Washington, Greene counties: Shaleonaires

County budgets give new meaning to term ‘Shaleonaires’

November 2, 2013
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Robin Richards / Observer-Reporter
Many of the rolling hills of Southwestern Pennsylvania are dotted with Marcellus Shale equipment, such as these tanks at Range Resources’ Rush Impoundment in Hopewell Township. Impact fees received by Washington and Greene counties for having wells have resulted in a windfall for the county governments. Order a Print
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Robin Richards / Observer-Reporter
This Range Resources natural gas well at the O’Donnell Pad in Hopewell Township is one of many Marcellus Shale wells in Washingon County. Gas wells are also being drilled in Cross Creek Park and under other county lands, netting a windfall for Washington County government. Order a Print

While many counties struggled with state and federal budget cuts since the beginning of the Great Recession in 2008, Washington and Greene counties are in a better financial state than most because of the surge of natural gas drilling activity in the Marcellus Shale.

Over the past decade, Washington County received $8.8 million from royalties and leases related to gas extracted through wells at the 3,000-acre Cross Creek County Park. Royalty is a share of the product or profit reserved by the grantor, or land owner, from an oil or gas lease.

Over the past two years, Washington and Greene counties also received seven-figure amounts from the state’s Act 13 Marcellus Shale impact fee. Add in $9 million Washington County received in impact fees, and the county has seen more than $18 million in Marcellus-related money coming into the treasury. Greene County received more than $6 million in impact fees, and a smaller amount in lease and royalty payments.

There’s a name for those who reap millions from Marcellus Shale: “Shaleonaires.”

Washington County Commission Chairman Larry Maggi and Vice Chairman Diana Irey Vaughan hadn’t heard of the term, which is usually applied to individuals, not governments.

Maggi agreed the Washington County budget has “been a beneficiary of the gas and oil in Marcellus Shale. We struggled before, but we had good plans in place and we were frugal.

“We’re trying to do things we couldn’t do in the past,” Maggi said of the new income source. “We have a 100-year-old courthouse that needs repairs. We’re not starting programs and spending new monies in new areas.”

Officials of other counties that are not similarly situated sometimes intercept him at gatherings of the County Commissioners Association of Pennsylvania and ask him jokingly for a loan. “I don’t want to use the word envious, but they’re struggling and they do not have this resource to help them balance their budgets,” Maggi said.

While Washington County’s lease with Range Resources allows wells and well pads in the park, other extraction of Marcellus Shale oil and gas from under county land does not include surface rights.

In this category is $1,145,795 from Washington County fairgrounds gas lease fund and $896,250 for the right to drill under Washington County’s 17-mile part of the Panhandle Trail, which extends from Collier Township, Allegheny County, to Colliers, W.Va. Washington County’s first royalty check from gas extracted from beneath the trail for $3,974 arrived July 13. Including a monthly infusion from royalties, Washington County’s total revenue over 10 years, not counting impact fees, as of Oct. 30, was set to top $10 million.

Started as a trickle

This flood of cash began as a mere trickle: $41,601 in May 2003 from a lease at Cross Creek with Great Lakes Energy Partners LLC, an entity in which Range Resources owned a 50 percent interest before it acquired Great Lakes outright. The next year and through 2007, the county received $24,110 annually from Great Lakes/Range Resources, totaling $138,050 from its leases, a drop in the bucket to a county that had an annual budget of approximately $56 million in 2007.

But in October of that year, the county received its first royalty payment – $8,573 – from Cross Creek well No. 5. As more wells began producing, the total from royalties alone has grown, through the end of September, to $8,596,199, according to the county planning commission.

The three county commissioners, solicitor and directors of administration and planning renegotiated the lease with Range, changing the basis of royalties from Cross Creek wells to well pads. This meant the county received an Aug. 30 payment from Range of $2,032,045, which was split between capital expenses for county parks and recreation and the county’s general fund.

The renegotiated royalty resulted in $1,274,855 being added to the county treasury as the 2014 budget of $78.8 million was being prepared. Following this was a royalty payment of $517,667 on Sept. 28, an amount “more in line” said Planning Director Lisa Cessna, that it expects to be receiving monthly.

