Wednesday, December 22, 2010

Biz friendly Pennsylvania

I need to apologize.  I have been harshing on the Marcellus Shale Coalition for their loud calls for boycotting the City of Pittsburgh and asking why they do not engage in similar tactics with New York State which has a much more extensive moratorium on Marcellus Shale development.  Yet, I guess I was wrong to a degree.  According to this story out of Albany, it sounds like the shale industry is in general attacking New York as well.  The money quote (literally) is:
"New York was the butt of many jokes by speakers involved with Pennsylvania development. One thanked New York for sending all of the investment capital to Pennsylvania."
Wow.  "Sending all of their investment capital to Pennsylvania".  How often do you hear folks proclaiming how business or investment friendly Pennsylvania is?  I'd get some of these people doing commercials for the next Pennsylvania economic development marketing campaign.  Like Jeff Daniels does for Michigan.


Anonymous The Wiz said...

A few weeks back, there was a WSJ article on the gas play in Pa. They said that Chesapeake has already invested 1.1 billion dollars just in leasing payments. And they are just one, albeit one of the larger, of the 30 or 40 players in Pa so the total invested has to be between $5 and $10 billion but I am just guessing.

The MSC should do a press release on just how much has already been invested. They should do a total economic impact study including leases, royalties, payroll, taxes, fees, real estate, materials, and more.

Add in all the royalties and ancillary fees and you can see why Pa should send NY a big thank you card.

Wednesday, December 22, 2010 10:26:00 AM  
Blogger C. Briem said...

There is a great question for an economics test... does a bump in savings increase economic activity?

No reason to ask MSC to redo their impact report. Professor Christopherson at Cornell is working on the next omnibus Marcellus Shale impact report that we will see. I would just read that when it comes out.

Wednesday, December 22, 2010 12:15:00 PM  
Anonymous The Wiz said...

I doubt if all goes into savings. I imagine the first thing is pay off all debts. Then many by a new vehicle....lots of new trucks up in God's Country. Maybe fix up the farmhouse. Then sit back a few months and decide how to invest the rest.

The Cornell study will be interesting. And should be less biased than anything the produces. When is it due?

Wednesday, December 22, 2010 12:29:00 PM  
Blogger C. Briem said...

Lots of local jobs generated by buying a new truck. They taught me that in economic impact class.

Wednesday, December 22, 2010 6:22:00 PM  
Anonymous The Wiz said...

There is a great question for an economics test... does a bump in savings increase economic activity?

Didn't see a "local" reference there. And "buying a new truck" is a small part of the calculus.

Truck = $30,000
Bonus = $100,000 or more
Royalties = five to ten times that

Tell me, where in Econ 101 do they teach that a $5 billion infusion of cash would have no local economic impact?

Thursday, December 23, 2010 9:34:00 AM  
Blogger C. Briem said...

If the reference is not local, then your point is that jobs are being created in Detroit (or wherever your truck of choice is made)? I think most discussion on this topic is locally focuses.. i.e. what is the net new permanent job creation in Pennsylvania.

Seriously though. might be worth reading any of the tome of national economic stories discussing how the goal is to get folks to spend and not save as a means to push up growth and jobs.. there may be an analogy in that for how to interpret what is happening in Pennsylvania.

We could look at this another way and without getting too personal. How much has your own expenditures gone up based on your anticipated earnings from the land you say will be auctioned off (or did that happen). Rational expectations would say you are not waiting to get the money before spending to a degree. Take your increased spending this year over last.. we can guestimate a job creation number from that and then we can extrapolate across a rough number of similar sized new leasors across the state.

That would be a fun exercise.

Thursday, December 23, 2010 9:45:00 AM  
Anonymous BrianTH said...

Obviously payments to incumbent landowners will have some local economic impact. I think the point is just that in an economy like ours, lots and lots of the total economic impact will leak out to other places.

Fortunately for the industry, I don't think the case for embracing Marcellus as a local economic driver depends on those payments. But they would probably be well-advised not to over-rely on those payments in making their case, particularly since it is only a matter of time before stories of the people getting those payments moving out of the area, or assigning the rights to someone out of the area, and so forth, become common.

Thursday, December 23, 2010 10:48:00 AM  
Anonymous The Wiz said...

There is almost nothing one can spend their money on without much of it leaking out. Clothes, food, building materials, just about everything is made elsewhere. But all of that creates jobs and taxes.

And most of the jobs are going to local people, despite what the naysayers are nayying. Each well requires 500 truckloads of water and materials. Thats lots of truck drivers. Each well needs lots of excavation for roads, well pads, pipelines, retention dikes. Add in permitting, inspection, legal, environmental issues, hotels, restaurants, tools and equipment, the list goes on. Its just some of the more technical jobs are going to imported labor until locals can be trained. And there are several trade schools, community colleges, and universities now have training programs, which by the way, creates more jobs.

I have seen new homes built, others get major remodels which are very labor intensive undertakings. Farmers have expanded operations, some added horses for recreation and horses are very high maintenance. When people get out of debt, they find new ways to spend. Did you know that monthly rentals for homes in the Williamsport area went from $500/m to over $2000/m? What are the landlords doing with that money?

And as for that which leaks out, some will leak back as there auto parts manufacturers in the area. And steel and pipe manufacturers. And farms that raise food, movies made here, building materials manufacturers here and more. If companies spend $20 billion here, that all helps the national economy which helps us here also.

As for me I haven't spent a dime on anticipated income. That is one discipline that I learned being self employed all my life. But I will do major remodeling afterwards along with some major landscaping. I may even start a new business.

BrianTH; I am sure some will retire to warmer climes. But maybe some will stay instead of moving to where they could get better jobs. And many are moving here just for these jobs. I know that some gas field workers have bought homes in the area as they will be working here for a couple of decades.

Thursday, December 23, 2010 1:43:00 PM  
Blogger C. Briem said...

this is a bit anecdotal at this point.. but our observations are that these payments are not inducing significant migration out of the state. The folks with the windfall profits seem to be staying in place. Not spending beyond the truck.. but they are not leaving. Could change... but also realize that from a migration perspective, the number of folks signing leases is not that large. A few hundred thousand people move in and out of Pennsylvania each year.. the number of lease signers here are not going to alter those flows measurably.

Thursday, December 23, 2010 1:44:00 PM  
Blogger C. Briem said...

and the Wiz completely obliterates the Permanent Income Hypothesis. :-)

Thursday, December 23, 2010 1:47:00 PM  
Anonymous The Wiz said...

OK... had to look that one up....but one of the most important things about being self employed is self discipline. Especially in a cyclical business like home building. But if you want to loan me $10,000 (interest free)until I get a signed and paid up lease I'd be glad to spend it in anticipation of future income...just to keep Milton Friedman and you happy! :-}

Thursday, December 23, 2010 4:21:00 PM  

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