ValueAdded OutputDirectEffect 3,718 $193,319,220 $227,647,326 $259,010,759IndirectEffect 203 $9,640,917 $15,046,706 $26,648,423InducedEffect 1,488 $64,765,566 $114,898,509 $191,686,833TotalEffect 5,409 $267,725,703 $357,592,541 $477,346,015

RoyaltyPaymentstoStateGovernment,2009ImpactType Employment LaborIncome ValueAdded OutputDirectEffect 118 $6,366,637 $7,497,164 $8,723,184IndirectEffect 6 $317,495 $495,519 $883,007InducedEffect 47 $2,132,939 $3,783,978 $6,302,518TotalEffect 171 $8,817,071 $11,776,661 $15,908,709



2.PennsylvaniaHouseholds

TheleaseandroyaltydollarsreceivedbyPennsylvaniahouseholdssimilarlygeneratednewjobsand

greatereconomicoutput.Ourestimatesrangedfrom3,360to3,733newjobscreatedbyleasingdollarsreceivedin2009,dependingupontheassumptionaboutout‐of‐statemineralrightownership(seeTable12),andbetween114and127newjobscreatedbytheroyaltydollars.Sincenotmanywellswereon‐

lineduring2009,itwouldbeexpectedthattheamountofroyaltyincomegoingtohouseholdswillincreasesignificantlyinlateryears,andthusthenumberofjobswillincrease,whilejobscreatedduetoleasingwilldeclineasleasingactivitywanes.

Table12.EconomicImpactofLeaseandRoyaltyPaymentstoPennsylvaniaHouseholds,2009LeasePaymentstoPennsylvaniaHouseholds,2009


If15.4percentofmineralrightsareownedout‐of‐state

DirectEffect 1,939 $97,098,174 $129,963,234 $213,731,744IndirectEffect 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 $128,546,689TotalEffect 3,733 $178,910,105 $264,929,048 $443,230,504

RoyaltyPaymentstoHouseholds,2009


If15.4percentofmineralrightsareownedout‐of‐state

TotalEffect 114 $5,006,261 $8,605,902 $14,088,728

If7.7percentofmineralrightsareownedout‐of‐stateTotalEffect 127 $5,575,826 $9,585,000 $15,691,609



C.OverallEconomicImpact

1.TotalImpact

TheestimatedtotaleconomicimpactofMarcellusShaledevelopmentactivityinPennsylvaniain2009

rangedbetween23,385and23,884jobsand$3.1and$3.2billion(seeTable13).Thisincludedabout$1.2billioninlaborincomeandalmost$1.9billionintotalvalueadded.WedidnotestimatetaximpactsofMarcellusShaleactivitybecausewewerenotcomfortablewiththereliabilityofIMPLAN’stax

analysis.

Table13.SummaryofEconomicImpactsandTotalEconomicImpact,2009


SummaryofEconomicImpactsNaturalGasCompanyNon‐PayrollSpending 13,626 $729,331,592 $1,193,890,867 $2,145,791,232

NaturalGasCompanyPayroll

704–817

$30,955,834‐$34,850,239

$52,988,161‐$59,674,181

$86,952,840‐$97,772,457

LeasePaymentstoStateGovernment

5,409 $267,725,703 $357,592,541 $477,346,015

RoyaltyPaymentstoStateGovernment

171 $8,817,071 $11,776,661 $15,908,709

LeasePaymentstoPennsylvaniaHouseholds

3,360–3,733

$161,019,095‐$178,910,105

$238,436,143‐$264,929,048

$398,907,454‐$443,230,504

RoyaltyPaymentstoPennsylvaniaHouseholds

114–127

$5,006,261‐$5,575,826

$8,605,902‐$9,585,000

$14,088,728‐$15,691,609

TotalEconomicImpactLowerBound:if50%ofnon‐residentemployeeincomestaysinPAand15.4%ofmineralrightsareownedout‐of‐state

TotalEconomicImpact 23,385 $1,202,855,556 $1,863,290,275 $3,138,994,978

UpperBound:if75%ofnon‐residentemployeeincomestaysinPAand7.7%ofmineralrightsareownedout‐of‐state

TotalEconomicImpact 23,884 $1,225,210,536 $1,897,448,298 $3,195,740,526



2.Multiplier

Theeconomicmultiplierweestimatedvariesbetweenthesetwoscenarios,rangingfrom1.86to1.90,

dependinguponnon‐residentworkerspendingandmineralrightownershippatterns.Ourresultssuggestthatforevery$1inMarcellusindustryspendinginthestatebetween$1.86and$1.90intotaleconomicoutputisgenerated.

3.EconomicImpactonaPerWellBasis

Thetotaleconomicimpactsin2009,dividedbythenumberofwellsdrilledin2009,suggestthateachnewMarcelluswellgenerated30jobsinPennsylvaniaduring2009andaround$4millionintotaloutputwithinPennsylvania’seconomy(seeTable14).Thisincludesthejobscreatedbydirectgasindustry

spendingandindirectlythroughthecompanieswithwhomtheycontract,byworkerspendingofearnings,andbymineralrightownerspendingofleasingandroyaltydollars.ThisestimatelikelywillchangeastheMarcellusplaydevelopsandtheproportionofleasingincomedeclineswhileroyalty

incomeincreases.TheestimateisconsistentwiththeBrundageetal.studiesofperwellworkforceneeds,whichsuggestapproximately13fulltimejobsarecreatedperwell.Unlikethoseworkforceneedstudies,thiseconomicimpactanalysisincludestheemploymentimpactsresultingfromleasingand

royaltyincome,andindirectandinducedemploymentoccurringfromworkerspendingwithinthelocaleconomy.

TheeconomicimpactswithinanyindividualPennsylvaniacountyorcommunitywillbemuchlessona

perwellbasisbecausealargershareofthebusinessspending,payroll,andleasingandroyaltyincomewillgooutsidethoseboundariesthanoccursatthestatelevel.OurGISanalysissuggeststhatanaverageofonly51percentoflandinMarcelluscountiesisownedbyresidentswithineachcounty,

whichmeansabouthalfofleasingandroyaltydollarsimmediatelyleavethecommunity.Yetassuggestedbythesurveyoflocalbusinesses,theeconomicactivitylikelywillbemuchmorevisibleinsmallcommunitiesduetothescaleandsizeofMarcellusdevelopmentactivity.

Table14.TotalEconomicImpactbyWell,2009

ImpactType Employment LaborIncome ValueAdded OutputLowerBound:if50%ofnon‐residentemployeeincomestaysinPAand15.4%ofmineralrightsareownedout‐of‐state

TotalEconomicImpact 30 $1,532,300 $2,373,618 $3,998,720

LowerBound:if75%ofnon‐residentemployeeincomestaysinPAand7.7%ofmineralrightsareownedout‐of‐stateTotalEconomicImpact 30 $1,560,778 $2,417,132 $4,071,007



V.Discussion/Implications

ThestudyresultsindicatethatdevelopmentofMarcellusShaleinPennsylvaniaishavingsignificant

employmentandincomeeffectsinPennsylvania.Weexaminedtheimpactsin2009,asdrillingactivitybegantoincreasesubstantiallyintheCommonwealth,soitwouldbeexpectedthattheeconomicimpactsareevengreatertodayastheindustryactivityhasgrown.Atotalof785Marcelluswellswere

drilledin2009,andthisnumberincreasedby85percentto1,445newwellsin2010(PADEP).Iftheper‐welleconomicimpactsfrom2009areconsistentwiththeimpactsin2010,thiswouldsuggestthatthetotalemploymentimpactofMarcellusShaleactivityinPennsylvaniain2010wasaround44,000jobs

(thisnumberincludesthe23,000plusjobssupportedin2009).

