A report issue by the West Virginia Center on Budget and Policy, a nonpartisan, nonprofit research organization, points out that the economic benefits from coal mining were not sustainable and that the boom and bust cycle is poised to be repeated with Marcellus shale gas production.  The report is entitled Boom and Busts, The Impact of West Virginia’s Energy Policy.

The report states, “In the past, West Virginia counties with a concentration in mining saw their economic performance dramatically decline after an energy development boom. Today, their economies are weaker than the rest of the state, and they are ill-positioned to compete and grow. It is uncertain whether today’s energy boom, led by natural gas extraction, will bring the prosperity to West Virginia that it promises. While the potential revenues from this boom seem to be an attractive source of economic growth for communities, history shows that natural resource booms inevitably lead to busts.

This pattern is likely to repeat itself in counties that focus heavily on the Marcellus Shale development as the main source of economic growth. Indicators suggest that relying on an energy boom is not a definite solution for long-term growth and prosperity. The Marcellus Shale development has the potential to place unprecedented strains on the communities where drilling occurs. Researchers and analysts are just beginning to understand the environmental, health, and infrastructural impact of Marcellus Shale drilling. It remains unclear if natural gas drilling can create sustained economic growth for counties.”

The report concludes that sustainable long-term economic growth can only be achieved with a diversified economy and a well-educated workforce.  It recommends the creation of a Permanent Mineral Trust Fund financed by severance taxes.   The fund would be dedicated to education projects to encourage economic diversification and to infrastructure projects to “help ensure that the wealth generated by the energy boom stays in West Virginia and remains long after the mining resources are gone.”

Sen. Brooks McCabe (D-Kanawha), lead sponsor of SB 465

The Marcellus Gas and Manufacturing Development Act was passed out of the the Senate Energy, Industry and Mining Committee on Feb. 17th.   The purpose of the Act contained in Senate Bill 465 is to encourage and facilitate “the development of oil and gas wells and the downstream uses of natural gas in this state and the economic development in this state associated with the production and various downstream uses.”   It intends to do that by using tax credits and incentives for industrial expansion (particularly for fractionation and ethane cracker plants) and promoting natural gas as an alternative energy fuel.  It also encourages the West Virginia Economic Development Authority, that agency that oversees TIFs, and the WV Infrastructure and Jobs Development Council to provide public assistance to this private industry sector, Marcellus shale gas, and it’s correlative industries fractionation and ethane cracking.

The bill contains tax breaks geared toward subsidizing both the planned Dominion fractionation plant and an anticipated, but as yet unannounced, cracker plant.  (See  Special Report: Task Force Charged with Opening Door to Chemical Industry in Kanawha Valley, FrackCheck Feb. 18.) The  bill also lowers the bar for the amount of investment qualifying for special privileges to certain manufacturing businesses to enjoy a 95% break on county property taxes.  So if a cracker plant costs $10 million, the owner or ownership entity pays county property taxes on an adjusted appraised value of only $500,000.  There’s a little whip-snapper provision that adds a small penalty if the investment occurs after July 1,2011; the cost of the real estate acquired for expansion is deducted from the basis for computing the credit.

The bill also adds fractionation and cracker plant investments to the list of industrial expansions which qualify for the Manufacturing Tax Credit (up to 5% of the cost of new manufacturing property).

Currently WV Code 11-13A-5a calls for 10% of oil and gas severance fees to be distributed back to the counties, with the majority directed to the counties in which the fees were generated. The bill amends that to allow for distribution of the severance fee to fund permitting and inspection of gas wells as well as highway funds.  Of the excess above the 10% of severance fees that is redirected back to counties, a $2 million Marcellus Shale Permit Fund is established to fund the WVDEP in permitting and inspection of gas wells.  A baseline of $64.8 million must be distributed from severance fees to counties and municipalities for highway maintenance under this bill.

Incentives for investing in natural gas powered vehicles and other alternative fuel powered vehicles (but not ethanol) and investing in the equipment to fuel those vehicles are also included in the bill.

The sponsors are Senators McCabe, Kessler (Acting President), Browning, Unger, Snyder, Stollings, Plymale, Wells, Palumbo, Beach, Klempa, Yost and Foster.  The bill goes to the Finance Committee next.  Story of bill’s introduction , Feb. 9.   Story of bills passage

Text of the Marcellus Gas and Manufacturing Development Act.

Further light reading:

ARTICLE 6F. SPECIAL METHOD FOR APPRAISING QUALIFIED CAPITAL ADDITIONS TO MANUFACTURING FACILITIES

ARTICLE 13S. MANUFACTURING INVESTMENT TAX CREDIT

ARTICLE 13R. STRATEGIC RESEARCH AND DEVELOPMENT TAX CREDIT

§11-13A-5a. Dedication of ten percent of oil and gas severance tax for benefit of counties and municipalities (must scroll down)