Monday, February 07, 2011

Back to work

Apologies for the vanity nature of these, but if you missed these over the weekend......

Wall Street Journal:  Pittsburgh Plays Pension Defense

and Border Guard Bob has not died, he has merely moved to Nevada.  From the Las Vegas Sun:  Flight of Nevada's Brightest.

and no, nothing from me in this, but what is still a shocking statistic in Marcelllus Shale: Workers finding a future in gas drilling in the Centre Daily Times.  It cites a recent report that says no less than 70% of Marcellus Shale workers in Pennsylvania are from out of state. That's remarkable and I just have to wonder if that out of state factor was input into any of the economic impact models that have been used to evaluate the economic impact of the whole shale play thus far.  I would love to see the stats on the relative wage levels of the 30% in-state workers compared to those who are coming in from elsewhere.

The really interesting question that article raises is something else.  It says one of the new Marcellus Shale workers previously "worked in a factory that manufactured pharmaceutical products. "  I really hope some local journalist goes and interviews that other firm to see how they are coping with their workforce being poached by this explosion of new demand for shale workers.  You can read the workers' quotes about how they are being told their jobs are secure for decades.  Might be worth reading this from the Pittsburgh Business Times: Marcellus Shale firms rethink plans due to low gas prices


Anonymous BrianTH said...

What I would love to see is someone tracking the percent-local in Marcellus jobs over time, using a consistent methodology.

By the way, to me the most interesting anecdote was about the two people from Las Vegas who lost their jobs, came to PA for training, and then got Marcellus jobs. Where do they fit in the local versus non-local categorization? In any event, I wouldn't be surprised to see more of that--if you can train up in a matter of weeks and get good jobs, there is no reason to expect only people who have been living in PA a long time to make use of that opportunity.

Monday, February 07, 2011 4:28:00 AM  
Anonymous India Pictures said...

you’ve got great elements there and I do like how you encourage the readers to take the time to think.

Monday, February 07, 2011 8:12:00 AM  
Anonymous The Wiz said...

What percentage of the thousands of jobs at the Westinghouse nuclear center are filled from people out of state? What percentage of jobs at Google Pittsburgh are filled by people from out of state?

Monday, February 07, 2011 12:14:00 PM  
Anonymous Anonymous said...

Can we blame people with skills for going where the work is? My Dad was transferred 5 times in 4 years. He had skills his company needed. Right now the gas companies and their downstream contractors can't find qualified help locally. Chesapeake even found that 30% of applicants failed their mandatory drug test. I don't want to hear that out of staters are taking the jobs. Get some training, stay off drugs and you'll get hired.

Monday, February 07, 2011 12:53:00 PM  
Anonymous MH said...

Get some training, stay off drugs and you'll get hired.

Meh. I'm willing to do one or the other, but not both.

Monday, February 07, 2011 1:08:00 PM  
Anonymous The Wiz said...

What percentage of doctors at UPMC are from out of state?

What percentage of professors at Pitt, Carnegie-Mellon, Duquesne, et al are from out of state?

What percentage of Steelers, Pirates, Penguins are from out of state?

Monday, February 07, 2011 3:17:00 PM  
Blogger C. Briem said...

missing the point entirely... the folks at W, or Pitt, UPMC are not flowing out of the region to where their permanent homes (and thus most of their permanent spending) is.

Monday, February 07, 2011 3:44:00 PM  
Anonymous BrianTH said...

It would be nice to see the difference in in-state versus out-of-state spending quantified in some way. I'm not denying there is a difference, but I'd be interested in knowing how much, since I assume it is short of a 100% difference (since presumably out-of-state workers buy stuff while here, and even in-state workers buy stuff from other places).

Monday, February 07, 2011 4:59:00 PM  
Anonymous MH said...

I bet more of them would stay if it wasn't so hard to buy booze.

Monday, February 07, 2011 7:01:00 PM  
Anonymous The Wiz said...

Actually, you missed my point. There are many careers that require skills that cannot be supplied by local talent and they are thus imported from elsewhere. And no one ever complains about that. Why some even say it is good to get new blood, new ideas, new energy from outside the area.

And pro athletes often live in other cities and take their huge incomes with them. Most have homes elsewhere where they reside during the off season. Many are only here for but a year or two and them move on. Yet I have never heard a single word addressing that.

There are large turnovers in both doctors and university professors. Some doctors spend a year or two doing residencies and then move on. Professors often do research work a couple of years and then chase the next research grant some where else. Many never own homes in the area.

