Financing the successor economy

While there is plenty of debate about the potential advantages and disadvantages of natural gas drilling, one thing that seems clear is that it’s going to generate money. Some claim that it will bring about an economic boom that will benefit all; others argue that the benefits will be very unevenly divided. But either way, the fact that natural gas is a finite resource means that any monetary benefits will dry up sooner or later, if not in our lifetimes, then in our children’s.

That means we should be looking for ways to divert some of the money generated by gas drilling into investment in sectors that can carry the economy forward after the gas is played out. We certainly do not want to find ourselves in the future in the same position in which we find ourselves now, mired in a sluggish economy that never truly recovered from the demise of the resorts and the passenger rail.

The first step toward accomplishing this objective would be to establish a structure to capture some of the funds generated by drilling and direct it to investment in the successor economy. In New York, one such structure already exists for the towns, which have the power to tax the value of gas removed from the land at a rate set in Albany. But we also feel that in both Pennsylvania and New York, it would make sense to set up a natural gas severance tax and set aside a certain percentage of that tax to be paid into trust funds for the various counties in which natural gas drilling takes place.

Neither state has a severance tax yet, though such a tax has been proposed in both of them. Indeed, in Pennsylvania, proposals already floated by legislators and the governor would call for a certain percentage of the tax to go to the communities affected by the gas-drilling activity. We endorse those proposals and would hope to see something similar in New York, as well.

Further, we suggest that some portion of the funds dedicated to local communities be deposited into trusts whose purpose is to invest in the economy that will succeed the natural-gas-drilling era. The trusts would be set up so they could not be tapped for operating expenses or budget-gap plugging. They could be used only to invest in sectors expected to be the economic engines of the post-drilling era. For instance, last week we wrote about the possibility of setting up a local dairy coop to help the dairy industry survive and prosper. Seed money for such a coop would be a great use of funds from this type of severance-tax trust. So would money for other food-shed development or green technology projects.

To identify the best uses of trust fund money, the counties should engage in planning projects, similar to Sullivan’s 2020 plan, but aiming much further out. Obviously 2100 or even 2060 is too far in the future to accurately envision all the possible opportunities or challenges that will be relevant at that time. But the idea is not pinpoint accuracy of prediction, but establishing a lodestar that will help guide planning decisions.

The plans would sketch out an idea of what the successor economy might look like, as well as identify specific goals that would have to be met in the process of establishing them as viable sectors. Obviously, these plans would have to be revised every five or 10 years to adjust to the changing realities of technology, demographics and so forth. But they would provide the blueprint to which trust administrators could return when making decisions as to how best to distribute funds.

It looks like state legislators are already thinking about sharing some natural-gas-drilling revenues with local communities. Some of those funds will be needed for present needs created by the new industrial activity, like expanding and maintaining infrastructure used by the drillers. But we think it is equally important that both funding and planning efforts be directed toward the long haul. We need to start thinking about how the temporary riches of gas drilling can be used to pave the way constructively for the economy that succeeds it.

Also in this issue:

• On Judge Block’s pay

Dr. Punnybone

Wee the Pupil