TheeconomicimpactresultingfromMarcellusShaledevelopmentactivityin2009willbespreadovermultipleyears,ratherthanalloccurringin2009,becauseoursurveyofhouseholdsindicatedtheyaresavingmorethanhalfoftheirleaseandroyaltydollarsforlateruse.Ourestimatesfocusonlyonthe

economicimpactactuallyoccurringwithin2009duetodrillingactivityinthatyear.Howmuchimpactthesesaveddollarshadin2010andwillhaveinfutureyearsdependsuponhowquicklythehouseholdsspendthosedollarsandhowmanyofthosedollarsarespentinPennsylvania(forexample,ifsome

landownersaresavingthemoneytoretireinFlorida).TherehasbeensomeconcernthatMarcellusShaledevelopmentcouldbeaboom/bustcycle,similartowhatPennsylvaniaexperiencedwithpriornaturalresource‐basedeconomicdevelopment.Thefactthathouseholdsaresavingasignificant

portionoftheirleasingandroyaltydollarsshouldhelpspreadtheeconomicimpactsacrossmultipleyears,irrespectiveofdrillingactivity,helpingsomewhatreduceanyboom/bustphenomenon.

Theseresults,likeothereconomicimpactstudies,dependcriticallyupontheassumptionsusedinthe

analysis.Ourestimatesoftheeconomicimpactsofleasingandroyaltyincomemayoverestimatetheactualimpactsbecausedataisunavailableaboutwhospecificallyownsthemineralrights,andthuswhoisreceivingthosedollars.Weestimatedundertwoscenarios(7.7percentand15.4percentownership

outofstate),butbothcouldstillbesomewhatlow.Inaddition,anecdotalevidencesuggeststhatsomeofthemineralrightsinsouthwestPennsylvaniaareownedbycoalandothercompanies,sothoseleasingandroyaltydollarswouldnothavethesameimpactasiftheygotohouseholds.

OurresultsalsooverestimatetheimpactofthedollarstheCommonwealthitselfreceivesinleasingandroyaltydollars,sinceweassumedthatthestatespentallthosedollarsin2009.Thisassumptionhadalargeeffectontheoverallresultsbecausestateleasereceiptsaccountedforaround23percentofallthe

estimatedjobcreationandaround15percentoftotaleconomicoutput.Theactualeconomicimpactswillbelessintheyearthedollarsarereceived,dependingupontheextentthatthestateagenciesandcommissionsreceivingthosedollarssavethemforlateruse.

Wehadtomakeassumptionsabouttheproportionofwagesandsalarynon‐residentworkersspendin

Pennsylvaniaandrantheanalysisusingboth50percentand75percent.Thereweredifferencesintheresultsbetweenthescenarios,butonlyof113workers.Thisisanapproximate16percentdifferenceintotalpayroll‐relatedimpacts,sotheassumptionsdonotappeartohaveameaningfulimpactonour

overallresults.Ourresultslikelyunderstatetheimpactofgascompanynon‐payrollspendingsincewe



couldnotaccuratelyreflecttheircurrentpurchasingpatternsandparticularlyhowthegrowthoftheindustryandsupportingbusinessesinPennsylvaniawillhaveincreasedtheamountofindustryspending

whichstayswithinPennsylvania.

Theresponsestothesurveyoflocalbusiness,witharelativelylargenumberoffirmssayingthattheyareexperiencinghighersalesduetoMarcellusShaledevelopment,supportstheIMPLANresultsthatgas

developmentactivityishavingbroadeffectsacrosstheeconomy.Thisincludesallsectors,notjustthosewithadirectrelationshiptothedrillingcompanies.

OurfindingsarelessthanwhatseveralpreviousstudieshaveestimatedastheeconomicimpactofMarcellusShaledevelopmentinPennsylvania,butthisisnotsurprisingbecausewewereabletouse

moredetailedinformationonwhereleasing,royalty,andpayrollweregoing,andthuswereabletodirectlyconsidertheassociatedleakage.Ouremploymentestimateofbetween23,385and23,884newjobsisabout52percentofthe44,098jobsConsidine,WatsonandBlumsack(2010)estimatedfor2009.

Weconductedsomesensitivityanalysisofourresultsanddeterminedthatroughlyhalfofthisdifferenceoccursduetoourmorespecificleasing,royalty,andpayrolldata.WewereabletobetteraccountforhowmanysuchdollarsactuallyremainwithinthePennsylvaniaeconomyandwerespentin

2009.WebelievethattheremainingdifferenceoccursbecauseoftheupdatestheywereabletomaketoIMPLANbaseduponthepurchasingdatacompaniesprovidedthem.Despitethesedifferencesinestimatedtotalimpact,theeconomicmultipliersweestimated(1.86and1.90,dependingupon

scenario)areconsistentwithwhattheyfound.

ThedifferenceinthefindingsbetweenthesestudiesindicatesthatwhereleasingandroyaltydollarsgosubstantiallyaffectstheeconomicimpactsofMarcellusactivity.Thiswillbeevenmoresignificant

whenconsideringeconomicimpactsatacountylevelorregionallevel.BecauseonlyabouthalfoflandinatypicalMarcelluscountyisownedbyresidentsofthatcounty,itwouldsuggestthatamajorportionoftheeconomicbenefitsimmediatelyleavethecommunitiesbeingimpactedbydrilling.

Importantly,ourfindingsareconsistentwithseveralotherrecentemploymentstudiesofMarcellusShalewhicheitherrelieduponcompanyinterviewsaboutemploymentneeds(Brundage,etal.2011)ordirectobservationofhiringandemploymenttrends(Herzenberg,2011,usingPennsylvaniaDepartment

ofLaborandIndustrydata).Brundage,etalestimatedthat8,752directandindirectjobswerecreatedasaresultofindustryspendingondrillingactivityinPennsylvaniaduring2009,whichcomparestoourestimateof6,741directjobsresultingfromindustryspendingandanadditional2,631indirectjobs,fora

totalof9,372jobs.Theiranalysisdidnotincludetheimpactsofleasingandroyaltyincomenorallindirectandinducedeconomicimpactsasindustry,worker,andmineralownerdollarsflowthroughtheeconomy,soisnotdirectlycomparabletoouroverallestimatedimpactofaround23,000jobs.

HerzenbergusedPennsylvaniaDepartmentofLaborandIndustrydataaboutnewjobcreationand

calculatedthatbetweenthefourthquarterof2007andthefourthquarterof2010,therewere9,288newjobswithintheMarcellusCoreindustry.Thisissomewhatlowerthanourestimateandspansseveralyearsratherthanjust2009.Butthedefinitionof‘MarcellusCore’industryisnarrowerthanthe

actualbusinessrelationshipsnaturalgascompanieshavewithinPennsylvaniacommunities,andwhich



IMPLANmodels,sotheLaborandIndustrynumbersundercountrelatedemployment.Inaddition,thedataandHerzenberg’sanalysisdonotconsiderleasingandroyaltydollars,soisnotdirectlycomparable

toouroverallestimatedeconomicimpacts.

