Oil and gas extraction not an effective economic development strategy
Headwaters Economics studied 26 counties in Western States which have at least 7% of their total jobs in extraction of fossil fuels. Their study showed that
average annual growth in personal income and employment growth were lower in counties with extraction industries than counties without it.
Energy-dependent county economies had:
• Less economic diversity
• Lower levels of educational attainment
• More income inequality between households
• Less ability to attract investment
While energy focusing counties race forward and then falter, the non-energy peer counties grow steadily.
At the finish line, counties that focus on broader development choices are better off, with higher rates of growth, more diverse economies, better-educated populations, a smaller gap between high and low income households, and more retirement and investment income.
For officials at Mesa State College, students have been the concern, as male high school graduates have increasingly chosen oil and gas jobs with salaries that can hit $80,000 rather than pursue higher education. Community leaders worry about the long-term effect of an undereducated population, yet business owners have appreciated the impact these high wages have had on the local economy.
Boom and bust
When oil shale is mentioned on the Western Slope of Colorado, it's discussed as a boondoggle that brought their economy to its knees. The day that Exxon closed down its oil shale operations and sent home over 2,000 workers -- May 2, 1982 -- is still referred to as Black Sunday.
As energy companies arrived on the Western Slope again between 2000 and 2006, revenues, costs, and growth rates jumped in Garfield and Mesa Counties. Nearly every community grew by at least 6%, with Grand Junction showing 11.7% growth and the small town of New Castle growing 66%. These communities have struggled to expand services at a rate that kept pace with growth.
In 2009, growth started to show signs of slacking. Companies began to scale back plans for new wells and idled a significant number of the drill rigs they had been operating. A few roughnecks and area residents have begun to openly talk of a "bust."
"... most wells do not maintain the hyperbolic decline projection indicated from their first months or years of production. Production rates commonly exhibit abrupt, catastrophic departures from hyperbolic decline as early as 12-18 months into the production cycle but, more commonly, in the fourth or fifth years for the control group. Pressure is drawn down and hydraulically produced fractures close…Workovers and additional fracture stimulations may boost rates back to previous levels, but rarely restore a well to its initial decline trajectory. More often, a steep hyperbolic or exponential terminal decline follows attempts to remedy a well’s deteriorating performance."
--Arthur Berman, geologist and investment adviser who has analyzed production trends across US shale plays
Real data about job creation raise questions about whether the rosy industry projections are accurate. In the long term, drilling regions may be left worse off than before they boomed.
Evidence from already developed shale plays indicates that shale gas drilling relies mostly on out-of-state workers. Local employment is concentrated in trucking, construction and retail jobs -- many of which are part-time, short-term, or low-pay.
For example, the Antero project in Battlement Mesa will employ approximately 120-150 people. Some Battlement Mesa residents will benefit directly from the Antero project but most residents will not directly benefit.
Further, job creation from drilling the Valle Vidal will add less than one percent to area employment figures, if that, and many recreation-based jobs would be permanently lost in that development. Most of these jobs associated with developing the Valle Vidal will not be available to local residents due to the specialized workers upon which the oil and gas industry typically relies. Any revenues generated to local governments will be offset by the burden that the oil and gas industry brings to county roads, fire and other emergency responders, and other services.
--Testimony by Mayor of Springer, NM, Oct. 27, 2005
assume gas and oil drilling will bring new jobs and prosperity, but are those assumptions correct? Food & Water Watch closely examined a recent report touting the job-creation potential of shale gas development and found numerous inaccuracies and methodological flaws.
No windfall in El Paso County
In 2000, El Paso County abolished the business personal property tax which is assessed on things like machinery, equipment and supplies. Because oil and gas rigs are assessed as personal property, the exemption would cost the county many millions if drilling gets traction here.
Reinstating the tax would constitute a tax increase, which requires voter approval under the Taxpayer's Bill of Rights. Commissioner Sallie Clark says the county could require bonds to cover road damage, for example, but she and other commissioners oppose reinstating the personal property tax, calling it "double taxation."
Increased housing costs
The Colorado Department of Local Affairs asks, "Who could have imagined, for example, that a significant impact of oil and gas development in western Colorado at one time would be a shortage of hotel and motel rooms for tourists, and the resulting impact on local economies through loss of tax revenues?"
