Tuesday, November 16, 2010

Parking on my mind... and your daily marcellus

Headline of note from Bloomberg: Morgan Stanley Chicago Parking Makes Cities Redo Deals

Among the things I still don't quite get about the parking story thus far..... if it was such a good idea to lease much of the city's parking assets, then why did the county recently reject outright considering  a similar leasing plan for airport parking? They spent a fair bit studying the concept. That is a bit more perplexing given the newsoid yesterday that airport parking revenues are up.  The airport parking really ought to be a much more attractive asset for potential leasors...  All cheaper to maintain surface lots, no big unknown cost of maintaining old vertical structures.  Virtually none of the uncertainty introduced by the political process now or in the future.  Pretty much a captive demand and what I understand are pretty high utilization rates out there.  Just makes you wonder what the back story is behind both deals that makes leasing city parking such an attractive idea to some, but leasing airport parking a complete non-starter.  There is a story there somewhere.

and for your daily marcellus, I find the whole story that the drilling industry is threatening retribution against the city of Pittsburgh because of efforts to regulate drilling in the city a really fascinating little spat. I am racking my brain to think of comparable attempts by an industry to hurt a specific municipality over proposed legislation.  This really has the potential to be a big story in public administration world.  Certainly ranks way up there on the Dale Carnegie (how to win friends and influence people) scale.  It also is a fascinating case study when it comes to municipal finance and regionalism.  The things the industry are threatening to hurt Pittsburgh with are indeed for the most part potential economic negatives for sure... but in most cases they are negative for the Pittsburgh region or Allegheny County, NOT things that will impact the City of Pittsburgh much as best I can tell.  Things like threatening to not have conferences in Pittsburgh.  Well, guess what.. the hotel tax goes to the county?   The hurt put on the Sports and Exhibition Authority (SEA) could conceivably hit the city in part some day, but the SEA is half a ward of the county.  Could hurt some Pittsburgh-located businesses I suppose, but most workers in the city are not city residents so it's hard to see any income tax hit.  A property tax hit?  Possible in the very long run, but a base year assessment system makes incremental changes in real estate valuation pretty inconsequential to municipal finances.   Maybe those marcellus shale firms will stop locating in the city of Pittsburgh proper?  Oh, wait.. nevermind that one.  So you can really tie together whole bunches of policy issues in this. It really is pretty fascinating; I hope this one heats up some more.  I see a journal article on it all some day.  All sorts of great titles possible for it: The City vs. The Shale or something like that.  Probably does not rise to the level of movie script fodder.

The stranger thing is that I thought for sure the Marcellus Shale Coalition was on record once saying none of its members were engaged in development of shale drilling inside the city proper.  So why do they care so much?  I suspect the sheer symbolism of a municipality saying no has implications elsewhere in the state is pretty important to them.

and just because the Pittsburgh 2 degree rule is ubiquitous...   Airport parking revenues I suspect are up because of the news that airport traffic has actually turned up after a long period of decline.  Why is that?  Nobody ever really wants to talk about it, but I will lay good odds that airport traffic is up because of Marcellus shale workers flying in and out on their temporary work shifts.  


Anonymous BrianTH said...

Any theories about why the Marcellus Shale coalition is so confrontational? It violates what I understand to be the standard PR practices in the U.S. oil and gas industry, and other similar industries.

Tuesday, November 16, 2010 8:14:00 AM  
Anonymous MH said...

I blame soccer. When I was little, we learned that if you go knocked down, you got up and ran at the guy hard on the next down. Kids today, in addition to not getting off my lawn, learn to fall down at the slightest touch and wait for the referee to take care of the other guy.

Tuesday, November 16, 2010 9:21:00 AM  
Anonymous MH said...

"got knocked down." We were too busy to spell.

Tuesday, November 16, 2010 9:22:00 AM  
Anonymous Anonymous said...

I don't know. There's a really big building with the letters "EQT" on it downtown. I thought they might have a little something to do with the marcellus.