A myriad of park-and-recreation-related expenses, from a walking trail at Mingo Creek County Park, to plans for a second boat launch at the Cross Creek Lake, have totaled, over the years, $6,775,433.

Irey Vaughan said several companies with an interest in drilling in Mingo Creek County Park have approached the county, but no contract has resulted. In 2011, Washington County received $917,521 from Range Resources for the right to extract natural gas from beneath 327 acres of county land in Arden, including Washington County fairgrounds and set this money aside. The money, which is kept in an interest-bearing account, is known informally as the capital account, or potential legacy fund. Because this coincided roughly with the state law creating a revenue stream known as the Marcellus Shale impact fee, the county has not had to tap this account.

Add in impact fees

The first round of impact fees netted $4,724,036 for Washington County, although $470,093 was designated for use on highways, bridges and greenways.

The second and most recent round of impact fees is bringing $4,987,333 to Washington County, including an expected total of $465,464 designated for the above-named transportation infrastructure and greenways, according to Washington County Finance Department.

While these are certainly large amounts of money, and the highest in Southwestern Pennsylvania, Washington County can gaze longingly at the northeastern part of the state, to Bradford County, which received $7,296,905 in a single year from impact fees, according to the County Commissioners Association of Pennsylvania website.

Washington County Commissioner Harlan Shober watched the growth of the Marcellus Shale industry, first as a Chartiers Township supervisor and later, as a leaseholder with Range Resources to extract gas from 2 1/2 acres under his home. No drilling has taken place in his neighborhood as of yet.

Shober, who first ran for commissioner in 2007, said the impact of Marcellus Shale on the area was “nil. It wasn’t even there.”

When he was elected in 2011, the picture was completely different.

“I think there are probably a lot of counties around, and commissioners you talk with in general conversation, who say you’re lucky to be in Washington County. We’re putting extra things in the park. Where do you get the money to do all these things? You put money in or the whole place falls apart. It would have cost us money coming out of our general budget, so it’s a blessing to have this. We try to operate the county very fiscally smart.”

Washington County’s 2014 preliminary budget of $78.8 million contains no tax increase, but it also does not reflect a tax reduction, a permissible use of the Marcellus Shale Act 13 impact fee.

The county has begun a property reassessment, something that the impact fee cannot fund. Had it not been for Marcellus Shale income, the county would likely have had to borrow the bulk of the $6.9 million for Tyler Technologies’ reassessment contract, and paying interest on a bond issue would have cost taxpayers more in the long run.

Maggi groused the money that has and will be spent on Tyler’s contract could have gone back to the taxpayer in services or been used to reduce taxes.

“By using the money wisely, we are keeping the taxes from going up. Reducing taxes is not something we’re in a position to do at this time,” Shober said. “The reassessment leaves an unknown in all of our minds right now. We’re collecting about $37 million from our properties. When we’re finished with reassessment three years down the road, we’re going to get a better feel for it, but we’re going to be revenue-neutral.” The commissioners’ aim, Shober said, is to lower the current 24.9 millage rate but collect the same amount of revenue.

Bumps in the road

The county’s relationship with Range Resources hasn’t been totally smooth. In October 2011, County Solicitor J. Lynn DeHaven used the term “reparations” when announcing at a commissioners’ meeting an agreement with Range over clear-cutting done in error at Cross Creek park near West Middletown.

As part of the agreement, Range agreed to provide $100,000 worth of in-kind services at the park, including repair of a sediment dam, replacement of 10 culverts on Park Road and deploying earth-moving services for the Thompson Hill boat launch project. Range, under a legal formula, reimbursed the county for the value of trees cut. One hundred twenty-eight hardwood trees were felled, which a Range spokesman said was caused by a surveyor’s error. The county’s latest agreement with Range requires the county to be informed in advance of every step the company takes within the park.

And speaking of steps within the park, Irey Vaughan said Range is also constructing a walking trail around the lake perimeter. “Range is able to do that at a much lower cost than we could if we went out to bid for the project,” she said.