Oil and gas development has increased population densities, some of which is the result of an increase in the number of temporary and transient workers. The western slope has a large number of temporary workers living in motel rooms, RV campgrounds, and temporary camps, often called “man camps,” in the region. While there are no data on the exact number of temporary workers, it is estimated that 20 percent of the natural gas workforce is comprised of workers who do not have a permanent residence within the region or the surrounding counties.
Local governments often see a loss of available workforce housing as the local housing stock is taken up by industry employees. This makes it increasingly difficult for employers to recruit workers to the area because the increase in housing costs outpaces growth in salaries.
Upward pressures on housing disproportionately impact low wage earners, persons on fixed income and seniors. Social services and non-profit housing agencies and authorities struggle to place people in lower rent or assisted housing in a heated rental market.
Rifle's population was 6784 in 2000. It grew to 8446 in 2006. Some studies predict it will top 20,000 residents by 2020. Rising crime rates have stretched the police department thin, traffic-choked city streets laden with heavy trucks have prompted complaints from residents, and rapidly rising property values have made it difficult for middle class workers to live in the community.
As the median home price around Rifle skyrocketed from $191,000 in 2003 to over $297,000 in 2007, vital members of the town's workforce have been increasingly forced to live down the valley as far away as Grand Junction and commute. In the summer of 2007, more than 20 prospective teachers turned down job offers because they could not afford housing in town.
Increased infrastructure costs, fire protection and police
"Unless you have a two-person income, you're struggling to make ends meet here, and it's driving our workforce out of the area," "Teachers, police, firemen, hospital employees . . . all are having to look elsewhere to live."
–Keith Lambert, Mayor of Rifle, CO
Many of the costs of shale gas extraction fall on county and local government, including localities where drilling makes no appreciable contribution to the economy through job creation or tax revenues.
Certain positions like police officers become increasingly harder to fill because local governments cannot compete with the pay scale of the industry. Similar challenges may be felt in the private service and retail sector, as labor migrates to higher paying jobs, leaving service employers short handed. In an attempt to remedy this, local governments and other employers must offer additional incentives to retain workers or to hire workers lost to the industry.
"Our revenues are now here, but our needs are up here." Increased sales tax revenues could not begin to keep pace with huge increases in infrastructure needs.
--Keith Lambert, Mayor of Rifle, CO
Shale gas extraction has cumulative and regional effects that spread far beyond the locations where drilling occurs. This regional infrastructure includes compressor plants, pipelines, water extraction sites and toxic waste disposal facilities, as well as increased heavy truck volume.
All of these require regulation and enforcement capacity not currently in place, and impose environmental, administrative and public safety costs that somebody has to pay.
During a drilling boom, communities must expand police forces, enlarge school systems and prepare emergency services for the kind of incident that drilling operations can produce. When drilling ends, jobs and population exit, leaving the human and physical infrastructure built to support a boomtown population for a much smaller population to support.
Traffic congestion and deteriorating roads
The Colorado Department of Local Affairs states that some local governments are struggling to maintain roadways and bridges because of the increase in heavy haul vehicle traffic from oil and gas development. In general, the effect is a substantial decrease in the quality of roadways because of an inability to keep pace with the necessary maintenance and improvements.
Because most oil and gas activity occurs in the unincorporated rural portions of counties, those roads are not developed for commuter traffic loads or consistent use by heavy equipment vehicles such as drill rigs or service semis. As oil and gas development increases, the road limitations create congestion where none previously existed.
"Norse Energy delayed for nearly 18 months the implementation of a simple $10,000 road bond agreement that evolved into a $30,000 discussion with some strong resistance on their part, long enough for our town to experience road impacts that exceeded $300,000 in repair costs.
"Over 3 years, we have had nearly $550,000 in road impacts and subsequent repairs. When you consider our local road repair budget for materials and fuel is around $64,000... The local gas property taxes paid out under the current complicated, convoluted and inadequate state system do not touch this. Taxes paid to [our township] this year on an estimated $5 million in wholesale gas sales from 2008 is about $16,000 or about .3 percent of estimated revenues, since the companies are not required to disclose their actual revenues"
– Town supervisor in central NY writing to other supervisors, February 12, 2010
In small Cogan House Township in northern Lycoming County, PA, supervisor Daniel Roupp took matters into his own hands and blocked Buckhorn Mountain Road with downed trees to force the drilling company, Range Resources, to make repairs. For months, the township had asked Range Resources to repair the road.
