A new report issued as part of an ongoing Marcellus Education Fact Sheet series from Penn State University Cooperative Extension. This report analyzes the impacts of revenue and costs to school districts where there is active Marcellus Shale drilling activity. With some surprising conclusions.

1. Marcellus
Education
Fact Sheet
Marcellus Shale Gas Development and
Pennsylvania School Districts: What Are the
Implications for School Expenditures and
Tax Revenues?
Introduction Department of Education (PDE)
I
n 2005, when the first gas wells data, in 2009–2010 Pennsylvania
were drilled into the Marcellus schools drew 56 percent of their
shale in Pennsylvania, very few revenues from local sources—the
people across the state were aware eighth highest rate among all 50
of the existence of Marcellus shale, states.2 The poorest school districts
let alone its economic development in Pennsylvania are also far more
potential and the significant impacts likely to experience drilling activity
for people and communities across associated with Marcellus natural
much of the Commonwealth. By gas. For example, only one of the
early 2012, however, almost 5,000 50 wealthiest school districts had a
wells had been drilled into Penn- single Marcellus well by the middle
sylvania’s Marcellus shale layer. of 2010.3 However, during the same
With estimates of 60,000 or more time period, 18 of the poorest 50
Marcellus gas wells projected in school districts had experienced
the coming decades, new economic Marcellus drilling, accounting for
studies began to suggest significant a total of 364 wells. At the same
employment and income gains, and time, the Marcellus shale gas indus-
Governor Tom Corbett declared his try may result in extra and perhaps
intent to make Pennsylvania “the unanticipated costs and challenges
Texas of the natural gas boom.”1 for school districts, including new
The Marcellus shale gas develop- traffic congestion and road condi-
ment has been heralded by many as tions that disrupt bus schedules,
an unprecedented economic oppor- changes in student populations, and
tunity for Pennsylvania, especially tightened housing markets.4
since much of the drilling activity To what extent does new eco-
in the state has been located in eco- nomic activity associated with
nomically lagging and often rural Marcellus shale gas extraction ex-
areas with, until recently, relatively tend to benefits for Pennsylvania
few employment opportunities. schools? What are the current tax
These developments raise many regulations in Pennsylvania per-
questions, including what the taining to school districts, and what
growing Marcellus industry means evidence is there to suggest eco-
for school districts. Pennsylvania nomic impacts for school districts?
school districts rely heavily on lo- What evidence exists to suggest
cal funding to support their opera- that increased costs to school dis-
tions. According to Pennsylvania tricts are associated with Marcellus

2. development? In examining these rary basis, their wages are not sub- used by the state to distribute state
questions in this fact sheet we take ject to the earned income tax. How- aid. The poorer the district, the
a particular look at Act 1 of Special ever, to the extent that local resi- greater the aid the state gives the
Session 2005–2006 and the implica- dents are employed by the Marcellus district to partially adjust for local
tions this legislation may have for shale industry, school districts will wealth differentials between dis-
augmenting school revenues. see an increase in their earned in- tricts. Consequently, the increased
come tax revenues. Further, the roy- unearned income of a district’s resi-
School District Taxes and the Marcel- alties and lease payments received dents from Marcellus shale activi-
lus Shale: Limited Benefits to Schools by district residents are classified as ties contributes toward increasing
School districts in Pennsylvania unearned income and are not taxable the measured wealth of the district
are authorized to levy and collect by school districts. Because of this, and results in potentially less state
revenues from a variety of taxes. the potential for school districts to aid to the district, even though in
The two most important taxes are collect much Marcellus shale–related actuality this new wealth will not
the real estate tax followed by the tax revenues from these two primary increase the district’s local tax col-
earned income tax. Together they sources is limited at best (Table 1). lections.