ThesurveyresponsesfrommunicipalgovernmentssimilarlysuggestthatthelocaltaximpactsofMarcellusShaledevelopmentaresignificantlylowerthanreportedinpriorstudies,whichhadsimply

estimatedthosetaximpactswithoutverifyingwhatisactuallyoccurring.Incontrast,oursurveyresultsprovidedirectinsightsfromlocalgovernmentofficialsthatarebasedontheiractualexperience,includingimpactsonbothrevenuesandexpenditures,whichareessentialtoconsidertogethertohave

acompletepictureoftheeffectsonlocalgovernments.

A.LimitationsofOurStudy

Wheninterpretingtheresultsofthisstudy,thereareimportantlimitationsthatmustbekeptinmind.Thisstudyestimatedimpactsin2009,veryearlyinthedevelopmentofMarcellus.Thepaceofdrilling

activityincreasedin2010,andallindicationsarethatitwillcontinuetoincreaseinfutureyears.ThelongruneconomicimpactsofMarcellusShaledevelopment,particularlyforresource‐dependentsectorsoftheeconomyliketourismandagriculture,likelywillbeverydifferentthanwhatoccursintheearly

yearsofdevelopmentduetocumulativeandscaleeffectsasthenumberofwellsdrilledandinoperationincrease.Somehavearguedthattourismwilldecline(eitherbecauseofactualphysicalchangestothelandscapeorbecausecontroversyoverdrillingscarestouristsaway),thoughothershave

arguedthattourismmayincreasebecauseaccessroadsandpipelinerightsofwayareopeninguppreviouslyinaccessiblehuntinglandsandcreatingbetterecosystemsforwhitetaileddeer,whichcouldattractmorehunters.

Inaddition,thecompositionofcompanyspendingwillchangesignificantlyastheplaydevelopswithleasingactivitydecliningandroyaltydollarsincreasing.TheproportionofworkerspendingremainingwithinPennsylvaniawillriseastheshareofPennsylvaniaworkersincreases.Likewise,astheMarcellus

playmatures,theproportionofgas‐relatedcompanieslocatedinPennsylvanialikelywillincrease,reducingleakageofdollarsoutoftheCommonwealthandincreasingtheeconomicimpact.Stateeconomicpolicycaninfluencethis.

Theeconomicimpactmodelweusedforconductingtheanalysis,IMPLAN,hasbeenwidelyusedbyeconomistsforawidevarietyofeconomicimpactstudiesandisgenerallyrecognizedasworkingwellwhenstudyingsmallchangeswithinaneconomy.Itswidespreaduseallowssomeconsistencyfor

comparingacrossdifferentstudiesonthesametopic.Inaddition,manyeconomistsarefamiliarwithitsstrengthsandweaknesses.Itdoeshavelimitationsforstudyingsignificantlylargeeconomicchangeswhichaffectcorerelationshipswithintheeconomybecausethemodelassumesthatthoserelationships

donotchange.ThisisthesituationwithMarcellusShale,whichmeanstheresultsofanyIMPLAN‐basedeconomicanalysisofMarcellusShaleneedtobeviewedwithcaution.Despitethislimitation,wechosetouseIMPLANforthestudybecausewewantedtoinvestigatetheinfluenceofleasingandroyalty



dollars,andoutofstateworkers,anditsuseallowedustodirectlycompareourresultstopreviousstudiesofMarcelluswhichwerenotabletoconsiderthesefactors.

Mostimportantly,thisstudyonlyfocusedonthejobandincomeeffectsofgasindustryspending.Theseeconomicelementsmustbeunderstoodinbalancewithothersignificanteffects,suchasimpactsontheenvironment,humanhealth,society,localgovernment,andqualityoflife.Thefullextentofthese

impactsisnotyetknown(norlikelywillbeknownuntillaterintheplay),butcurrentexperiencesuggeststhatsuchchangeswillbeoccurring.Undoubtedly,theeffectofMarcellusdevelopmentontheenvironmentandtheseotherimportantissueswillhaveeconomicimplications,butitistooearlyinthe

developmentoftheplaytoreliablyidentifytheincidenceofsuchcostsandbenefits.

B.WhatNoOneKnows(ButShouldbeKnown)

Duringthecourseofthisstudy,webecameincreasinglyawareofseveralcriticaleconomicaspectsrelatedtoMarcellusShaledevelopmentthatareeithermisunderstoodorcompletelyunknown,butyet

areessentialforacompleteandcomprehensiveunderstandingoftheimplicationsandimpactsofMarcellusShale.Theseincludethecostsassociatedwithdevelopment,thedistributionofcostsandbenefits,thelong‐runimplications,andwhatisactuallyoccurringonareal‐timebasis.

1.Costs

ExistingeconomicimpactstudiesofMarcellusdevelopment,includingthisone,havefocusedalmostexclusivelyonjobandincomecreationresultingfromgasindustryspending,includingleasingand

royaltypayments,payroll,andpurchasesfromotherbusinesses.Incontrast,noeconomicstudyhasincludedthepotentialcostsofMarcellusShaledevelopment,suchastheimpactonexistingbusinesseslosingemployeesduetoMarcellusactivity,damageandcleanupcostsresultingfromaccidentsor

environmentaldegradation,orhigherstateandlocalgovernmentcostsduetoactivity.ThereclearlyareandwillbecostsassociatedwithMarcellusShaledevelopment,bothout‐of‐pocketandnon‐monetary(suchastheecosystemeffectsofforestfragmentationorwaterqualityimpacts).Theremayalsobe

opportunitycosts,suchasbusinesseswhomaychoosenottolocateorexpandwithinPennsylvaniaduetothechangesresultingfromMarcellusShaledevelopment.YetbecausePennsylvaniaisstillrelativelyearlyintheMarcellusplay,thesecurrentlycannotbefullyidentifiedorquantified.Somecostsmaynot

showupuntilmuchlaterinthedevelopmentoftheplay,suchaswhentheamountofactivitypassescurrentlyunknownthresholdsorachievesacriticalmass.Thatthecostscurrentlycannotbecomprehensivelymeasureddoesnotmeanthatsuchcostsdonotorwillnotexist,butrathermeansitis

vitaltoinvestigateandidentifythem.Tofocusonlyonjobs,income,ortaxrevenuewithoutputtingthoseintoabroadercontextcanbeverymisleadingandcostlyinthelongrun.



2.WhoIsBenefitingandWhoIsBearingtheCosts

ThedistributionofthebenefitsandthecostsassociatedwithMarcellusShaledevelopmenthasnot

beenfullyinvestigated.EconomicInput‐Outputmodels,suchasIMPLAN,estimatetotaldollarsacrosssectorsandcategories,butdonotidentifyhowthosedollarsaredistributedwithinthosesectors.Inaddition,sincethemodelingignorescosts,studiesdonothelpunderstandhowcostsrelatetothe

benefits,andmostparticularly,whobearsthecostsandwhogetsthebenefits.YetmuchofthepubliclyexpressedconcernaboutMarcellusdevelopmentrelatesdirectlytosuchequityissues,whichsomewouldcharacterizeas‘socialjustice.’Thedistributionofbenefitsandcostsmatterstomany

Pennsylvanians.

