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Impact of Gas Drilling on Local Governments and Community Life

Impact of Gas Drilling on Local Governments and Community Life . Carol Chock December 7, 2011 http://tinyurl.com/GasAssessment. Carol Chock. Elected Official: Tompkins County Legislature District 3: city, town, university Chair: Facilities and Infrastructure Committee

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Impact of Gas Drilling on Local Governments and Community Life

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  1. Impact of Gas Drilling on Local Governments and Community Life Carol Chock December 7, 2011 http://tinyurl.com/GasAssessment

  2. Carol Chock • Elected Official: Tompkins County Legislature • District 3: city, town, university • Chair: Facilities and Infrastructure Committee • Vice Chair: Planning, Development and Environmental Quality Committee • Liaison: Water Resources, Strategic Tourism Planning • TCCOG Liaison: Tompkins County Council of Governments • Chair: TCCOG Assessment and Land Valuation Subcommittee

  3. Regulate first at federal and state levels • Federal: clean air, clean water, safe drinking water acts apply to all • Exemption to oil and gas industry affects local level • Domestic gas presented as national security; request to sell overseas has created mistrust • State level: further define parameters appropriate for the region, then enable locals to define their communities • Local level is where the rubber meets the road • This presentation will only scratch the surface of what we are dealing with on local level

  4. Federal Exemptions • 1. The Safe Drinking Water Act • 2. The Clean Water Act • 3. The National Environmental Policy Act • 4. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) • 5. Resource Conservation and Recovery Act • 6. Clean Air Act • 7. Toxic Release Inventory under Emergency Planning and Community Right-to-Know Act (EPCRA) • 8. Federal Hazardous Waste Regulations • 9. OSHA related to handling of radioactive material

  5. Local Government Impacts • Roads • Land Use • Public Safety and Emergency Response • Law Enforcement • Public Health • Housing and Hotels • Social Services • Assessment and Taxation • Fit with Local Economic Development Strategy • Competing economies, e.g. tourism, agriculture, wineries, hunting, fishing • Cumulative Impact • Community Character

  6. Socio-economic Analysis • DEC consultant projections • $2.4 Billion/30 years • 5 competing industries = $510 - $600 billion • Employment • 0.2% - 0.7% increase in NYS workforce • Total employee earnings • 0.1% - 0.5% of NYS wages

  7. Local Government Costs • Costs are unknowable • Drafting and oversight of new laws • County Health Department • Soil and Water Conservation District • Sheriff, accidents and overweight vehicle inspections, scales • Fire/EMS • Highway construction permits and road use laws • Social Services

  8. Comprehensive Plan Zoning Site Plan Regulations Special Permit Regulations Road Protection Law Critical Environmental Area Designation Aquifer Protection Regulation Wetlands Protection Wellhead Protection Regulation for Public Water Supplies Noise, Light and Air Standards Scenic Resource Protection Pipeline Regulations Mobile Home Park Regulations Subdivision Regulations Floodplain Regulations Stormwater Control Illicit Discharge Detection and Elimination Fees Local Government Tools

  9. Roads • DEC allows municipal authority • Advance preparation required • Inventory baseline road conditions • Select a regulatory strategy • Road Use Law and/or Voluntary Agreements (RUL and/or RUA) • Write local law and agreement policy • Coordinate with project permit process • Enforce local law

  10. Truck Impact DOT est: 1350 trips/well 1,200 trips/well X 10 wells/pad = 12,000 trips Dryden: 440 wells X 1,200 truck trips/well = 528,000 truck trips 528,000 trips X 5 Towns = 2.64 million trips Round trips = 5.28 million

  11. Tompkins County Road Use Law • Process • Took over a year • Coordination with towns and municipalities • Input from all stakeholders • Opposition due to Increased trucking, gravel demand • Road impact varies with size, weight, axel load distribution, road condition, time of year, precipitation • RUL and RUA option • Law • Legal approach • Threshold: 30 tons, 1000 trips • Triggered by building permit • Exempted activities

  12. Comprehensive Plan • In NYS, most important land use tool • Revised SGEIS added zoning compliance to permit application • Legal jurisdiction for local control • Lower level court decisions pending • New, local bi-partisan support for planning • Active Fall political season

  13. Land Use • Towns lack local planning staff • Comprehensive plans are old or nonexistent • Zoning outdated or nonexistent • Leases/drilling on land in residential use zones • Ancillary activities: truck terminals, construction companies, wellfield service businesses, mining for gravel, storage of chemicals • Increased need for housing, lodging and commercial services • Temporary “boom-bust” nature of activity

  14. Tompkins County Council of GovernmentsTask Force on Gas DrillingAssessment and Land Valuation Subcommittee • Gas leases affect ability to mortgage property • Lease information unavailable • Cumulative impact: ramping up affects individuals, banks, markets, governments • NYS systems to measure and tax gas production are insufficient • Local expenditure required years before cost recovery