And, over the years, the county commissioners have taken an ear-beating from a variety of people, including Robert Donnan of Peters Township, who has referred to the county’s lakeside as “Cross Creek Industrial Park” due to the wells there. Donnan and relatives have become Range leaseholders and in a recent letter to the editor that was published in the Observer-Reporter, he deemed it “a protective lease to prevent surface activities on (the) land” that he says protect 74 acres of park.

The state Department of Environmental Protection said Range notified it in 2009 about a leak in a pipe carrying brine that resulted in the death crayfish, salamanders and water bugs and less than a pound of fish. Range agreed to pay a civil penalty of $23,500.

A delegation from Hopewell, Cross Creek and Independence townships in June asked for lower taxes for the Avella School District because private property was taken from Avella’s tax rolls to create the park. They also asked for state park-style amenities at the park they said were promised decades ago, such as a beach for swimmers and tennis and volleyball courts and an area for winter sports.

“The complaints we’ve gotten have been minimal,” Maggi said. “I’m not going to say there haven’t been bumps in the road. In the last century we were beat up with heavy industry polluting rivers, polluting streams. I think we learned how to regulate that for gas and oil and make sure they did it right.

“We had acid water for things that happened 75, 100 years ago. We’re going to make sure it doesn’t happen again. When we negotiate these contracts, we have leverage too, Where wells will be put and how far from the streams. We have a beautiful, pristine park and a county we want to protect with vigor.

Irey Vaughan at that time told the Avella Area residents that $514,295 had already been spent on improvements at Cross Creek park, and she invited them to participate in the next park master plan update.

Greene also sees revenue

In the first year of Act 13 impact fee allocations, Greene County received $3,130,609 with $1,730,109 earmarked for maintenance, repair and construction of roads, bridges and infrastructure. This money was slated for repairs to county bridges and the county courthouse and for upgrades and repairs at the fairgrounds, parks, pools and county prison.

The county also allocated $700,000 for emergency services, which will be used to upgrade the 911 radio system and for radio controllers. It allocated $599,500 for delivering social services through Children and Youth Services and the county Human Services Department. The remaining $101,000 was directed to information and technology and geographic information systems.

While receiving a little less this year, the commissioners approved the allocation of its 2013 Act 13 natural gas drilling impact fee revenue of $2,906,300. Much of what it did with that money last year will be applied to similar projects this time around.

The commissioners approved an allocation of $1,775,000 for the county airport hangar and road project, Mon View pool repairs, a new kitchen at the prison, work on the courthouse dome and the replacement of Gen. Nathanael Greene statue.

Jeff Marshall, the Greene County chief clerk, said had the county not received the impact fees, roof replacement projects would have been downsized to roof patching, and if the county had chosen to proceed with the other projects, the commissioners would have had to float a bond issue to pay for them.

In 2010, the county signed lease with Tanglewood Exploration, later Vantage Energy, for gas extraction under 400 acres of land at the county airport, the old Curry Home and at the Walmart site. Since 2011, the county has been receiving a royalty check between $13,000 and $15,000 a month.

Greene County has no parks with acreage comparable to that of Cross Creek or Mingo Creek. The largest park in Greene County, Ryerson Station, is a state park. As part of the settlement between the state Department of Conservation and Natural Resources and Consol Energy over the leaking dam at Duke Lake, the company agreed not to drill on state park lands. Consol is allowed to drill for natural gas under the park, but only from well pads outside park boundaries to eliminate any surface disturbance within the park.

DCNR is to receive an 18 percent royalty payment for gas production from wells under the park after Consol has realized $13.7 million. The money is to go into DCNR’s oil and gas lease fund. Gas drilling has yet to take place under the park.

Greene County Bureau Chief Jon Stevens contributed to this report.

Barbara S. Miller covers politics, Washington County government and a variety of other topics for the Observer-Reporter. She is a graduate of Washington & Jefferson College, majoring in English and history. Follow her on Twitter @reporterbarb.

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