Equityissues(andconflicts)aboutMarcellusShalecanoccuratmultiplelevels,includingwithinfamilieswhosemembersdisagreeonwhethertolease,betweenneighborswhohavedifferentvisionsforthecommunityandforqualityoflife,betweentheownerofthesubsurfacemineralrightsandtheownerof

thelandabovethatparcel,betweennewcomersandlong‐termresidents,betweentraffic‐impactedboroughswithfewwellsandsurroundingtownshipswithmanywells,betweenregionswithinPennsylvania(suchasbetweenPhiladelphiaandupstreamcommunitieswithMarcellus),andeven

betweencurrentandfuturegenerations.

WearenotarguingherefororagainstthefairnessofMarcellusactivity,butratherwearestressingthatdifferingviewpointsaboutitsfairnessdoexist.Indeed,judgmentsaboutequityandfairnessalready

underliemuchoftherhetoricandpublicpolicydebateabouttheMarcellusShalegasplay,suchaswhetheraseverancetaxisneeded(andifitis,howthedollarsshouldbedistributed),towhatextentlocalgovernmentsshouldbeallowedtoregulateandcontrolgasdevelopment,andwhethermineral

rightownersundersomecircumstancesshouldbeforcedtoallowdrilling(e.g.forcedpooling).ObjectiveinformationaboutthecostsANDthebenefitsofMarcellusShaledevelopment,andparticularlyhowthesearedistributed,shouldhelppeoplemakeinformedvaluejudgmentsabout

whetherorhowpolicyshouldchange.Currentlythesedistributionissuesarenotadequatelyknown.

3.Long‐RunImplications

MostoftheexistinguncertaintyaboutMarcellusShaledevelopmentrelatestoitspossiblelong‐term

effects,includingwaterquality,landuse,forest,health,andsocialimpacts.Inaddition,thereisuncertaintyaboutwhethertheeconomicactivitywillconformtotheboom/bustcyclesthathaveoccurredwithenergydevelopmentinthewestandwhichhavecharacterizedPennsylvania’sprior

experiencewithtimber,coal,andpetroleumdevelopment.Muchofthisdependsuponthescaleandpaceofthedevelopment,pluswhetherthereareunforeseencumulativeeffectsastheplayisdevelopedandthenumberofwells(andsupportingaccessroads,milesofpipeline,andotherinfrastructure)

increases.Inaddition,itdependsuponhowindividualsandcommunitiesrespond(forexample,towhatextentwillrecipientsofleasesandroyaltiessellthesurfacerightsandmoveawaywiththatstreamofincome,takingtheeconomicbenefitwiththem?Willcommunitiesusethecurrenteconomicbenefitsto



strategicallyinvestforthefuture?)andwhetherthegasismostlyexportedandusedout‐of‐state,orifitinsteadisusedtoattractotherindustries,andthushelpsbuildamorediversifiedandstrongeconomyin

theCommonwealth.Nooneknowstheanswerstothesequestionsbecausemuchofthiswilloccurinthefuture,butitisimportanttobegatheringappropriateinformationnowsowecanpredictandanticipatetheseearlierratherthanlater.Inaddition,local,state,andfederalpolicywillinfluencethis

future.

4.WhatIsActuallyOccurring

AvarietyofsecondarydataisbeingcollectedthatprovidesinsightsintotheimpactsofMarcellusShale,

suchasatthestatelevelbytheDepartmentofEnvironmentalProtection,theDepartmentofRevenue,andtheDepartmentofLaborandIndustry,andatthefederallevelbytheU.S.CensusBureau.Suchdatacollectionandmonitoringiscriticaltoidentifyanyproblemsbeforetheygrowtoolargeandto

identifyopportunitieswhenthereistimetotakefulladvantageofthem.Yetexistingdatasetsoftenlagbyseveralyears,whichmeansourknowledgeisofthepastratherthanofthepresent,whichcanbemisleadingwithfast‐paceddevelopmentlikeMarcellus.Inaddition,therehasbeenlittleefforttodate

tobringthesedifferentdatasetstogethertoprovideacomprehensiveunderstanding(andmonitoring)ofactivities.

Ofgreaterconcernisthatsomeimportantdatacurrentlyarenotbeingcollectedoraggregated,whichmeanstherearesignificantthingswedonotknow,muchlesshaveameansofknowing.Thisincludes

howmuchleasinghasoccurred,andthuswhatpercentageoflandareapotentiallycouldbeaffectedbydrilling;whotheworkersareandhowmanyarePennsylvaniaresidentsversusfromout‐of‐state;baselineenvironmentalmonitoringofgroundwaterquality,forestecosystemdiversity,airquality,and

othernaturalresourcespotentiallybeingaffectedbydevelopment;baselinemonitoringofsocialandcommunityimpacts,suchaseffectsonrentersandlowincomeresidents,familywell‐being,housing

affordabilityandaccess,andsocialservices;andmonitoringofhumanandanimalhealthnearactivesites.

Mostimportantlyfortheeconomicdevelopmentimpacts,informationaboutwhoactuallyownsthemineralrightsisnotbeingcomprehensivelycollected,andthusnooneknowswhereleasingandroyalty

dollarsaregoing.NeithertheCommonwealthnorcountygovernmentstrackmineralrightownership,unlikeownershipofsurfacerights,whichcountiescompileintocomprehensiverecords.Theresultisthatinplaceswheresurfaceandmineralrightshavebeensevered,nooneknowswhereleasingand

royaltydollarsaregoing,bothbytypeofrecipient(e.g.privatehousehold,publicsector,orbusiness)andbylocation(e.g.livingwithinthecommunity,livingelsewhereinPennsylvania,orlivingoutsideoftheCommonwealth).Ownershipofsuchrightsisimportanttoknowfromeconomicdevelopmentand

equityperspectivesbecauseitaffectshowmuchoftheeconomicbenefitstayswithinthecommunitywheredrillingactivitiesareoccurring(andthustowhatextentthepeoplelivingwiththeinconveniencesarereceivingpositivebenefitsfromthatactivity).



VI.Conclusions

OurstudyoftheeconomicimpactofMarcellusShaleindicatesthatithadmajorimpactwithin

Pennsylvaniaduring2009.AswithpriorstudiesofMarcellusShaleinPennsylvania,werelieduponthestandardInput‐OutputeconomicmodelIMPLANtoestimatethedirect,indirect,andinducedeffectsacrosstheeconomyandfoundthatMarcellusShale‐relatedactivityaccountedforapproximately24,000

newjobsand$3billionofeconomicoutputinPennsylvaniaduring2009.

TheseestimatesaresmallerthanprioreconomicstudiesofMarcellus,primarilybecausewewereabletoaccountforhowleasingandroyaltyincomearebeingused.OursurveyoflandownersandtheGISanalysisoflandownershippatternsallowedustoestimatehowmanyleasingandroyaltydollarsare

goingdirectlytoPennsylvaniaresidents,theCommonwealth,andtonon‐residentpropertyownersandhowthosedollarsareactuallybeingspent.OurresultsconfirmthatwhereleasingandroyaltydollarsaregoinghassignificanteffectontheoveralleconomicimpactsofMarcellusShaledevelopment,soitis

vitaltopaycloseattentiontosuchpaymentstohaveanaccurateviewonthedistributionofeconomicbenefitsandcostsfromMarcellusShaledevelopment.BecauseonlyabouthalfoflandinatypicalMarcelluscountyisownedbyresidentsofthatcounty,itwouldsuggestthatamajorportionofthe

economicbenefitsimmediatelyleavethecommunitiesbeingimpactedbydrilling.

