The Economic Impact of the Constitution Pipeline

Transcription

1 The Economic Impact of the Constitution Pipeline June, 2013

2 The Economic Impact of the Constitution Pipeline June, 2013 Prepared for: Constitution Pipeline, LLC Prepared By: Kent Gardner, Ph.D. Scott Sittig, MPP Project Directors 1 South Washington Street Suite 400 Rochester, NY Copyright CGR Inc All Rights Reserved

3 The Economic Impact of the Constitution Pipeline June, 2013 EXECUTIVE SUMMARY The Constitution Pipeline is a proposed interstate natural gas transmission pipeline that runs through five counties between New York and Pennsylvania. The plan is to connect downstate New York City (NYC) and New England (Boston area) markets with Marcellus Shale deposits of natural gas from northern Pennsylvania. The Constitution Pipeline Company, LLC (CPC) projects to spend about $683 million during the initial three year planning and building process. Some of the investment will be spent on specialized labor and materials brought in from outside the region, leaving approximately $166 million (24%) of the investment to directly benefit the five county region. CPC plans to lay approximately 125 miles of 30 pipeline roughly 80% in New York and 20% in Pennsylvania and create capacity to deliver up to 650,000 dekatherms of natural gas to parts of downstate New York State (NYS) and some areas in New England. The project will involve building two meter stations one in New York, and one in Pennsylvania. Constitution has reached an agreement with Iroquois Gas Transmission for Iroquois to modify its existing Wright compressor station to provide the compression needed at the terminus of the pipeline. The Center for Governmental Research (CGR) was engaged to calculate the economic impact the project could have on the five county region. CGR developed estimates of changes in employment and regional earnings during the development and construction phase as well as the operational phase that will commence post construction. The economic impact during the construction phase could result in: 1,300 direct jobs in the construction industry and 275 spillover jobs; $130 million of direct labor income, $26 million going to region residents; $12 million in spillover income, about $11m going to the region; and $17 million in sales and income tax revenue from increases in income (both direct and spillover) and project spending. Once operational the pipeline s economic impact could result in: 12 jobs in the region; Over $600 thousand in labor income in the region; and $13 million in sales, income and property tax revenue in the region. i

4 ii Acknowledgements CGR would like to thank the staff at Constitution Pipeline Company, LLC for their help in gathering data and putting it in context. Matthew Swift, Project Manager for Constitution Pipeline Company, was an invaluable resource for financial information and detailed project descriptions. Staff Team Project Directors, Kent Gardner, Ph.D. and Scott F. Sittig, M.P.P. collaborated on the analysis and generating the final report. Principal project support was provided by Mike Silva, Data Analyst. Mr. Silva handled draft reporting, data entry, primary analysis and provided methodological support.

5 iii TABLE OF CONTENTS Executive Summary... i Table of Contents...iii Introduction... 1 Methodology... 3 Economic & Fiscal Impacts... 4 Construction Phase... 4 Direct Economic Impact... 4 Direct Fiscal Impact... 6 Spillover Effects... 7 Operational Phase... 8 Summary... 9 Appendix...10 Estimated Impact on the Region s Unemployment Rate Breakout of Spillover Employment by Industry Economic and Fiscal Impact By County Property Tax Revenues by County Map of Proposed Pipeline... 20

6 1 INTRODUCTION Climate change concerns and the risks of dependence on foreign oil have driven a steady expansion in the use of natural gas. New extraction technology, particularly the hydraulic fracturing technique pioneered in the Barnett Shale, has accelerated this trend by dramatically increasing supply. This rapid expansion of supply and associated reduction in cost has spurred new demand for natural gas pipeline transmission. One new opportunity, and the subject of this report, is a new pipeline being developed in northern Pennsylvania (PA) that will create capacity to transport natural gas into downstate NYS and some New England markets. The Constitution Pipeline Company, LLC (CPC) is a joint venture of Williams Partners Operating, LLC (NYSE: WPZ), an energy infrastructure company, Cabot Pipeline Holdings, LLC (NYSE: COG), an independent gas producer, Piedmont Constitution Pipeline Company, LLC (NYSE: PNY), and Capital Energy Ventures Corp, subsidiary of WGL Holdings (NYSE: WGL). With a 41% stake 1 in the project, Williams expects to create the capacity to transport 650,000 dekatherms of natural gas per day which is the equivalent of serving the energy needs of approximately 3 million homes per day. Williams currently provides natural gas transportation through 15,000 miles of interstate natural gas pipelines, delivering about 14 percent of the natural gas consumed in the US. 2 Figure 1: Williams Gas Company Current Infrastructure