I don't think this is as black-and-white as CB wants it to be. My friends in the industry tell me that the Coalition has tried to work with Council, but that Shields won't even talk with them. They believe that they are being used by Sheilds to burnish his credentials for another run at Mayor, or state rep or senator.

Personally, I'd rather see our elected and marcellus business leaders have a rational discussion about responsible shale development. It's here; let's deal with it.

But, no. Both sides seem to have decided that extreme positions serve them best: "No Drilling. Never!" vs. "No severance tax. Never!" It is America 2010, and reasonable compromise has apparently left the building for good.

Tuesday, November 16, 2010 10:19:00 AM  
Blogger C. Briem said...

News flash: Doug is no longer City Council president; just one voice on council. Don't overinterpret that Doug gets the media quotes as being more than that. Plenty of issues Doug is the only one hanging out there by himself without Council support... so this is not about him at all.

and then the industry folks are the only people in town who do not know that the only plans Doug has are to run for DJ.. for which there is not all that much upside for engaging like this. Maybe a little, but not much... But it is much longer story and the neighborhood groups in his district were among the first impacted by potential drilling have been working to get responses from the industry for a couple years now. I would agree it is worth a media story to see how the Lincoln Place neighborhood groups have been interacting with the industry and how that is going.

EQT.. a great example. anyone want to parse out how much its location there adds revenue to the city budget? Again, a regional plus, but we are talking about the city budget here. How many EQT employees at the site are city income tax paying residents? Was that parcel TIF'd? Do their parking fees add to the city budget or go elsewhere? Just asking? and even so, it may be more exception than rule.... a dicto secundum quid ad dictum simpliciter

Tuesday, November 16, 2010 10:37:00 AM  
Anonymous MH said...

Everybody in politics has convinced themselves that the other side is so odious that they can be stubborn/stupid/strident and still win. The alarming thing is how often that supposition will turn out to be correct, per a few weeks ago.

Anyway, Shields has basically gotten various drillers to argue that they should be able to drill on any open piece of ground in a sort-of populated city. And he got them to do it while everybody still remembers BP in the Gulf, while a guy was burned to death in a drilling accident just outside the city*, and while the people who say drilling made their wells go poison are in the paper.

*I know that was gas in a different level, geologically speaking, but I don't think that will be an important distinction to anybody worried about a gas rig down the block.

Tuesday, November 16, 2010 10:52:00 AM  
Anonymous Anonymous said...

So, I take it then that you'd have preferred that, instead of moving into a half-empty downtown building, EQT should have pulled up stakes and moved to Louisville, like they considered doing (and take along the jobs and civic pride that come with it)?

I just don't understand why everyone has to use every issue today as a "wedge". There are compromises here, people. Ones that preserve jobs, grow an industry, provide reasonable protections for the environment and those of us who live in it, and, yes, good royalties for people who can probably use them. Shouting, and saying "no" like a four year old, is not productive.

Tuesday, November 16, 2010 11:19:00 AM  
Blogger C. Briem said...

you are completely switching issues... This story is about the MSC attacking the City of Pittsburgh and the cost benefit for the city. If you want the city to take the fall for regional benefits which I have acknowledged several times then someone should address that. But as the political process is playing out you clearly see that from a city perspective the negatives outweigh the benefits.

so no.. I prefer no such thing.. and unfortunately civic pride does not help the city deal with its budget. Compromise is a great idea. Let's forget MSC and City Council. What does the city see the industry is putting on the table for them to accept a compromise. That is a very serious question. Since the city is being asked to give up something that the poltical process is saying is pretty strongly desired, compromise implies there is something on the table if they compromise and give in to what industry wants. What is even on the table? Nothing in the media accounts give a clue to that if there has been such offers out there. Sure sounds like industry just wants the city to fold completely on this. Granted at this point city is taking the opposite side at this point.. but this issue has been brewing for some time and it didn't start this way.