Inaddition,weaccountedforhowmanyMarcellusworkersarenon‐Pennsylvanian,andthushowmuchpayrollisnotgoingtoPennsylvaniahouseholds.Suchworkersdospendsomeoftheirincomein

Pennsylvania,buttheytendtospenditdifferentlythandoresidents,whichaffectstheoveralleconomicimpacts.

Ourstudyincludedasurveyoflocalbusinesses,whichconfirmedtheIMPLANresultsthatpositiveeconomicimpactsareoccurringbroadlyacrosstheeconomyinthecommunitieswheredrillingisvery

activelyoccurring.Aboutone‐thirdofallthebusinessesinBradfordCounty,forexample,reportedthattheirsaleshadincreasedduetonaturalgasdevelopmentandonly3percentreportedsaleshad

declined.

WealsosurveyedPennsylvanialocalgovernmentsintheMarcellusShaleregiontoidentifywhethertheyareexperiencingnewtaxrevenues,newservicedemands,ornewcostsasaresultoftheearlystagesofMarcellusShaledevelopment.Anumberoflocalgovernmentsreportedthatthesehadincreased,but

therewaslittlepatterntotheirresponsesinrelationtotheamountofdrillingactivityoccurringwithintheirjurisdiction.Only18percentofthegovernmentsexperiencingMarcellusdevelopmentactivitysaidtheirtaxrevenueshadincreased,whichindicatesthatmostlocalgovernmentswithMarcellusactivity

arenotseeingmoretaxrevenueasaresult.Incomparison,26percentofthelocalgovernmentsindicatedthattheircostshadincreased,particularlyrelatedtoroadexpenses.Thisconfirmsthatconsideringbothrevenuesandcostsiscriticalforhavingacompleteunderstandingoftheimpactsof

MarcellusShale.

WedidnotattempttoquantifythecostsofMarcellusShaledevelopment,suchaseffectsontheenvironmentandhealth.Wehopethatfutureeconomicstudiescanconsidersuchcostsasbetter



informationbecomesavailableabouttheincidenceandextentofsuchimpacts.Inaddition,wedidnotaddressthedistributionofbenefitsandcosts,eventhoughtheequityofhowthesearedistributed

underliesmuchofthecurrentpolicydebateaboutMarcellusShale.ThelongrunimplicationsofMarcellusShaledevelopmentarestillunknown.Jobsandincomeintheshortrunareimportant,butmanywouldarguethatotherfactorsareequally(ifnotmore)important,suchascleanwater,healthy

forestsandotherecosystems,cleanair,andgoodpublichealth.Inadditiontoaffectingqualityoflife,theseareimportantresourcesforthefutureofPennsylvaniacommunities,includingfutureeconomicopportunities,socialandphysicalinfrastructure,well‐functioninglocalgovernmentandinstitutions,and

communitywell‐being.Webelieveourresultsmustbeviewedasapreliminary,short‐runviewoftheeconomicimpactsofMarcellusShale,andbeplacedinabroadercontextoftheseotherimportantconcerns.

ThisworkwasfundedbythePennsylvaniaEconomicDevelopmentFinancingAuthority(PennsylvaniaDepartmentofCommunityandEconomicDevelopment)ContractNo.29‐000‐2222



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VIII.Appendices

Appendix1.MarcellusNaturalGasIndustrySpendingResultsOutput Sector Description Direct Indirect Induced Total

0 Total $1,200,667,093 $428,097,138 $517,027,001 $2,145,791,2331 11Ag,Forestry,Fish&Hunting $4,706,562 $1,401,464 $1,158,103 $7,266,129

20 21Mining $474,430,258 $17,521,225 $1,043,333 $492,994,81633 22Utilities $5,675,796 $12,752,545 $12,038,327 $30,466,66834 23Construction $378,171,901 $6,242,481 $2,149,609 $386,563,99241 31‐33Manufacturing $9,013,135 $60,938,528 $34,427,891 $104,379,554

319 42WholesaleTrade $194,407,911 $34,324,793 $25,103,738 $253,836,441320 44‐45Retailtrade $9,303,714 $13,850,988 $46,663,562 $69,818,264

332 48‐49Transportation&Warehousing $37,593,267 $28,914,245 $13,871,566 $80,379,079341 51Information $425,882 $20,771,076 $18,586,472 $39,783,430354 52Finance&insurance $572,142 $33,375,849 $66,491,790 $100,439,781360 53Realestate&rental $842,046 $54,479,472 $89,572,925 $144,894,443

36754Professional‐scientific&techservices $70,525,649 $76,160,148 $24,394,990 $171,080,787

381 55Managementofcompanies $0 $24,259,451 $5,698,687 $29,958,138382 56Administrative&wasteservices $9,794,052 $19,843,289 $12,200,535 $41,837,876391 61Educationalservices $1,309,237 $284,576 $12,227,617 $13,821,430394 62Health&socialservices $1,303,644 $39,703 $92,871,967 $94,215,314402 71Arts‐entertainment&recreation $579,029 $1,631,571 $7,829,442 $10,040,043411 72Accommodation&foodservices $717,045 $5,488,889 $24,271,390 $30,477,325414 81Otherservices $1,295,823 $8,021,215 $17,554,423 $26,871,460427 92Government&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 $1,193,890,8671 11Ag,Forestry,Fish&Hunting $1,553,659 $462,630 $382,295 $2,398,584

20 21Mining $226,303,866 $8,400,164 $500,203 $235,204,23233 22Utilities $3,279,844 $7,401,126 $6,986,619 $17,667,58834 23Construction $176,414,670 $3,009,539 $1,036,340 $180,460,54841 31‐33Manufacturing $2,541,090 $17,125,363 $9,675,162 $29,341,616

319 42WholesaleTrade $131,192,812 $22,589,089 $16,520,728 $170,302,629320 44‐45Retailtrade $7,917,929 $11,680,779 $39,352,191 $58,950,899

332 48‐49Transportation&Warehousing $19,737,700 $15,476,604 $7,424,878 $42,639,182341 51Information $225,655 $11,058,350 $9,895,285 $21,179,290354 52Finance&insurance $326,404 $19,276,801 $38,403,488 $58,006,693360 53Realestate&rental $593,583 $38,147,930 $62,721,270 $101,462,784


381 55Managementofcompanies $0 $15,970,647 $3,751,598 $19,722,245



382 56Administrative&wasteservices $6,084,957 $12,568,111 $7,727,433 $26,380,501391 61Educationalservices $767,889 $171,855 $7,384,237 $8,323,981394 62Health&socialservices $737,597 $23,031 $53,872,749 $54,633,377402 71Arts‐entertainment&recreation $339,804 $981,029 $4,707,677 $6,028,510411 72Accommodation&foodservices $361,707 $2,810,475 $12,427,675 $15,599,858414 81Otherservices $720,642 $4,545,952 $9,948,811 $15,215,405427 92Government&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 $729,331,5921 11Ag,Forestry,Fish&Hunting $1,243,058 $370,143 $305,868 $1,919,069