7 2 Cabot is a natural gas producer, whose operations include Eagle Ford Shale in South Texas, Marmaton in Oklahoma, and Marcellus Shale in Pennsylvania. 3 As of December 31, 2011, Cabot had 3,033 Bcfe (Billions of cubic feet equivalents) in total reserves, and Marcellus alone produced 600 Mmcf per day that year. 4 Piedmont is a distributor of natural gas to residential, commercial and utility customers in the Carolinas and Tennessee 5. Capital Energy Ventures acquires, manages and optimizes natural gas storage and transportation assets. The proposed project will connect Cabot s supply of natural gas from the Marcellus Shale to New York and Boston area markets. Figure 2: Cabot Oil & Gas Natural Gas Deposits A subsidiary of Williams, the CPC will build its interstate pipeline beginning in Susquehanna County, PA and ending in Schoharie County, NY. In all, approximately 125 miles of 30 pipeline will connect natural gas sources in Susquehanna County with the Iroquois Gas Transmission and Tennessee Gas Pipeline systems in Schoharie County. The pipeline will run through five counties including Chenango, Delaware and Broome in New York State in addition to Schoharie and Susquehanna. The project is expected to cost $683 million and take approximately three years to complete. Almost a third of the investment ($233m or 32%) will be made

8 3 in NY and PA but only $166m (24%) will be invested directly in the five county region. A map of the proposed route of the pipeline through each of the five counties can be found in the appendix of this report. 6 The following table enumerates the estimated length of pipeline installation and the location of the meter stations by county. Table 1: Constitution Pipeline Project County Approx. Miles Broome, NY 17.0 Chenango, NY 8.3 Delaware, NY 42.9 Schoharie, NY 30.9 Susquehanna, PA 25.1 Total Stations County Greenfield Meter Station Susquehanna, PA Greenfield Meter Station Schoharie, NY Building the pipeline will result in temporary jobs for the region during the construction phase of the project. The ongoing operation of the pipeline will result in additional permanent jobs. The purpose of this report is to quantify the economic and fiscal impact of the Constitution Pipeline in terms of temporary construction and full-time permanent jobs for the five counties in the region. Further details about the project and information on the project timeline and progress can be accessed at the project website: METHODOLOGY The economic impact of the pipeline investment on the region will be realized in two phases. The first phase consists of the preparation, planning and construction of the pipeline and is scheduled to occur over a three year time horizon. The physical construction of the pipeline is only one component of the first phase and is expected to occur during an eight month period. It is during this part of phase one that the highest number of new jobs will be created. The second phase consists of the ongoing operation of the pipeline after the three year development process is complete. 6 Additional and more detailed maps can be obtained by going to the project website at

9 4 CGR models economic impact by measuring the change in employment, labor income and tax revenue that is generated from a change in the economic activity of a region. Employment and income generated from the construction phase of a project are reported separately due to the temporary nature of the investment. The employment and income from the operational phase represents a permanent change in the size of the regional economy and is thus differentiated from the construction impact. CPC provided the investment estimates and the operational employment and income figures for the analysis. Labor for the project will be drawn from both inside and outside the region. For instance, skilled craftsmen may be brought into the region for certain parts of the project while local laborers will be used for other parts. Additionally, some materials and other professional support will be purchased from outside the region. Using labor and professional support from outside the region is the primary reason that not all the money invested in the project will benefit the five counties. The economic benefits of the Constitution Pipeline were determined using the MIG Group s IMPLAN input-output model. The IMPLAN database consists of two major parts: 1) a national-level technology matrix and 2) estimates of sectorial activity for final demand, final payments, industry output and employment for each county in the U.S. along with state and national totals. Data are updated annually. IMPLAN estimates the direct, indirect and induced impacts of economic change through the use of multipliers, and estimates the impact of a change in demand on 440 different industries/sectors of the economy. IMPLAN s algorithms allow CGR to construct a unified, multi-county model of the impact region. ECONOMIC & FISCAL IMPACTS CPC s construction of the pipeline will generate a substantial but temporary boost to employment in the region leading to a smaller but more permanent impact once the pipeline is operational through ongoing monitoring and maintenance. Construction Phase Direct Economic Impact During the construction phase, CPC estimates the workforce will be comprised of five teams of 260 workers totaling up to 1,300 new construction jobs. In-state trade unions are expected to provide approximately 50 percent of the construction workforce. However, due to the specialized nature of pipeline construction, local trade unions may need to hire personnel from outside of the project area. At this time, it is

10 5 anticipated that approximately 25 percent of the construction workforce will be hired locally (i.e., within the 5-county project area). Table 2: Estimated Temporary Construction Workers In State Out of State Total 5 County Region Total 325 N/A 325 Grand Total ,300 NY Portion ,037 From 5 County Region 259 N/A 259 PA Portion From 5 County Region 66 N/A 66 When estimating the impact of spending for labor, we assume that wages are paid to laborers at their place of work, but all of it is spent at their place of residence. As an example, if a worker from Binghamton is working on the project, Broome County and hence the region benefits from the investment in payroll. However, if the worker lives in Albany or Syracuse or Cleveland, then the economic benefit leaks from the region. Table 3: Estimated Workers by Residence and Place of Work County Where the Work will Occur Total Number of Workers Number of Workers Reside Inside 5 County Region Reside Outside 5 County Region Susquehanna, PA Broome, NY Chenango, NY Delaware, NY Schoharie, NY Grand Total 1, Using the latest Census Transportation Planning Package (CTPP) data we assume that 81% to 98% of the workers from inside the region reside in the county where they will work. We assume they would not need to relocate and would not need to commute to another county. The following table summarizes the number of workers based on potential relocation needs.