account for 98 percent of total Another issue for school dis- Table 2 shows the average per-
school district tax revenues. Real tricts is the difference between the cent change in a variety of school
estate tax is the property tax levied earned income tax, levied by school district tax revenues between the
on the assessed value of land and districts, and the personal income 2007–2008 and 2009–2010 academic
improvements within the district’s tax, levied by the state. The differ- years, subclassifying school dis-
boundaries. The Pennsylvania courts ence between the two is unearned tricts according to the number of
have ruled that oil and gas reserves income, which includes dividends, Marcellus gas wells drilled within
are exempt from property taxes, so interest, rents, and royalties. First, each district. With the exception
this potential source is unavailable as indicated above, districts can tax of the real estate transfer tax and
to school districts. Local earned in- only earned income, which restricts total local revenue, the data suggest
come tax, by contrast, is levied on them from receiving tax revenues no clear pattern of a relationship
the wages and salaries of residents from the significant lease and royal- between Marcellus gas drilling ac-
only. Since many of those employed ty dollars received by local residents. tivity and changes in school district
in Marcellus shale activities are in However, the personal income of the tax revenue. The real estate transfer
the district on a limited and tempo- district is part of the wealth measure tax is paid by purchasers when they
buy real estate, so total collections
Table 1. Property tax, earned income tax, and school tax revenue potentials. reflect the amount of real property
Type of Tax sales in the district and the value
Property Tax Earned Income Tax of those sales. More sales or higher
Percent of School District Tax prices will increase the tax collec-
Revenues 89% 9% tions. Districts with no drilling saw
Tax Base Assessed value of property Wages, salaries, commissions, net profits an average 24.1 percent reduction
Application Non-tax exempt property in Residents only
in real estate transfer tax revenues,
district
reflecting the national slump in
Opportunity for Tax Revenue Slight: Gas reserves are Slight: Many gas workers are not state
from Marcellus Activity tax exempt; related land residents; royalties and lease payments housing, while the districts with
development will increase are exempt from earned income tax the highest drilling activity on
taxes average experienced no change in
Sources: Pennsylvania Department of Education data; Governor’s Center for Local Government Services, such revenues. Total local revenues
Taxation Manual (2004). include all local taxes and fees. Dis-
tricts with no Marcellus drilling on
Table 2. Average change in school district finances by level of Marcellus drilling activity, 2007–2008 to average experienced no change in
2009–2010 (Number of Wells). total local revenue between 2007–
Amount of Marcellus Shale Drilling Activity (Number of Districts) 2008 and 2009–2010. In contrast,
Tax Revenues 0 Wells 1–10 Wells 11–39 Wells 40+ Wells districts with drilling on average
Earned Income Tax 1.6% 1.7% 2.3% 0.4% experienced declines in total local
(364) (66) (23) (9) revenues, with the average varying
Per Capita Tax -5.2% -2.3% -6.7% -11.4% across different levels of drilling.
(214) (50) (13) (6) This is a counterintuitive result for
Real Estate Transfer Tax -24.1% -12.2% -16.4% 0% those anticipating economic bene-
(387) (69) (23) (8) fits to schools from Marcellus shale
Real Estate Tax 0.5% -1.7% -4.1% -1.0% activities.
(398) (69) (23) (9)
Total Local Revenue 0% -0.6% -4.5% -0.9%
(398) (69) (23) (9)
Source: Pennsylvania Department of Education data.

3. School District Costs and the Figure 1. Marcellus drilling activity and changes in student enrollment in school districts through the end of
the 2009–2010 academic year.
Marcellus Shale
The overall impact of Marcellus
shale development on school dis-
trict finances depends on the im-
pact on revenues and on costs, not
just one or the other. Pennsylvania
Department of Education data pro-
vide information about all districts
and allow comparisons between dis-
tricts with and without drilling. We
look at two indices here: student
enrollment and spending on special
education.
Pennsylvania Department of
Education data in Table 3 show that
between 2007–2008 and 2009–2010,
districts with more drilling activ-
ity on average lost a somewhat
larger percentage of students than
did districts with less activity or no lus shale drilling than in districts Act 1: An Alternative Local Tax
drilling. There was wide variation without such drilling. As with the Option?
among districts within comparable student enrollment, there was sig- Act 1 of Special Session 2005–2006
drilling levels, so the experience of nificant variation among districts. created a local tax option for school
an individual district may be some- Two of the nine districts with 40 districts that perhaps unintention-
what different from these averages. or wells experienced a decrease in ally gives schools the possibility to
But the trend holds fairly consistent Special Education spending, for ex- capture at least some of the new
across districts; only one of the nine ample, while Wyalusing Area had a income being generated by Marcel-
districts with 40 or more wells had 39 percent increase. lus shale development. Act 1 al-
an increase of students between These data suggest that, at least lows school districts the option to
these years (Wyalusing Area School so far, the often stated concern replace the earned income tax with
District in Bradford County, with about Marcellus shale gas develop- a personal income tax through a
an increase of 1.16 percent), and ment increasing student enroll- referendum passed by the local vot-
none of the 23 districts with be- ments is not occurring, and in fact, ers. If a district chooses to switch to
tween 11 and 39 wells experienced development may be associated the personal income tax (PIT), they
an increase of students during these with slightly faster declines in stu- must adjust the PIT rate downward
years. These data are also represent- dent enrollments. Similarly, Special so the change is revenue neutral
ed in the school district map (Figure Education spending does not, in (i.e., not creating a windfall to the
1), which shows drilling activity most cases, appear to be positively district). In later years after adop-
through the end of the 2009–2010 associated with Marcellus drilling tion of the higher local PIT rate,
academic year and those districts activity. The negative association the school district must devote the
that experienced net enrollment between enrollment size and drill- same amount of income tax money
gains over the preceding two years. ing activity may be due to the exo- to property tax reduction, but it
The Pennsylvania Department dus out of the districts of lower in- may use any natural growth in this
of Education data indicate that on come and renting households who tax for other purposes.