20 21Mining $102,756,963 $3,814,231 $227,125 $106,798,31933 22Utilities $950,784 $2,145,490 $2,025,330 $5,121,60334 23Construction $150,200,762 $2,562,344 $882,347 $153,645,45341 31‐33Manufacturing $1,396,083 $9,408,729 $5,315,565 $16,120,378

319 42WholesaleTrade $76,418,158 $13,157,859 $9,623,115 $99,199,132320 44‐45Retailtrade $4,764,601 $7,028,890 $23,680,119 $35,473,611332 48‐49Transportation&Warehousing $14,570,645 $11,425,045 $5,481,148 $31,476,839341 51Information $114,213 $5,597,050 $5,008,379 $10,719,642354 52Finance&insurance $164,397 $9,709,010 $19,342,413 $29,215,820360 53Realestate&rental $46,330 $2,977,484 $4,895,457 $7,919,270


381 55Managementofcompanies $0 $13,107,316 $3,078,985 $16,186,301382 56Administrative&wasteservices $4,741,450 $9,793,179 $6,021,281 $20,555,910391 61Educationalservices $728,465 $163,032 $7,005,119 $7,896,615394 62Health&socialservices $681,535 $21,280 $49,778,051 $50,480,866402 71Arts‐entertainment&recreation $232,351 $670,808 $3,219,014 $4,122,172411 72Accommodation&foodservices $253,111 $1,966,678 $8,696,480 $10,916,269414 81Otherservices $646,719 $4,079,632 $8,928,271 $13,654,622427 92Government&nonNAICs $0 $6,044,460 $6,877,981 $12,922,441

Employment Sector Description Direct Indirect Induced Total

0 Total 6,741.40 2,630.80 4,253.70 13,625.901 11Ag,Forestry,Fish&Hunting 69.6 20.5 16.9 107.1

20 21Mining 1,614.50 60.5 3.6 1,678.6033 22Utilities 6.8 15.6 14.7 37.134 23Construction 2,861.80 49.3 17 2,928.0041 31‐33Manufacturing 19.9 135.6 76.6 232.1

319 42WholesaleTrade 988.1 171.7 125.6 1,285.40320 44‐45Retailtrade 164.6 245.1 825.6 1,235.30332 48‐49Transportation&Warehousing 282.8 223.8 107.4 614341 51Information 1.4 70.5 63.1 135.1354 52Finance&insurance 2.4 140.7 280.2 423.2360 53Realestate&rental 2.6 169.3 278.4 450.3

36754Professional‐scientific&techservices 512.3 574.6 184.1 1,271.00



381 55Managementofcompanies 0 110 25.8 135.9382 56Administrative&wasteservices 144.3 300.8 184.9 630391 61Educationalservices 17.4 3.9 168.9 190.2394 62Health&socialservices 13.1 0.4 965.6 979.1402 71Arts‐entertainment&recreation 9.5 27.8 133.5 170.8411 72Accommodation&foodservices 11.9 93.3 412.5 517.7414 81Otherservices 18.2 115.9 253.7 387.9427 92Government&nonNAICs 0 101.5 115.5 217.1



Appendix2.MarcellusNaturalGasIndustryPayrollImpacts:Scenario1Scenario1:If50PercentofNon‐ResidentWorkerIncomeLeavesPennsylvania

Output Sector Description Direct Indirect Induced Total

0 Total $0 $0 $86,952,840 $86,952,8401 11Ag,Forestry,Fish&Hunting $0 $0 $200,818 $200,818

20 21Mining $0 $0 $182,838 $182,83833 22Utilities $0 $0 $2,156,805 $2,156,80534 23Construction $0 $0 $362,199 $362,19941 31‐33Manufacturing $0 $0 $5,925,582 $5,925,582

319 42WholesaleTrade $0 $0 $4,452,032 $4,452,032320 44‐45Retailtrade $0 $0 $6,732,106 $6,732,106

332 48‐49Transportation&Warehousing $0 $0 $2,264,402 $2,264,402341 51Information $0 $0 $3,161,565 $3,161,565354 52Finance&insurance $0 $0 $10,928,098 $10,928,098360 53Realestate&rental $0 $0 $15,020,759 $15,020,759

36754Professional‐scientific&techservices $0 $0 $4,166,232 $4,166,232

381 55Managementofcompanies $0 $0 $975,913 $975,913382 56Administrative&wasteservices $0 $0 $2,055,236 $2,055,236391 61Educationalservices $0 $0 $1,943,453 $1,943,453394 62Health&socialservices $0 $0 $16,603,941 $16,603,941402 71Arts‐entertainment&recreation $0 $0 $1,288,409 $1,288,409411 72Accommodation&foodservices $0 $0 $4,002,456 $4,002,456414 81Otherservices $0 $0 $3,014,620 $3,014,620427 92Government&nonNAICs $0 $0 $1,515,374 $1,515,374


0 Total $0 $0$52,988,161

$52,988,1611 11Ag,Forestry,Fish&Hunting $0 $0 $66,291 $66,291


319 42WholesaleTrade $0 $0 $2,929,875 $2,929,875320 44‐45Retailtrade $0 $0 $5,677,302 $5,677,302332 48‐49Transportation&Warehousing $0 $0 $1,212,041 $1,212,041341 51Information $0 $0 $1,683,191 $1,683,191354 52Finance&insurance $0 $0 $6,311,713 $6,311,713360 53Realestate&rental $0 $0 $10,517,922 $10,517,922




381 55Managementofcompanies $0 $0 $642,470 $642,470

382 56Administrative&wasteservices $0 $0 $1,301,722 $1,301,722391 61Educationalservices $0 $0 $1,173,648 $1,173,648394 62Health&socialservices $0 $0 $9,631,539 $9,631,539402 71Arts‐entertainment&recreation $0 $0 $774,693 $774,693411 72Accommodation&foodservices $0 $0 $2,049,377 $2,049,377414 81Otherservices $0 $0 $1,708,509 $1,708,509427 92Government&nonNAICs $0 $0 $1,256,663 $1,256,663

Laborincome Sector Description Direct Indirect Induced Total


20 21Mining $0 $0 $39,802 $39,80233 22Utilities $0 $0 $362,861 $362,86134 23Construction $0 $0 $148,672 $148,67241 31‐33Manufacturing $0 $0 $914,892 $914,892

319 42WholesaleTrade $0 $0 $1,706,615 $1,706,615320 44‐45Retailtrade $0 $0 $3,416,307 $3,416,307

332 48‐49Transportation&Warehousing $0 $0 $894,746 $894,746341 51Information $0 $0 $851,927 $851,927354 52Finance&insurance $0 $0 $3,178,976 $3,178,976360 53Realestate&rental $0 $0 $820,934 $820,934



382 56Administrative&wasteservices $0 $0 $1,014,313 $1,014,313391 61Educationalservices $0 $0 $1,113,391 $1,113,391394 62Health&socialservices $0 $0 $8,899,476 $8,899,476402 71Arts‐entertainment&recreation $0 $0 $529,719 $529,719411 72Accommodation&foodservices $0 $0 $1,434,087 $1,434,087414 81Otherservices $0 $0 $1,533,252 $1,533,252427 92Government&nonNAICs $0 $0 $1,174,968 $1,174,968