Further, many of the gas field workers have bought homes here and moved their families here. Even those that return to their home states on a regular basis either rent homes, apartments or live in motels here. And owners of rental units and motels pay local taxes as collected by the rental fees.

So what would you have these companies do? Should there be a moratorium for several years until local people can be trained? Should they only be granted permits only after a certain percentage of employees buy homes here and move their families here? Just how should they be operating?

These rigs cost three to five million dollars. A well costs six to eight million to drill. And there are lives at risk and environmental risks involved. Any responsible company would only want the best trained and most experienced crews on site with all that at stake.

Imagine the outcry should crew members die and the environment be destroyed because a company hired some in-experienced crew to run a rig.

Monday, February 07, 2011 9:52:00 PM  
Blogger C. Briem said...

how did the auction go Wiz? You said you signed on with the group in Washington County wasn't it? I would think at this point you would be retired, at least temporarily.

but no, when it comes to economic impact here is no comparison at all between itinerant workers in 'man camps' or similar short term housing and medical residents who may move on after a couple of years. If that isn't obvious, I really am not sure where to begin.

I am not making any argument that any company is doing anything bad, but I am telling you that all the economic impact arguments you hear assume a lot of things that all evidence points to are unsupportable.

and you may be missing some points that are reaching crucial problems for many municipalities. It is a big fiscal problem over the taxes. Because the motels are generally rented out for more than 30 days by the drillers, they are exempted from most hotel taxes by state law. it is a big problem in many places across the state.

Wiz.. I think you have inspired me to do a Marcellus Shale oped to clear up some of the misunderstandings of economic impact analysis.. I'll have to ponder that.

Monday, February 07, 2011 10:13:00 PM  
Anonymous BrianTH said...

I'd strongly encourage Chris to write that piece--we could really use it.

Personally, I think all this goes most directly to the merits of a reasonable extraction tax. That's not a punitive thought--we just want to make sure some of this wealth coming out of the ground is invested in diversifying and improving other aspects of the local and state economies, or at least in a well-run sovereign fund. And to the extent people want to argue that wages are a reasonable substitute for such a tax-and-investment program, we need to know to what extent that is actually true.

Tuesday, February 08, 2011 8:26:00 AM  
Anonymous The Wiz said...

I joined the Mt Jackson group, which will have an auction in the spring...if gas prices don't stop dropping. Or you guys don't scare them all away!

When you write that op-ed, include the fact that home rentals in Williamsport have gone from $500/month five years ago to over $2000/m now (or a year ago when I read that article) I don't know what the impact on rental rates has been in Washington Pa or other SW Pa areas impacted by gas activities but I would love to see a study of that impact. And those higher rates probably result in higher property values resulting in higher taxes.

And those motels that are now running at 95%+ occupancy are paying higher business taxes, buying more materials, and probably adding a few employees to handle the increased work load. They may remodel or even expand their business to take further advantage of the increased demand. If they don't have to pay a tax for long term rentals, that is up to the state to correct and not the fault of gas companies.

And look into that 70% figure that gets quoted so much. That figure is for the highly skilled specialist positions that take years of training and experience. It is actually a small percent of all jobs created but it is used by the people against drilling to minimize the positive impact. It doesn't include all the truck drivers, heavy equipment operators, pavers, mechanics and much much more. All those offices in Cecil have secretaries, office people, data people, building maintenance, lawyers, number crunchers, who knows what. And they all pay taxes.

I sent a lease to a Pittsburgh law firm for review. When I asked how much experience they have in oil and gas law, I was told they have reviewed thousands of leases (how many billable hours is that?)and added three additional attorneys just for oil and gas law. How many other firms in Pittsburgh added people?

PNC Financial is now a sponsor of the Natural Gas Matters radio program as they see an increased market for financial and estate planning for landowners. How many other financial planners are capitalizing or expanding due to natural gas? Every seminar I have attended has had a financial planner involved.

Those 70% of the jobs are from out-of-state are probably less than 10% of all direct jobs created. And even less when all the ripple affect... or trickle down... is factored in.

BTW, there is a seminar on Marcellus gas scheduled for March 7 at the BC3 at 7 PM. It is to be conducted by the Penn State Cooperative Extension and is for landowners looking to lease land and you and any other readers would get a great feel the impact by attending. Call 724 287 4761 to register. I plan on attending....maybe we can meet there.

They also have two more meetings, one for municipalities and their legal issues plus one for local businesses and vendors looking to do business in the gas play. If anyone is interested, they can attend those also. Legal eagles here may want to attend the municipality-based meeting if they work with municipalities.