Tuesday, November 16, 2010 11:36:00 AM  
Anonymous Anonymous said...

I didn't change topics. You said, and I quote, "Maybe those marcellus shale firms will stop locating in the city of Pittsburgh proper? Oh, wait.. nevermind that one."

Tuesday, November 16, 2010 11:39:00 AM  
Blogger C. Briem said...

So you are implying that EQT's 2nd best option if the city location on the North Shore fell through was NOT a location elsewhere the region, but somewhere else altogether. I doubt that.. even so.. from a city perspective I suspect it is more exception than rule.

Tuesday, November 16, 2010 11:56:00 AM  
Anonymous The Wiz said...

I was trying to keep quiet but I couldn't help myself;

First, Mr Shields is calling for a total ban which, as I stated on an earlier post, is illegal under the state municipal code. They can pass all sorts of zoning to restrict it, even enough to make financially unfeasible but they cannot outright ban it.

And Mr Shield knows this but is going to cost the city millions in legal fees. So what is his motivation? I don't know but it is entirely possible it is done for political purposes. If Pittsburgh wants to be the guinea pig in an expensive lawsuit that they will almost certainly lose, that is their right.

Second, the MSC is trying to protect the industry from both illegal restrictions and the false and inflammatory statements made by others. They have said that drilling in the city can be done safely with correct restrictions. They have not, to my knowledge, outlined what restrictions could be worked out. That is a failing on their part that has hurt them in the PR battle.

Also, the city is already getting considerable benefits not only from EQT but also law firms that are doing work for the drilling companies, the municipalities, and even landowners needing legal and estate planning work. And probably environmental firms doing permitting work. Add in government employees doing various regulatory work and fees for said work. Not to mention the restaurants, bars, retail shopping business frequented by all these people.

As for the leases signed in the city...according to the map Briem posted a few days ago, almost all are on the city perimeter. Since some companies are now drilling the horizontal legs over 9000 ft, these areas can be accessed by drilling sites located nearly two miles away outside the city. And as the technology continue to improve, the horizontal legs will get even longer.

Same for other areas. It would be possible to drill at an industrial site along Saw Mill Run Blvd and drill under Mt Washington, the Mon River, Point Park and beyond. Since it would be 6000 ft below the surface no one the surface would even know. And the city and all landowners would get huge royalty payments. Same could be said for Pitt, CMU, Duquense, city and county buildings, the jail/prison. and more.

What council should have done was started two years ago by having public hearings with public and industry input. Then study the laws of areas such as Ft Worth where this drilling has been ongoing for decades. Then pass appropriate restrictions as needed.

They could do such things as restrict all surface activities to only areas zoned for industrial activities, call for a 1000' setback from all occupied buildings, restrict hours of operation, require sound walls and earthen berms. They could even require that all water used be purchased from ALCOSAN enhancing their revenue stream. And require they recycle all return frac water so that there is no water to dispose of.

I don't know if would meet legal challenges to allow only below surface activities in the city so that land could be accessed from bordering communities on the city perimeter but it is an option to look into.

I'm not saying that drilling should be allowed. But City Council should look at all options, consider the costs vs benefits, and then make a rational decision. They could even declare a single test site at an isolated brown field or heavy industrial site and do one demonstration/test well. But an illegal outright ban with all the hysterics is a poor way of doing the people's business.

Tuesday, November 16, 2010 1:25:00 PM  
Anonymous MH said...

And Mr Shield knows this but is going to cost the city millions in legal fees.

More of the disaster scenarios. Everybody's got one and ever since government officials argued that paying the bonuses for Merrill Lynch traders was somehow vital to the free world, I'm in favor of pushing back first. I wonder if Shields wasn't threatened once too many times also. I understand state law is currently, but do any of the drillers really want to make it common knowledge that state law prohibits municipalities from controlling extraction in their borders? I can’t see how starting that debate, which is what would happen if they sued, wouldn’t hurt them badly regardless of who won in court.