0 Total 0 0 704.4 704.41 11Ag,Forestry,Fish&Hunting 0 0 2.9 2.9

20 21Mining 0 0 0.6 0.633 22Utilities 0 0 2.6 2.634 23Construction 0 0 2.9 2.941 31‐33Manufacturing 0 0 13.2 13.2

319 42WholesaleTrade 0 0 22.3 22.3320 44‐45Retailtrade 0 0 119.1 119.1

332 48‐49Transportation&Warehousing 0 0 17.5 17.5341 51Information 0 0 10.7 10.7354 52Finance&insurance 0 0 46.1 46.1360 53Realestate&rental 0 0 46.7 46.7



36754Professional‐scientific&techservices 0 0 31.4 31.4

381 55Managementofcompanies 0 0 4.4 4.4

382 56Administrative&wasteservices 0 0 31.2 31.2391 61Educationalservices 0 0 26.8 26.8394 62Health&socialservices 0 0 172.6 172.6

402 71Arts‐entertainment&recreation 0 0 22 22411 72Accommodation&foodservices 0 0 68 68414 81Otherservices 0 0 43.6 43.6427 92Government&nonNAICs 0 0 19.7 19.7



Appendix3.MarcellusNaturalGasIndustryPayrollImpacts:Scenario2Scenario2:If25PercentofNon‐ResidentWorkerIncomeLeavesPennsylvania Output Sector Description Direct Indirect Induced Total





381 55Managementofcompanies $0 $0 $1,098,486 $1,098,486382 56Administrative&wasteservices $0 $0 $2,299,910 $2,299,910391 61Educationalservices $0 $0 $2,099,477 $2,099,477394 62Health&socialservices $0 $0 $18,238,675 $18,238,675402 71Arts‐entertainment&recreation $0 $0 $1,442,831 $1,442,831411 72Accommodation&foodservices $0 $0 $4,537,129 $4,537,129414 81Otherservices $0 $0 $3,394,428 $3,394,428427 92Government&nonNAICs $0 $0 $1,694,089 $1,694,089






381 55Managementofcompanies $0 $0 $723,163 $723,163382 56Administrative&wasteservices $0 $0 $1,456,690 $1,456,690



391 61Educationalservices $0 $0 $1,267,871 $1,267,871394 62Health&socialservices $0 $0 $10,579,808 $10,579,808

402 71Arts‐entertainment&recreation $0 $0 $867,544 $867,544411 72Accommodation&foodservices $0 $0 $2,323,145 $2,323,145414 81Otherservices $0 $0 $1,923,761 $1,923,761427 92Government&nonNAICs $0 $0 $1,404,867 $1,404,867

Laborincome Sector Description Direct Indirect Induced Total


20 21Mining $0 $0 $44,309 $44,30933 22Utilities $0 $0 $400,228 $400,22834 23Construction $0 $0 $165,645 $165,64541 31‐33Manufacturing $0 $0 $1,027,301 $1,027,301

319 42WholesaleTrade $0 $0 $2,024,941 $2,024,941320 44‐45Retailtrade $0 $0 $4,044,975 $4,044,975332 48‐49Transportation&Warehousing $0 $0 $1,016,842 $1,016,842341 51Information $0 $0 $958,136 $958,136354 52Finance&insurance $0 $0 $3,602,627 $3,602,627360 53Realestate&rental $0 $0 $910,227 $910,227



382 56Administrative&wasteservices $0 $0 $1,135,065 $1,135,065391 61Educationalservices $0 $0 $1,202,776 $1,202,776394 62Health&socialservices $0 $0 $9,775,670 $9,775,670

402 71Arts‐entertainment&recreation $0 $0 $593,209 $593,209411 72Accommodation&foodservices $0 $0 $1,625,661 $1,625,661414 81Otherservices $0 $0 $1,726,424 $1,726,424427 92Government&nonNAICs $0 $0 $1,313,538 $1,313,538




319 42WholesaleTrade 0 0 26.4 26.4320 44‐45Retailtrade 0 0 141 141332 48‐49Transportation&Warehousing 0 0 19.9 19.9341 51Information 0 0 12.1 12.1354 52Finance&insurance 0 0 52.2 52.2360 53Realestate&rental 0 0 51.8 51.8




381 55Managementofcompanies 0 0 5 5382 56Administrative&wasteservices 0 0 34.9 34.9391 61Educationalservices 0 0 29 29394 62Health&socialservices 0 0 189.6 189.6402 71Arts‐entertainment&recreation 0 0 24.6 24.6411 72Accommodation&foodservices 0 0 77.1 77.1414 81Otherservices 0 0 49.1 49.1427 92Government&nonNAICs 0 0 22.1 22.1



Appendix4.RoyaltyPaymentstoPrivateMineralRightOwnersScenario1:If7.7PercentofMineralRightsareOwnedOut‐of‐State Output Sector Description Direct Indirect Induced Total


20 21Mining $0 $0 $31,994 $31,99433 22Utilities $0 $0 $374,205 $374,20534 23Construction $0 $0 $65,348 $65,34841 31‐33Manufacturing $0 $0 $1,043,014 $1,043,014

319 42WholesaleTrade $0 $0 $867,268 $867,268320 44‐45Retailtrade $0 $0 $1,256,269 $1,256,269

33248‐49Transportation&Warehousing $0 $0 $407,857 $407,857

341 51Information $0 $0 $570,032 $570,032354 52Finance&insurance $0 $0 $1,998,997 $1,998,997360 53Realestate&rental $0 $0 $2,723,444 $2,723,444

36754Professional‐scientific&techservices $0 $0 $745,767 $745,767

381 55Managementofcompanies $0 $0 $175,910 $175,910382 56Administrative&wasteservices $0 $0 $368,143 $368,143391 61Educationalservices $0 $0 $352,288 $352,288394 62Health&socialservices $0 $0 $2,909,503 $2,909,503

40271Arts‐entertainment&recreation $0 $0 $229,570 $229,570

411 72Accommodation&foodservices $0 $0 $738,610 $738,610414 81Otherservices $0 $0 $529,298 $529,298427 92Government&nonNAICs $0 $0 $268,827 $268,827

ValueAdded Sector Description Direct Indirect Induced Total















319 42WholesaleTrade $0 $0 $332,453 $332,453320 44‐45Retailtrade $0 $0 $637,512 $637,512


341 51Information $0 $0 $153,603 $153,603354 52Finance&insurance $0 $0 $581,507 $581,507360 53Realestate&rental $0 $0 $148,845 $148,845








319 42WholesaleTrade 0 0 4.3 4.3320 44‐45Retailtrade 0 0 22.2 22.2



33248‐49Transportation&Warehousing 0 0 3.2 3.2

341 51Information 0 0 1.9 1.9354 52Finance&insurance 0 0 8.4 8.4360 53Realestate&rental 0 0 8.5 8.5



382 56Administrative&wasteservices 0 0 5.6 5.6391 61Educationalservices 0 0 4.9 4.9394 62Health&socialservices 0 0 30.3 30.3