average Special Education spend- are leaving because they cannot Important differences between
ing increased across all districts afford the higher rents and costs of the earned income tax and the per-
between 2007–2008 and 2009–2010. living those communities are expe- sonal income tax affect how people
However, those increases were ac- riencing coupled with the influx of view their fairness. The earned
tually less in counties with Marcel- workers arriving without families.5 income tax is levied on residents’
earned income (such as wages, sala-
Table 3. Average change in school district, by level of Marcellus drilling activity, 2007–2008 to 2009–2010
ries, or other reimbursements for
(Number of Districts).
work). It exempts unearned income,
Amount of Marcellus Shale Drilling Activity
such as interest, dividends, pensions,
Other 0 Wells 1–10 Wells 11–39 Wells 40+ Wells
Social Security, and leasing and roy-
Student Enrollment (Average Daily
Membership) -1% -3% -4% -4% alty income from gas development.
(398) (69) (23) (9) The PIT option under Act 1 is
Special Education Spending 14% 13% 9% 10% identical to the Pennsylvania state
(398) (69) (23) (9) income tax and includes unearned
income, including leasing and

4. royalty dollars that mineral right ing and royalties will not be steady to cover current operating expenses,
owners are receiving from Marcel- over the years, even though some reducing taxes in the short run. But
lus shale activity. Importantly, both estimate that shale gas wells will the dollars result from the sale of a
the earned income tax and personal be producing for 30 or more years. capital asset, so they should be used
income tax exempt Social Security Due to the natural productivity of for capital expenditures that benefit
and pension income from taxation. shale wells, a majority of the total more than just current residents;
Shifting from the earned in- value of the well is produced within the gas being sold is also owned by
come tax to the personal income tax the first few years of the well. This future generations of residents, who
would widen the district’s local tax means mineral right owners will be also should benefit from the sale.
base to more accurately reflect the receiving the majority of their roy- Good fiscal management suggests
income of residents, particularly for alties within those first few years, viewing these dollars as a way to
those receiving leasing and royalty so personal income tax collections invest in the future of the district,
income. Some would argue that will be highest when wells are be- building infrastructure or purchas-
such a change would make the local ing drilled. ing land and other assets that ben-
income tax fairer because it would efit current and future residents. In
more accurately reflect ability to Dollars the District May Receive other words, districts will plan stra-
pay, which is a common criterion for on Its Own Land tegically when they determine ways
tax fairness. Because lease and royal- Districts considering leasing land to use the windfall gains to improve
ty income is exempt from the earned should work very closely with their the school district—and commu-
income tax, landowners receiving solicitor and carefully consider the nity—for the long run, not just for
large amounts of such income due ramifications of such a decision. the time when the gas is flowing.
to Marcellus shale development Gas development is a source of
may have much higher income than conflict in many Pennsylvania com- Conclusions
their neighbors yet pay lower local munities, with residents divided The current structure of school
income tax bills simply because the between those “for” and those funding in Pennsylvania means
sources of income are different. “against” drilling. In this context, that in most instances schools will
Statewide, the average reduc- decisions about whether to lease likely not see significant economic
tion in the local income tax rate can be very political and potentially benefits as a result of local activ-
if districts shifted from an earned controversial, so such decisions ity associated with the Marcellus
income tax to a personal income should not be taken lightly. If a shale natural gas industry. The data
tax would be 7.8 percent, but the district decides to lease, it should we examine here also appear to
possible tax rate reduction varies consider adding additional riders support this conclusion. The most
tremendously across school dis- to the lease, such as a “no surface recent legislation regarding drilling
tricts—from 33 percent in the Mon- access” clause that allows the gas impact fees will also have no effect
trose Area School District to only company to develop the resource on school districts as none of these
1.7 percent in the Chester Upland underground without physically revenues are earmarked for schools.
School District. School districts coming onto the school’s property. While Act 1 of 2006 provides an op-
with significant Marcellus shale Such a restriction means any wells, tion for districts to capture some of
drilling activity on average would access roads, or pipelines associ- the economic benefits, as does leas-
be able to reduce their local income ated with the gas under the school’s ing of their own land, both options
tax rates much more than districts property will occur on nearby leased require very careful consideration
without any drilling. For example, properties rather than on the dis- by districts.
as Table 4 shows, districts with 40 trict’s land. While shale gas development
or more Marcellus wells within If a district chooses to lease its in areas with high drilling activity
their boundaries on average could land for natural gas development, has not, in most instances, appeared
have reduced their income tax rate it is important for school officials to be associated with enrollment
by 16.7 percent in 2009. to carefully consider how leasing spikes or increased special educa-
Districts need to be aware that and royalty income will be used. It tion funding, it is not clear what
the stream of income from leas- may be tempting to use the funds other unanticipated costs districts
may experience, such as increases
in transportation expenses and new
Table 4. Average reduction in local tax rate if switch from earned income tax to personal income tax, 2009.
challenges in recruiting and retain-
Average Percent Reduction
ing staff in the face of rising local
Drilling Activity in the School District in Tax Rate Number of Districts
housing costs. These are important
No wells 7.4% 398
questions that will deserve close
1–10 wells 8.8% 69
attention over time.
