Julia Ruxin: Interview

I interviewed Professor Timothy Kelsey, Ph. D. from Pennsylvania State University. He is a professor of Agricultural Economics and is the State Program Leader for Economic and Community Development. He earned his Ph. D in Agricultural Economics from Michigan State University in 1989. He conducts research on a variety of economic development issues in Pennsylvania, including economic impacts of Marcellus Shale development, and local government. The interview will be presented in question and answer form. Professor Kelsey’s responses are paraphrased.
Q: Do you think Pennsylvania should adopt a severance tax?
A: I cannot provide an answer to this question because it would require me to take a policy position.
Q: What tactics are other states using to hold drilling companies accountable for indirect costs of fracking that would be helpful for Pennsylvania?
A: Other states have severance taxes and use those dollars to ensure there is money to restore drilling sites if there are future issues. Dollars from severance tax collections are also used to help focus infrastructure development and help with public costs of development.
Q: What should people living near fracking sites do to minimize damages and other potential costs?
A: There is a range of things that can be done. For people who are leasing their land, it is important to specify in the lease agreement they want environmental protection. Environmental protection is not guaranteed unless the leaser requests it in the lease agreement. Leasers can also limit surface access to drillers; the leasers can allow horizontal drilling to occur, but they can deny companies surface access, which has a bigger impact on day-to-day use of the land. I highly recommend that leasers have their water tested before drilling starts. State law says if degradation is found, the drilling company is responsible for paying the cost of damage. This law only applies if there is a pretest to show what the condition of the water was before drilling started. The pretest can then be compared to a test of the water after drilling occurred, which would provide evidence to prove the contamination came from fracking activity.
Q: Are current bonding requirements sufficient and if not, what needs to be done to hold drilling companies responsible?
A: Many local officials would say bond rates, specifically for roads, are way too low. These bonds are at least 10 to 15 years old and have not kept up with inflation or the increased cost ofrepairing roads. There is a need for increasing bond limits. But, I have heard from local officials that many municipalities are not bothering to bond roads anymore because it creates challenges for other users, such as dairy farms and lumber trucks, even if they are only running one truck. Instead of bonding requirements, local governments have started creating formal or informal road use agreements with the drilling companies. The agreement states that if a company creates damage, the company will have to repair and maintain the roads at its own expense. Government officials said this technique has been working very well. In many cases officials say roads are in better shape now than they were before drilling activity started because the companies are building higher quality roads before they start using them. Municipalities with drilling have found a successful way to minimize road damage, so they are currently not as concerned with bonds.
Q: Overall, is fracking economically beneficial for states?
A: It depends on who is being considered. There are a lot of dollars to be made with Marcellus development. Royalty revenues could be millions, so in the case of people receiving royalty payments, fracking would be hugely beneficial. A lot of small businesses have experienced increased activity from fracking. On the other hand, there are real concerns with property values close to support sites. There are also questions about the tourism industry and how the presence of the fracking activity may deter tourists. One negative impact from development activity is that rent prices are tripling or quadrupling, a factor that may repel drilling companies. I have heard that drilling has created problems with low-income residents. In general, fracking is good for some, but creates challenges for others.