Brain TH; I agree there should be an extraction tax as I paid taxes for Texas for decades every time I filled my tank. But the one that passed last fall was too high, effectively 10% or higher at current rates. I would favor a one in the 3-5% range with several addendum on how the revenue is allocated.

Tuesday, February 08, 2011 11:03:00 AM  
Blogger C. Briem said...

I will most certainly mention the exponential increase in housing costs and their impact on local workers and local competitiveness.

The misunderstanding of local public finance is quite acute. All those booked hotel rooms are nice I am sure for the hotel/motel operator. But if you can explain how that increases taxes paid to the municipality it should be explained. As I said, there is an acute drop in hotel taxes being felt and municipalites don't have a lot of options open to them to make up for it.

It is a bit irrelevant who it is 'up to' to fix.. the problem is there. As is obvious, the politics of PA mean it can't change much when it comes to local public finance. In fact, I can see the oped now in my head.. this belief that taxes paid in cecil (by your example) somehow help other municipalities is just not the case in PA we all know.

The biggest gain most counties are seeing in terms of their budgets from this activity is solely from document filing fees.. that's it. Think about that.

Tuesday, February 08, 2011 11:14:00 AM  
Anonymous The Wiz said...

lol the exponential increase in housing costs

You economists...always a yang for every yin. No wonder Harry Truman was looking for one armed economists!

If housing rises exponentially, doesn't that equate to higher real estate taxes? Wouldn't that go directly to schools and municipalities?

And don't the munis get a large percentage of their revenue from the state? So increased sales and income taxes would also benefit them, no?

And here's the problem with taxing gas;

<a href="'>A new tax proposal</a> put forth by a Democrat calls for 4.6 cents/MCF plus 5 centequates to just under a tax of 16% at current pricing. And since gas prices are to remain low in the foreseeable future, what impact would such a high tax have on future development? What impact would it have on gas prices for both retail and commercial customers? How would that impact municipalities, many which use gas?

Tuesday, February 08, 2011 4:51:00 PM  
Blogger C. Briem said...

If housing rises exponentially, doesn't that equate to higher real estate taxes? Wouldn't that go directly to schools and municipalities?

No for many reasons. One is state law precludes value of the natural gas to impact assessed valuations for the most part. It is a moot point since almost all counties use a base year assessment that will not be changing with these year over year real estate value changes.. So no help to munis or school districts.

And don't the munis get a large percentage of their revenue from the state? So increased sales and income taxes would also benefit them, no?

Different answer for munis and school districts. Munis get rather little direct money from the state. Schools get more, though in PA the state is a far smaller funder of local education than in almost any other state. In either case, there has been no increases in state funding to munis at all.. nor any foreseen into the future.

If the economic impact comes down to the utility costs munis pay.. I suppose we could quantify that, but can it really add up to that much. I will see if anyone knows for example the percentage of the city of Pittsburgh budget made up of natural gas prices. An interesting question.

The need for that oped becomes clearer and clearer.

Tuesday, February 08, 2011 5:02:00 PM  
Blogger Infinonymous said...

Your optimism is laudable, Mr. Briem, but you propose to reason with fast, heedless money.

Save your keystrokes.

Tuesday, February 08, 2011 7:07:00 PM  
Anonymous The Wiz said...

One is state law precludes value of the natural gas to impact assessed valuations for the most part.

That was not my point and I have stated before that natural gas is not taxable. (However there is at least one proposed law to allow schools to tax royalties paid to leaseholders) We all know that. The point is that as rental rates increase, so will the value of those properties, That will drive up prices of all real estate, and as they are bought and sold that will raise taxes. And as people with leases or jobs from the gas play improve their properties, their valuation and thus their taxes will go up. Maybe thats not be fast enough for you but it will benefit all.

And taxing natural gas, especially at 16% at the well head, will drive up costs for all consumers. Companies don't pay taxes ... their customers do as taxes get passed on. That will affect everyone that uses nat gas.

I am not saying every person or every taxing authority will get wealthy. Nothing works that way. But we are stupid to try to make everything turn out equal for every one and everything.

Crying that ten percent of the jobs go to out of staters is Border Guard Bobish, whining that not every taxing authority gets direct benefits is short sighted and parochial.

This is so large that everyone will benefit greatly over the coming decades if we don't screw it all up.

Tuesday, February 08, 2011 8:07:00 PM  
Anonymous BrianTH said...

