Shale fees temporary windfall for many
By Liz Hayes
Published: Sunday, January 6, 2013, 12:01 a.m.
Updated: Wednesday, January 23, 2013
The budget-planning process, often an arduous task for municipal officials, was made easier for some communities this time around by an influx of Marcellus shale natural gas revenue.
In late 2012, about $1.5 million was funneled into the coffers of Alle-Kiski Valley communities from impact fees paid by area drillers under the state's Act 13 that addresses unconventional gas-well drilling.
Another $4.3 million was distributed among Allegheny, Armstrong, Butler and Westmoreland counties.
Washington Township received $378,000, the largest amount locally.
Only about 40 communities across the state received more, according to data from the state's Public Utility Commission.
The annual Marcellus revenue for municipalities is capped at $500,000, or 50 percent of a municipality's 2010 budget. Cumberland Township in Greene County was the largest recipient with slightly more than $1 million.
At $33, Blawnox received the least locally.
Most of the Valley's communities in Allegheny County received less than $1,000; Fawn and Frazer were the only local municipalities with substantive revenue.
The amount of money distributed to communities depends on how many Marcellus wells they have and how many wells are operating within five miles of their borders.
Even if a community has no nearby wells, it still likely will receive some money if it is within a county that has wells.
The law allows municipalities to use impact fees for a variety of purposes: maintenance or improvements to roads, water systems or sewers; emergency preparedness; environmental programs; tax reductions; planning; and employee training.
A survey of local communities revealed officials plan an array of uses for the money.
In Washington Township, where the impact fee represents about 15 percent of the township's budget, Supervisor Richard Gardner said the money will be used for a combination of road work, equipment purchases and an expanded walking trail in Kunkle Park.
Gardner, like several officials interviewed, said township supervisors still are working out the details. But he said he believes the majority of the money will be directed toward road projects.
“We've been behind on paving due to the cost of asphalt,” he said.
Washington Township has been especially attractive to drillers, particularly around the Beaver Run Reservoir property owned by the Municipal Authority of Westmoreland County.
According to Department of Environmental Protection records, the township had 18 spud wells — wells at which active drilling began — in 2011. Drilling must have begun for a well to be assessed an impact fee.
The only other local communities to receive six figures in Marcellus revenue were Manor Township, East Franklin and North Buffalo, all in Armstrong County.
Each received just over $100,000.
North Buffalo Supervisor Rick Adams said they'll use their $104,000 allotment to replace a 20-year-old public works truck and improve roads.
The township had five spud wells in 2011 and another seven last year, according to the DEP.
Adams said the money is welcome, but noted the township's roads are bearing the brunt of the heavy equipment used to drill wells.
“We're going to have to work on all of the roads because they've done so much damage and the road bonds aren't enough (to cover the cost of repairs),” Adams said.
Neighboring South Buffalo is feeling the same pain, said Supervisor Terry Van Dyke.
“The weight of the machines and stuff they use is astronomical,” he said. “The roads were never built properly — they were just cow paths that were used in the'20s, '30s and '40s. They don't have a good base.”
With only two spud wells in 2011, South Buffalo received about $43,000 in impact fees. But four more wells were begun last year and drillers continue to show interest in the township, Van Dyke said.
He said supervisors targeted the money toward road equipment and road repairs.
“Anything you get is a plus,” Van Dyke said of the impact fees. “But I want to remind everybody, this natural gas brings jobs, but it comes with a price that the community has to pay. We're trying to keep roads the way we want them.”
Bell and Frazer townships are two more communities that will use the money for road repairs.
“It will help us out a good bit,” said Bell Supervisor John Bowman. His township's $29,000 allotment amounts to about 6 percent of the township's budget.
Frazer Supervisor Lori Ziencik said officials will use $55,000 toward a resurfacing project on Days Run Road.
They've budgeted about $200,000 toward that work, but Ziencik said they're in the planning stages and aren't sure how much the project will cost or how extensive it will be.
“It eases the pain of so many unfunded mandates,” Ziencik said of the Marcellus revenue. “So many times local government feels the brunt of legislation from the county, state or federal government and we're left to pick up the pieces.
“It's about time,” Ziencik said, although she and others indicated more of the impact fee revenue could be given directly to municipalities.
The Public Utility Commission collected about $204 million from drillers in 2012. About 10 percent of that money was distributed to state agencies.
Of the remaining $181 million, a formula is used to divide the revenue between the municipalities, counties and the state's Marcellus Shale Legacy Fund, which benefits an array of infrastructure, environmental and other programs.
About $68 million was divided among the municipalities and $38 million to the counties, according to PUC figures.
After the intended disbursement was announced in October, the PUC had to recalculate the share for some municipalities to correctly reflect the amount owed to those with wells located in neighboring communities.
In the Alle-Kiski Valley, those changes generally were minor except for Arnold, Lower Burrell and New Ken-sington where the allotments doubled.
Arnold received nearly $13,000 and Lower Burrell and New Kensington each received about $30,000.
New Kensington City Clerk Dennis Scarpiniti said the city likely will use the money for road projects. Another possibility is directing it toward the replacement of the deteriorating access bridge into Memorial Park.
Lower Burrell Mayor Don Kinosz said his council hasn't come to a firm decision on how to use the city's share.
He will recommend gearing it toward the promotion of economic development. City officials have been trying to market the largely vacant Burrell Plaza property for several years.
Boost from neighbors
With no wells drilled in the three cities in 2011, they capitalized on their proximity to wells in neighboring towns.
Fawn Township is in a similar situation. The DEP reported no spud wells there in 2011, but the township still received about $27,000.
“Next year we stand to get more,” said Supervisor Dave Montanari. DEP records indicate four wells were begun in Fawn last year, and Montanari said another just started operations in the past week.
He said supervisors haven't yet decided how they'll spend the impact fee money.
One possibility is a tax rebate for residents, but that will remain up in the air until supervisors have a better idea of what will happen with their tax revenue through Allegheny County's property reassessment process.
Winfield Supervisor Matthew Klabnik said his township also benefited from wells in neighboring townships.
Winfield only had one spud well in 2011, but several nearby wells helped boost Winfield's share of the pot to $67,000.
That's more than neighboring Jefferson Township's $44,000 — even though Jefferson had two spud wells that year.
Jefferson Township Secretary Lois Fennell said supervisors opted to deposit their money into a capital reserve fund. It could be used for road projects or equipment, but they haven't settled on a definite use.
Klabnik said Winfield officials will use their money for a variety of items, including funding a comprehensive plan, updating 10-year-old office computers and completing road work.
Although the money amounts to almost 10 percent of Winfield's $700,000 budget, Klabnik said they have to keep in mind the impact fees are not a guaranteed recurring source of income.
The amount generated by each well will decrease over 15 years. A formula that takes into account a well's age, productivity, the average cost of natural gas and whether the well has a horizontal or vertical shaft establishes the fee its driller owes.
Generally, a driller owed $50,000 for each horizontal Marcellus well in 2011.
The same well likely will be assessed a $40,000 fee for 2012; $30,000 for 2013; then $20,000 each for years four through 10; and $10,000 each for years 11 through 15.
“The challenge is not thinking it's going to keep coming forever,” Klabnik said.
Liz Hayes is a staff writer for Trib Total Media. She can be reached at 724-226-4680 or firstname.lastname@example.org.
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