In December 2011, the Department of Environmental Protection told the township it was in violation of erosion and sediment regulations. The compliance order required them to prohibit vehicles of more than six tons from the road and submit a plan for its stabilization.
Before natural gas drilling began, 10 to 20 vehicles a week used the road. Now, upwards of 200 trucks use it daily when fracking occurs.
The township tried to comply with the DEP order by erecting signs and using barricades banning heavy vehicles, but truck drivers ignored them.
Widespread drilling could substantially damage our region's "brand," and threaten long-term growth of tourism. Drilling would change pristine rural areas to gritty and industrial. Our region's ability to attract tourism may be damaged in the long-term, as the perception (and reality) of industrialization may far outlast the employment and monetary benefits of gas drilling.
Decreases property values and threatens public health
"Although you may see a boost in your tax rolls for the short term, you will pay in the long run with the drop in property values. For a small growing community like DISH it especially provides an obstacle for quality growth. There have been four large tracts of property for sale in DISH for several years with no real interest in purchasing the property. If you do manage to get some interest in the property, it will likely be something like a pipeyard or something else that continues to devalue the surrounding property. So getting quality growth in an area that has a large amount of exploration proves to be a large hurdle if not impossible."
--Calvin Tillman, former mayor of Dish, TX
Despite growing natural energy exploration and development in Grand Junction, h
ome prices are forecast to decline 5.1% in 2012, some of the fastest rates in the state.
While oil and gas development has economic benefits, it also has significant costs that are threatening public health, air and water quality, and quality of life. While oil and gas companies continue to reap record profits while enjoying billions in federal tax subsidies, rural communities suffer.
"The industry came into town and met with the bankers and they met with some educators at Colorado Mountain College and county commissioners and a few folks like that and they started telling these stories about this economic boom that was coming and everybody was going to be happy and it was going to be a little paradise and we were going to be awash in money - we were going to be rolling wheelbarrows of money into the front of the bank.
"What they didn't tell them was that sooner or later wheelbarrows full of money were going to be rolling out the back door of the bank because people were going to be losing their property values, their health was going to be affected, our infrastructure costs were going to skyrocket and there would be no tax money to pay for those things.
"And they didn't tell that to the bankers. "This is what the bankers found out two or three years or four years into the process."
-Duke Cox, Garfield County, CO
Pike County, PA, Commissioner Karl Wagner Jr. says, "If a property owner cannot get a mortgage or sell their house because of gas lease, they could petition the Board of Appeals to have the fair market value of the property lowered." That could result in lower taxes and less revenue for the county.
Jennifer Canfield, a real estate broker in the Upper Delaware Valley, PA, laments, "Even if sellers want to hand over the revenue derived from a future well, the clientele I've always relied upon don't care to come here for that.
"In my own case, the phone stopped ringing when it became widely known how many thousands of acres were signed up.
"It would be helpful if the same people who signed leases could see how much we have lost in revenue from property and home buyers who made use of local services, frequented retail shops and restaurants and hired local contractors for building and remodeling. We can someday, perhaps, recover from the economic downturn 'but leases run with the land.'"
Cost of cleanup
Billions of dollars have been spent in Colorado to clean up the legacy of the past. There are 17 Superfund sites in Colorado. Two of the sites are directly related to the production of armaments, including nuclear and chemical weapons. The remaining Superfund sites are related to mining, uranium or radium milling, industrial operations, and hazardous waste disposal. Industrial activities, mining operations (non-Superfund), leaking petroleum tanks, oil and gas production
, agriculture, and waste disposal have contaminated other areas. The total cost of cleanups and monitoring are unknown, but the cost runs into the millions of dollars annually.
"In my New Mexico testimony when asked by the Hearing Officer and Chairman of the Oil and Gas Commission about the chemicals found in the pits about to be closed, I had to admit that if the pattern of chemical contaminants continues to be the same as more and more pits are tested across the country prior to closure, it would appear that every well pad will eventually become a superfund site."
–Dr. Theo Colburn