Rising market values don't even potentially translate into increased property tax revenues unless there is an assessment based on present market values. And even then, PA's anti-windfall laws will largely prevent an automatic increase in revenues.

The incidence of a tax really depends on the details of the market in question. Are Marcellus extraction costs actually setting the price for delivered natural gas in PA, such that an increase in those costs will cause a rise in that price? I don't know, but you can't assume so.

Finally, I am pretty confident any tax with a reasonable possibility of being passed will be considered too high by the industry. So we shouldn't hold our breath waiting for agreement from the industry or their favored politicians.

Tuesday, February 08, 2011 10:57:00 PM  
Blogger C. Briem said...

The point is that as rental rates increase, so will the value of those properties, That will drive up prices of all real estate, and as they are bought and sold that will raise taxes.

No. No. and no. at least not in Pennsylvania where base year assessments in most counties, and I think all shale impacted counties, pretty much prevents that from being the case.. granted common sensical as it is I would agree with you, but this is Pennsylvania. Are you advocating routine reassessments in PA counties?

Companies don't pay taxes ... their customers do as taxes get passed on.

This also is against some basic economics. Whether or not taxes get eaten by consumer or producer depends on factors such as the elasticity of demand.

Crying that ten percent of the jobs go to out of staters is Border Guard Bobish

While I applaud the BGB reference, it is misplaced.. Also the factoid I referenced was 70%, not 10%. Small difference.

Tuesday, February 08, 2011 10:58:00 PM  
Anonymous The Wiz said...

It is my contention, as previously stated, that the 70% factoid is suspect.It is a canard raised by those opposed to drilling to negate one of the big benefits of drilling, namely the jobs it brings.

First it is always referenced as "direct jobs." How do they define direct jobs? Is that only people hired directly by a gas company? Is it only people working at the drill site? It has been shown that there are 400 jobs created while drilling a well, some are for a few days, others for the entire process of a year or more. Most are trucking and heavy equipment operators that are locally owned companies or owner/operators. Are they counted in that 70%? I think not.

What about the companies that do the environmental, sedimentation & control, storm water runoff management, and other permitting and compliance issues? Or various local, state and federal inspectors or the people that review the permitting and inspect the sites? No, I think not

There are other jobs maintaining and servicing the well after completion that are not counted. And most land agents are treated as independent contractors so would they be considered "direct jobs?"

How old is that study? Are the numbers still relevant? I have heard these numbers for several years now. Naturally, at the beginning of this play, most people came from out of state to do some test drilling. But now there are many companies that have opened divisional offices here with complete staffing from secretaries to middle management to legal, compliance, and PR departments.

Of all the jobs created, I am positive that the 70% number is not close accurate.

And many of the drilling crews have been hiring Pa people as roustabouts. These guys are assigned to rigs in various areas across the state and subject to move frequently. Thus, many of the people in man camps and hotels actually live in Pa. Thus someone that lives in Scranton may stay at a hotel in Greene Co for two weeks and then go home to Scranton for his time off.

As for taxes and the munis, I fear your urban bias is showing. Imagine your reaction if a new industry came to Pa, said it would spend some 20-30 billion dollars over the next ten or fifteen years, and because of the uniqueness of its business model, it would build over three hundred small factories located in old mill towns across Pa. It would build these in towns like Aliquippa, McKeesport, Millvale, Uniontown, and more. Each factory would employ 200 people, thus employing 60,000 people in western Pa. Would you then point out that struggling farmers in Greene Co need help? Would you say we should tax these factories and give aid to poor counties like Cameron Co? Would you be saying that there needs to be a tax on their product in order to help the lumber industry in Clearfield Co that has been hurt by the collapse of housing industry? I have little doubt such thoughts would never enter your mind. Instead, you say such a huge new industry would benefit all Pennsylvanians by the income and revenue it produces.

What may be most disturbing is parochial attitude that Pennsylvanians possess. Every business that comes here must face this attitude that everyone must benefit equally and immediately for a new industry to be welcomed. Everyone has a "whats in it for me " attitude. Every special interest group demands their share before they will give it their support. No unions will back it until its unionized. No munis will support it unless they get a tax share. The south east/Philly area won't support it until they get their excise taxes.

Its no wonder that companies don't want to locate here. It is so much easier for them to go over seas, pay a few bribes to some potentate, and build their factories elsewhere. How much have Range and others spent on PR work and still they are targeted? They wouldn't have to do so in many areas of the world.

The demand for the perfect will drive away the good.

Thursday, February 10, 2011 3:12:00 PM  

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