  15. A)Gas leases affect the ability to mortgage property • Leasing, even without wells drilled • Affects individuals, lenders, market • Fannie Mae/Freddie Mac, Public market, e.g. SONYMA, VA, FHA • Underwriting requirements • Setback 200’ - 300’ • From dwelling or even boundary • No ancillary activities • Title insurance • No subsurface bore-holes beneath dwellings • Secondary market • Adjacent properties • Compulsory integration

  16. Can I get a mortgage? • No simple answer • Market tightening as drilling approaches • Need buffer zone around house AND improvements • Seller/bank/attorney time • Gas company may not still hold the lease • Requirements vary, Fannie/Freddie/FHA/VA

  17. B) Lease information unavailable • NYS is a “race” state • Individuals, market and government need complete, timely, accurate information • Property sale/purchase • Assessment rolls • Real estate industry • Secondary market • Fannie Mae/Freddie Mac • FHA/VA • SONYMA • Initial lease, extensions, memoranda • Confirm agreement of extensions by both parties

  18. Assembly Bills: Barbara Lifton • Filed Spring 2011: 1.  Require filing within 30 days 2.  Require lease filing in entirety 3.  Require plain language phrases 4.  Provide notice when leases are assigned 5.  Establish a state clearinghouse 6.  Require signatures of both parties

  19. C)Cumulative Impact: Ramping up affects individuals, banks, markets, and governments • Prior drilling had effect on individual properties • New drilling at scale to affect the market • Compulsory integration • Drilling, leases, in closer proximity to residential • Anticipation/perception affects market • Gas companies mortgaging their lease interests • Government preparation, ability to track ownership

  20. Compulsory Integration • Forced pooling exists in other states • Spacing units • History: designed to protect landowners in era of pocketed subsurface gas • Outdated and inappropriate application of the concept due to geological difference • Inappropriate due to cumulative impact, way that ramping up affects all levels • Creates additional issues terminating leases

  21. D) NYS systems to measure and tax gas production are insufficient • NYS currently taxes gas extraction through an ad valorem property tax on production at the local level, but has no severance tax • NYS unprepared to tax or track billing address in situations where there is severance of subsurface rights • New permit fees and severance taxes must cover local as well as state costs. • 8 options presented to Governor’s panel lacked local cost recovery • ORPTS staff recently reduced from 220 to 150 people

  22. NYS Taxation Methodology

  23. ORPTS Formula • ORPTS production value formula set in 1978 • Set for a different type of gas production decline curve (set for the 5-10 year cycle of traditional drilling, not the quick high and then steep drop-off of shale gas output) • Loopholes for industry are inherent • Discount rate at 17%, while ad valorem rates for competing activities at 8-10% • Production self-reported and meters unverified • Timing of production reports are not in sync with local tax cycle • Four year time lag

  24. E) Local expenditure is required years before cost recovery • Four year time lag between local budget, drilling, and receipt of taxes, best case • Production delay increases lag • Bradford County, as of 4/11: • 1700 permits, 240 producing wells • Price influence on production timing • Industry strategy for NE formed at $12/mcf • Break even pricing estimated $4-7/mcf • Gas price currently $3.63/mcf • Fee/tax to cover local/state costs upfront

  25. Gas Drilling, Production and the Assessment Cycle LAG BETWEEN DRILLING & PRODUCTION Year 1 PRODUCTION—Year 1 PRODUCTION—Year 2 Production for Year X reported Year 2 Value Placed on Assessment Roll Taxed on School Taxes Taxed on County Taxes Production for Year X reported Year 3 Value Placed on Assessment Roll Taxed on Village Taxes Taxed on School Taxes Year 4 Taxed on County Taxes Taxed on Village Taxes Well is constructed—Mid year, Year 1

  26. Gas Drilling, Production and the Assessment Cycle LAG BETWEEN DRILLING & PRODUCTION Year 1 Year 2 Year 3 PRODUCTION—Year 1 Production for Year X reported Year 4 Value Placed on Assessment Roll Taxed on School Taxes Year 5 Taxed on County Taxes Taxed on Village Taxes Well is constructed—Mid year, Year 1

  27. Town of Caroline Tax Example This is an estimate for illustration purposes

  28. Property and Land Valuation • Most frustrating part of our work • Projections unverifiable and vary widely • NYS distinguishes sweet spot vs. adjacent properties • Denton, TX and other examples show change over time • Boom/bust cycle

  29. Comprehensive Plan Zoning Site Plan Regulations Special Permit Regulations Road Protection Law Critical Environmental Area Designation Aquifer Protection Regulation Wetlands Protection Wellhead Protection Regulation for Public Water Supplies Noise, Light and Air Standards Scenic Resource Protection Pipeline Regulations Mobile Home Park Regulations Subdivision Regulations Floodplain Regulations Stormwater Control Illicit Discharge Detection and Elimination Fees Local Government Tools

  30. Global Decisions have Local Impacts • Decisions • Financial and environmental risk • Manage risk at FEDERAL, State, local,Levels • Impacts • LOCAL, State, Federal • Costs • Local, State, Federal • Individuals, competing businesses, regional economies, local governments • Participate in the Public Process

  31. Submit Comments to DEC • December 12 Deadline • Written Comments • Electronic Comments • Handout: Navigating the Process tinyurl.com/GasAssessment

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