40271Arts‐entertainment&recreation 0 0 3.9 3.9

411 72Accommodation&foodservices 0 0 12.6 12.6414 81Otherservices 0 0 7.7 7.7427 92Government&nonNAICs 0 0 3.5 3.5



Appendix5.PaymentstoPrivateMineralRightOwnersScenario2:If15.4PercentofMineralRightsareOwnedOut‐of‐State Output Sector Description Direct Indirect Induced Total










ValueAdded Sector Description Direct Indirect Induced Total

















341 51Information $0 $0 $137,912 $137,912354 52Finance&insurance $0 $0 $522,107 $522,107360 53Realestate&rental $0 $0 $133,641 $133,641








319 42WholesaleTrade 0 0 3.9 3.9320 44‐45Retailtrade 0 0 20 20



33248‐49Transportation&Warehousing 0 0 2.8 2.8

341 51Information 0 0 1.7 1.7354 52Finance&insurance 0 0 7.6 7.6360 53Realestate&rental 0 0 7.6 7.6



382 56Administrative&wasteservices 0 0 5 5391 61Educationalservices 0 0 4.4 4.4394 62Health&socialservices 0 0 27.2 27.2

40271Arts‐entertainment&recreation 0 0 3.5 3.5

411 72Accommodation&foodservices 0 0 11.3 11.3414 81Otherservices 0 0 6.9 6.9427 92Government&nonNAICs 0 0 3.1 3.1



Appendix6.MethodologyandDefinitions

Methodology

Inthisanalysis,weuseaneconomicimpactsoftwareprogramknownasIMPLAN(ImpactAnalysisforPlanning).OriginallydevelopedbytheUSForestService,IMPLANisaninput‐outputmodelthatiswidelyusedtoquantifyhowbusinessesusetechnology,laborandmaterials(i.e.,inputs)toproduceaproduct

(i.e.,output).TheIMPLANsoftwareanddatabase(www.implan.com)establishesthecharacteristicsofeconomicactivityintermsofmorethan450sectors.Inpractice,theIMPLANmodelisusedinevery

stateandhundredsofcommunitiesacrossthenationtocatalogeconomicactivityandpredicttheeffectofalternativepoliciesandvariouseconomicchanges.

Definitions

Multipliers

Input‐outputmodelsaredrivenbyfinalconsumption(orfinaldemand).Industriesrespondtomeet

demandsdirectlyorindirectly(bysupplyinggoodsandservicestoindustriesrespondingdirectly).Eachindustrythatproducesgoodsandservicesgeneratesdemandforothergoodsandservicesandsoon,roundbyround.Thesesocalledrippleeffectsaredescribedbymultipliers.Amultiplierexamineshow

muchspinoffeconomicactivityisgeneratedbyamarginalchangeinanindustry.Forexample,multiplierscandescribehowmanytotaljobsintheeconomyarecreatedwhenanindustryaddsonenewjob.Ingeneral,input‐outputmodelersdescribethreetypesofmultipliereffectswhenexamining

theroleofanindustryinthecountyeconomy.

1. Thedirecteffectisthecontributionoftheindustryitself.Itmayrepresentthetotalrevenue(output),employment,oremployeecompensation.Thevalueofthedirecteffectmultiplierisalways1.

2. Theindirecteffectsareeffectsoftheindustryonitssuppliers.Thismultipliercapturesthe

additionalactivityinbusinessesthatprovideinputstotheindustryofinterest.

3. Theinducedeffectscapturetheimpactsofchangesinspendingfromhouseholdsasincomechangesduetothedirecteffect.Thiseffectcapturestheimpactofspendingbya)employeesofthe

industrybeingstudied,andb)employeesoftheinputsupplyingbusinesses.Theseeffectsusuallyshowupinretailandserviceindustries.Inthestudyhere,thesecondaryeffectsarethesumoftheindirectandinducedeffects.

InthisstudyweusetheIMPLANtypeSAMmultipliers.TheTypeSAMmultiplierisobtainedaccordingtothefollowingformula:

TypeSAMmultiplier=(directeffect+indirecteffect+inducedeffect)÷directeffect



Input‐outputanalysisisameansofexaminingtherelationshipswithinaneconomybothbetweenbusinessesandbetweenbusinessesandfinalconsumers.Itcapturesallmonetarytransactionsfor

consumptioninagiventimeperiod.Theresultingmathematicalformulaeallowonetoexaminetheeffectsofchangeinoneorseveraleconomicactivitiesonanentireeconomy.

Industryoutputisasinglenumberindollarforeachindustry.Thedollarsrepresentthevalueofan

industry’stotalproduction.InIMPLAN,theoutputdataarederivedfromanumberofsourcesincludingBureauofCensuseconomiccensusesandtheBureauofLaborStatisticsemploymentprojections.Anotherwaytothinkaboutindustryoutputisasthetotalrevenuegeneratedbyanindustry.

Employmentistotalnumberofwageandsalaryemployeesandself‐employedjobsinaregion.It

includesbothfull‐timeandpart‐timeworkersandismeasuredintotaljobs.ThedatasetsusedtoderiveemploymenttotalsintheIMPLANmodelaretheES‐202data,CountyBusinessPatterns,andtheRegionalEconomicInformationSystem(REIS)data.

Whileoutputcapturesthetotaldollarvalueofeconomicactivity,itsuseasameasureofeconomicactivitycanbeovercountedinthatitcapturesthevalueofallintermediatestagesoftheproductionprocessaswell.Forexample,thepriceonepaysforacaratthelocalautodealershipinlargepart

representseconomicactivitythatoccurredintheproductionprocess.Ifoneweretoconsiderthepriceonepaidforacarasthecontributiontothelocaleconomy,thenonewouldlikelybeoverstatingitsimpact.Thisiscalleddoublecounting.Toavoiddoublecounting,economistsusuallyexamineeconomic

contributionsintermsofValueAdded.Atthelocallevel,valueaddedisequivalenttotheconceptofGrossDomesticProductinthatitexaminestheuniquecontributionofanindustrytotheoveralleconomy.Ininput‐outputanalysis,valueaddedconsistsoffourcomponents.

1. Employeecompensationiswageandsalarypaymentsaswellasbenefitsincludinghealthand

lifeinsurance,retirementpayment,andanyothernon‐cashcompensation.Itincludesallincometoworkerspaidbyemployers.

2. Proprietaryincomeconsistsofpaymentsreceivedbyself‐employedindividualsasincome.This

isincomerecordedonFederalTaxForm1040C.Thisincludesincomereceivedbyprivatebusinessowners,doctors,lawyers,andsoforth.Anyincomeapersonreceivesforpaymentofself‐employedworkiscountedhere.Note:laborincomeisthesumofemployeecompensationandproprietary

income.

3. Otherpropertytypeincomeconsistsofpaymentsforinterest,rent,royalties,dividends,andprofits.Thisincludespaymentstoindividualsintheformofrentsreceivedonproperty,royaltiesfrom

contracts,anddividendspaidbycorporations.Thisalsoincludescorporateprofitsearnedbycorporations.

4. Indirectbusinesstaxesconsistprimarilyofexciseandsalestaxespaidbyindividualstobusinesses.Thesetaxesoccurduringthenormaloperationofthesebusinessesbutdonotincludetaxes

onincomeorprofit.

economic impacts of marcellus shale in pennsylvania

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