11–39 wells 8.7% 23
40 or more wells 16.7% 9
All districts 7.8% 499
Source: Pennsylvania Department of Education data; Pennsylvania Department of Environmental Protection
SPUD data.

5. Notes References Prepared by Timothy W. Kelsey,
1. Estimates from N. Johnson, Re- Bureau of Oil and Gas Management. professor of agricultural economics;
port 1: Marcellus Shale Natural “Marcellus Wells Drilled 2007 to William Hartman, professor of edu-
Gas and Wind—Pennsylvania 2010.” Harrisburg: Pennsylvania cation; Kai A. Schafft, associate pro-
Energy Impacts Assessment (Ar- Department of Environmental Pro- fessor of education; Yetkin Borlu,
lington, Va.: The Nature Conser- tection, 2011. graduate student in rural sociology;
vancy, 2010). Quotation from and Charles Costanzo, undergradu-
Governor’s Center for Local
T. Corbett, “Governor Tom Cor- ate student in community, environ-
Government Services. Taxation
bett 2011–12 Budget Address,” ment, and development.
Manual. Harrisburg: Pennsylvania
March 8 (Harrisburg, Pa.: Office Department of Community and
of the Governor, 2011). Economic Development, 2004.
2. U.S. Census Bureau, Public Edu-
cation Finances: 2009 (Washing- Pennsylvania Department of
ton, D.C.: U.S. Census Bureau, Education.“Act 1/Act 511/First
2011), Table 5. www2.census Class SD Taxes, 2007–2008.” Har-
.gov/govs/school/09f33pub.pdf. risburg: Pennsylvania Department
of Education, 2009.
3. As measured by Pennsylvania
Department of Education school ———. “Act 1/Act 511/First Class
district aid ratio calculations SD Taxes, 2009–2010.” Harrisburg:
from 2005 to 2006, prior to the Pennsylvania Department of Educa-
onset of drilling in the Marcellus tion, 2011.
shale.
———.“Expenditure Data for all
4. K. Schafft, L. Glenna, Y. Borlu,
LEAs, 2007–2008.” Harrisburg:
and B. Greene, Marcellus Educa-
Pennsylvania Department of Educa-
tion Fact Sheet: Marcellus Shale
tion, 2009.
Gas Development—What Does It
Mean for Pennsylvania Schools? ———.“Expenditure Data for all
(University Park: Penn State Co- LEAs, 2009–2010.” Harrisburg:
operative Extension, 2012). Pennsylvania Department of Educa-
5. Ibid.; J. Williamson and B. Kolb, tion, 2011.
Marcellus Natural Gas Devel- ———.“Revenue Data for all LEAs,
opment’s Effects on Housing in 2007–2008.” Harrisburg: Pennsylva-
Pennsylvania (Williamsport, Pa.: nia Department of Education, 2009.
Center for the Study of Commu-
nity and the Economy, 2011). ———.“Revenue Data for all LEAs,
2009–2010.” Harrisburg: Pennsylva-
nia Department of Education, 2011.
Pennsylvania Department of Rev-
enue. “Personal Income Statistics,”
for 2007, 2008, and 2009. Harris-
burg: Pennsylvania Department of
Revenue.
Schafft, K., L. Glenna, Y. Borlu, and
B. Greene. Marcellus Education
Fact Sheet: Marcellus Shale Gas
Development—What Does It Mean
for Pennsylvania Schools? Univer-
sity Park: Penn State Cooperative
Extension, 2012.
Williamson, J., and B. Kolb. Marcel-
lus Natural Gas Development’s Ef-
fects on Housing in Pennsylvania.
Williamsport, Pa.: Center for the
Study of Community and the Econ-
omy, 2011.

6. Put Our Experience to Work for Your
Community
The Penn State Extension Marcellus Edu-
cation Team strives to bring you accurate,
up-to-date information on natural gas ex-
ploration and drilling in Pennsylvania. Learn
about your rights and choices as a land-
owner, a businessperson, a local official, or
a concerned citizen. Discover the resources
available to you.
Visit naturalgas.psu.edu.
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