At last an economic impact study that includes an analysis of where the revenues/profits actually go has been done, this one in the Marcellus Shale region. The study has shown that the number of jobs created by natural gas drilling companies is about half of what was promised but more importantly it examines where the real money, the revenue from these activities actually ends up and more often than not it doesn’t stay in the area.

The study, issued Monday by the Marcellus Shale Education & Training Center, a partnership of the Pennsylvania College of Technology and the Penn State Extension, also said that about half of the land being leased by drillers was owned by people living in those counties in 2009 — the rest was owned by people or firms based out of state or elsewhere in Pennsylvania, or owned by the state itself.

That means much of the leasing and royalty money derived from drilling goes out of the county in which the drilling takes place, according to the study.

It’s an economics phenomenon known as “leakage” — money that looks as if it is benefitting a particular area is actually going elsewhere. And it’s not an economic phenomenon native to gas drilling: Coal interests, limestone and gravel deposits and other mineral-related economic activity is subject to the same kind of leakage.

Coos County economic development efforts driven by both the Port of Coos Bay and SCDC seek to attract foreign investment like an LNG terminal or chromite strip mining are automatically setting the local economy up of for this type of leakage. Some of that leakage has been discussed here. The bulk of ORC profits are exported, along with their tax breaks, to foreign investors and not reinvested locally. The study has attempted to measure the change in local tax revenue and employee earnings.

A paper survey was sent to the Chair of the Township Supervisors or Borough or City Council President in each
municipality during fall 2010, and a follow up postcard and subsequent letter were sent to nonrespondents. Responses were received from 293 of these municipal governments for an overall response rate of 59 percent.

Of the 293 responses, 131 reported that Marcellus development activity is occurring within their jurisdiction. Such activity included drilling, but can include pipeline construction, major truck traffic, pipe yards or other staging areas, worker housing, or other Marcellus‐related activity. Of these municipalities directly experiencing development activities, about 75 percent said that Marcellus Shale development had not affected their tax or non‐tax revenue. About 18 percent said that revenues had increased, and one reported revenues had decreased due to Marcellus development. Another 6 percent did not know how revenues had changed.

Most importantly the study acknowledges that there are costs associated with any new development and those costs, monetary and environmental, may have far reaching impacts with the potential to negate any short term gains.

Existing economic impact studies of Marcellus development, including this one, have focused almost exclusively on job and income creation resulting from gas industry spending, including leasing and royalty payments, payroll, and purchases from other businesses. In contrast, no economic study has included the potential costs of Marcellus Shale development, such as the impact on existing businesses losing employees due to Marcellus activity, damage and cleanup costs resulting from accidents or environmental degradation, or higher state and local government costs due to activity…

To focus only on jobs, income, or tax revenue without putting those into a broader context can be very misleading and costly in the long run.

The authors also explore the issue of who really benefits and who actually bears the costs. Another way to look at this is to consider whether the risks are socialized while the profits remain privatized.

Other long term issues need to be taken into account including baseline monitoring of environmental conditions and the other industries that rely upon healthy ecosystems.

(hat tip/Chuck & Holly)