Tuesday, November 16, 2010 1:42:00 PM  
Anonymous The Wiz said...

So a city that is under Act 47 wasting millions defending a lawsuit they can't win is a disaster scenario?

Merrill Lynch....and I get accused of going astray of the topic.

How about the drillers saying "State law says its illegal to ban drilling. Drop this silly law, lets sit down and work out a system that can work for everybody. After all, Ft Worth has done it, why can't Pittsburgh? We will be willing to do one single demonstration well at the site of your choosing. Lets sit down and work it out."

Then City Council and the MSC sit down, figure out a site, set up reasonable restrictions, put it out to bid, and then drill a well with proper over sight.

Is that so difficult???? Yeah, I guess so.

Tuesday, November 16, 2010 3:22:00 PM  
Anonymous MH said...

Because people get all slack about obeying the rules when there is money to be made and people who are supposed to be watching them are clearly not capable was watching much. A drilling process that involves huge amounts of waste water belongs outside of city limits.

Tuesday, November 16, 2010 3:45:00 PM  
Blogger C. Briem said...

So one of the main economic benefits you can identify to the city come from lawyers working downtown? I am not sure that is the argument you want to hang your hat on, but hold that thought.

Again, read the news articles on this. They all confirm that city council voted UNANIMOUSLY on this ban. That would mean all of them. Pittsburgh city council does not vote unanimously like this to agree that the sun rises in the east. They certainly have never followed Doug Shields on something like this because of any position he has on this. Doug probably engenders a few votes against whatever his position is on most topics just because it is his position. So to keep mentioning him is at best ad hominum.

Agree with it or not, this is by far the most grassroots driven vote in city council history. I lay odds there is a memo out there to try and make Doug the bogeyman on this.. and he may enjoy the role.. but this has very very little to do with Doug per se. remember ALL city council voted for this with a historic little amount of argument. That is a story in itself.

Why is it that the MSC is not attacking the South Fayette council over effectively banning drilling everythere. There is not much left in South Fayette once you exclude neighborhoods, parks and farms. Is any industry representative calling out by name South Fayette councilors? In fact I bet a disproportionate of those lawyers working in Downtown Pittsburgh reside in, pay property tax in, pay income tax in, and otherwise make investments in…. South Fayette. Are they going to be instructed to move or lose business?

Again…. You keep saying there are these economic benefits but can you point to any economic data out there showing any $$ coming to the city as the result of anything you point out? YES… YES… economic benefits that are out there, but the vast majority are accruing to folks in the region.

Wiz.. you are so up on things. Forget MSC and city council. From your extensive knowledge of this can you tell us what the industry has put on the table for the city to even consider. Neighborhood groups have been begging for years just for phone calls back to them.

I do like bringing up Act 47. We can probably tie all current issues together on this one topic.

Tuesday, November 16, 2010 4:30:00 PM  
Anonymous The Wiz said...

"Huge amounts of waste water"

Drillers use about 5 million gallons of water to frac a well. About one million is returned to the surface after the fracing is completed.

A million is a huge number that my feeble brain cannot comprehend. I did an online search to see how much water an Olympic sized swimming pool holds. Turns out to be 600,000 gallons. So each well produces about 20% less than two Olympic pools. Not exactly a "huge amount."

Tuesday, November 16, 2010 4:35:00 PM  
Anonymous MH said...

That's still enough water to slime two acres in a foot of contaminated water.

My favorite part is going to be when one gas company is arguing that a ban on drilling in the city infringes on the rights of property owners while another gas company is arguing for eminent domain to run the pipelines or for forced pooling.

Tuesday, November 16, 2010 4:54:00 PM  
Blogger Jim Russell said...

The MSC is framing any vote against industry position as a vote against economic development for the region and the state. The rhetoric simply isn't credible. So we get threats about investment moving to Louisville or Poland. Pure crap.

