The Utica Shale formation has generated major interest in eastern Ohio over the past several years, with drilling activity and production surging in a variety of counties including Carroll, Monroe, Noble and Harrison. We visited these counties in early April to interview local government officials about the effect of this new development on their public finances.
Oil and gas well completions in three Ohio counties.
For the most part, we found that increased drilling activity has been beneficial for local government finances, despite the fact that Ohio has a minimal severance tax and allocates no severance tax revenue to local governments. Instead, counties and municipalities have benefited from increased property tax and sales tax revenues, along with leasing county- or municipal-owned land for production.
But perhaps more important than these revenue sources have been the Road Use and Maintenance Agreements (RUMAs) between county and township governments on one side and oil and gas companies on the other. These RUMAs stipulate that companies must repair any damage they cause to local roads during their operations, and in many cases have resulted in companies upgrading roads to better standards than they were prior to oil and gas development.
During pre-production, drilling and hydraulic fracturing, oil and gas companies run thousands of heavy trucks along often narrow and unpaved roads, which can substantially damage roads and cause a range of traffic problems. However, once the well is producing, most of this traffic stops, replaced by a far lighter flow of well-servicing vehicles.
Over the past several years in Carroll County, which has seen more drilling than any other county in the Utica region, the county engineer estimates that companies have made roughly $40 million worth of road repairs and upgrades, a figure which easily eclipses the county’s road budget. In nearby Monroe County, known as the “Switzerland of Ohio,” county officials estimate that RUMAs have directly led to an eight- to ten-fold increase in the amount of new paved roads.
A drilling rig in Monroe County, the “Switzerland of Ohio.”
Nearby residents are often concerned by truck traffic that generates noise, dust and traffic accidents, and these concerns can be substantial, especially if traffic is concentrated in one area over a long period of time. However, most of the local officials we spoke with said these concerns generally faded as companies moved on to new locations, easing traffic and leaving roads in better condition than before they arrived.
This research was carried out at the Duke University Energy Initiative with support from the Alfred P. Sloan Foundation.