The MSC is run by bozos. This isn't the first time that the gas industry dropped the ball. If Klaber is the best they can do, then I fear for Marcellus Play.

Tuesday, November 16, 2010 6:25:00 PM  
Anonymous The Wiz said...

but can you point to any economic data out there showing any $$ coming to the city I seriously doubt that any studies have been done as the first well was just drilled only five years ago and the land rush is less than four years old.

I have lived in the New Castle area my entire life. I always felt that, even though New Castle is outside of the Pittsburgh Metro area, what was good for Pittsburgh was good for the entire area. Conversely, what is good for the area is good for Pittsburgh.

There are 3,419,520 acres in the seven county Pittsburgh metro area. If just half of that land gets leased at $4000/acre that comes to $13,678,080,000. That's over 13 billion dollars And that's just for leases. Billions have already been spent on leases in the Pittsburgh area.

Royalties will figure roughly four or five times that over the next 20-30 years. Dumping that kinda mullah ($60 billion) into any area will have huge affects. Then add in what Lawrence, Greene, Fayette, Armstrong and Indiana would bring to the table and your talking real money now.

Just the Pittsburgh stock brokers and mutual fund salesman will handle billions of investments and generate millions in tax revenue. Not to mention all the financial advisers, estate planners, bankers, lawyers, realtors, and more.

People flush with cash will spend huge amounts in the city at just about every business in town. Why Pitt may even sell out a football game other than WVU or Notre Dame.

Just because only a few checks with "City of Pittsburgh" written on them have been issued doesn't mean Pittsburgh isn't already getting substantial economic benefits from this play.

Tuesday, November 16, 2010 11:02:00 PM  
Anonymous The Wiz said...

oops, forgot to divide the acreage by 2 so the numbers would be $6.5 billion and $30 billion, still substantial numbers. And I imagine that more than half the land will be eventually leased.

Wednesday, November 17, 2010 9:48:00 AM  
Anonymous MH said...

That's a lot of money. Just out of curiousity, does that bump the value of the land for property tax purposes? I wasn't aware that most rural land could get $4,000 an acre when sold (unless it had development potential or something).

Wednesday, November 17, 2010 10:50:00 AM  
Blogger C. Briem said...

the answer to MH's question is no: http://www.post-gazette.com/pg/10272/1091045-455.stm

Wednesday, November 17, 2010 11:31:00 AM  
Anonymous MH said...

That's about a specific mineral tax. I know property tax assessments are disconnected from market values around here (thanks to Dan O., I've benefited), but you'd think that being able to lease the land and get royalty payments would raise market values and that would eventually appear in assessed values.

Wednesday, November 17, 2010 11:57:00 AM  
Anonymous The Wiz said...

MH; leases and gas rights are not taxed as real estate. But you are right that as land is sold and re-sold, the prices will go up ....if the gas rights are sold with the land. But the gas rights can be withheld and/or sold separately so not all land will escalate and some may even lose value.

Imagine you are buying fifty acres of land. The gas rights have been leased but are not part of the title transfer. The new surface owner will have no say-so in what a drilling company will do if they decide to drill including placement of access roads, well location, pipelines, and more. Would you pay full market value for land with such potential activities on it?

One remedy would be to pay for a partial ownership of the lease, say 10%. Then you are also part owner and have some say in surface activities. And you would get partial royalties, depending on the percentage of your lease ownership. And be very wary of the lease language before you buy.

Sidebar; I was in Emporium with my brother in 2003. We looked at 100 acres for $50,000 including gas rights. Didn't but it. Five years later it was leased for $4,500/acre plus 16% royalties! Coulda retired! Can't get land for that up there any more.

Wednesday, November 17, 2010 12:51:00 PM  
Anonymous MH said...

Thanks. It just struck me that leases going for that much would have to increase the price if sold with rights.

Wednesday, November 17, 2010 3:29:00 PM  

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