11 6 Table 4: Estimated Relocation Needs of Workers County Where the Work will Occur Number of Workers NOT Needing to Relocate Number of Workers that MAY Temporarily Relocate Susquehanna, PA Broome, NY Chenango, NY Delaware, NY Schoharie, NY Grand Total Assuming that the regional construction industry is operating at full capacity 7, this temporary boost of construction workers would be expected to have a small impact on the region s unemployment rate 8. Table 5: Changes in the Unemployment Rate due to the Increase in Temporary Construction Jobs Unemployment Rate Estimated Unemployment Rate Change Susquehanna, PA 7.5% 7.3% -0.2% Broome, NY 8.8% 8.8% 0.0% Chenango, NY 8.4% 8.3% -0.1% Delaware, NY 8.9% 8.3% -0.5% Schoharie, NY 9.5% 9.0% -0.5% 5 County Region 8.7% 8.5% -0.2% Direct Fiscal Impact CPC estimates the project will result in purchases of goods and services within New York and Pennsylvania totaling $233M. $166M of the 7 CGR reviewed the BLS statistics and determined a national average of approximately 14% unemployment in the construction industry. However, we chose to model the impact at full capacity to showcase maximum potential impact. We acknowledge that estimates of full employment are rare and unlikely, even in communities experiencing significant growth. However, it is also unusual to model these types of changes at such a granular level. The real impact on the unemployment rate is likely to be less. 8 The unemployment rate would be unchanged by workers coming from outside the region using the strict definition and methodology to calculate the rate. Unemployment is officially measured by counting those within a region who are employed or seeking employment. An influx of temporary workers from outside the region will boost economic activity in the region, but will not officially lower the unemployment rate as they would not be considered residents of the region and would not be officially included in the count.

12 7 purchases will be within the five county region. Some of these purchases will be on goods subject to sales tax. This spending is estimated to generate $3.3M in sales tax revenues in total. Construction materials, a portion of the sales taxable items, will add approximately $3.2M of sales tax revenue. Table 6 : Spending and Sales Tax Revenue (millions) Total Spending Sales Tax Revenue Sales Taxable Items 5 County Region Total $36.8 $2.8 Grand Total $43.5 $3.3 New York $34.4 $2.8 Pennsylvania $9.1 $0.5 Construction Materials 5 County Region Total $36.0 $2.7 Grand Total $42.4 $3.2 New York $33.7 $2.7 Pennsylvania $8.7 $0.5 Note: Subtotals may not sum due to rounding The 1,300 jobs generated during the construction phase will generate an estimated $130M of labor income, resulting in $11.3M of income tax revenues, and $1.2M of sales tax revenue. Of the $130M, $26M of labor income will benefit residents of the five county region. Table 7: Fiscal Impact of Temporary Construction Workers Income (millions) Workers Labor Income Income Tax Revenue Sales Tax Revenue 5 County Region Total 325 $26.0 $4.5 $0.6 NY Portion 1,037 $103.1 $10.5 $1.0 PA Portion 263 $26.8 $0.8 $0.2 Grand Total 1,300 $129.8 $11.3 $1.2 Spillover Effects The spending during the construction phase will also spur additional economic activity in both the state and the region. 275 spillover jobs will be supported by the spending activity. It will generate a total of $12.1M in labor income and $1.5M in income and sales tax revenue.

13 8 Table 8: Total Spillover Effects (millions) Workers Labor Income Income Tax Revenue Sales Tax Revenue 5 County Region Total 241 $10.6 $1.0 $0.2 NY Portion 219 $9.7 $1.1 $0.2 PA Portion 56 $2.4 $0.1 $0.0 Grand Total 275 $12.1 $1.2 $0.3 Operational Phase It is estimated that once operational the Constitution Pipeline will employ seven people. These jobs will result in about $500 thousand of new labor income for the states generating a potential for $68 thousand of income tax revenue and $11 thousand of sales tax revenue annually. Table 9: Direct Economic and Fiscal Impact once Operational (thousands) Workers Labor Income Income Tax Revenue Sales Tax Revenue New York 5 $362.0 $63.8 $8.7 Pennsylvania 2 $144.8 $4.4 $2.6 Direct Total 7 $506.8 $68.2 $11.3 The addition of these 7 jobs and their spending will spur job creation in supporting industries. It is estimated that five new jobs will emerge as part of the spillover impact. Table 10: Spillover Economic and Fiscal Impact once Operational (thousands) Workers Labor Income Income Tax Revenue Sales Tax Revenue New York 4 $128.4 $11.7 $3.1 Pennsylvania 1 $51.4 $1.6 $0.9 Spillover Total 5 $179.8 $13.2 $4.0 Additionally, a new annual stream of about $13 million in property tax revenue is expected for the counties as a result of the pipeline. The following table breaks out these property tax revenues by county.

14 9 Table 11: Expected Property Tax Revenues by County (thousands) Total Broome, NY $2,100 Chenango, NY $1,300 Delaware, NY $4,900 Schoharie, NY $4,400 Susquehanna, PA $250 Grand Total $12,950 The total impact of the Constitutional Pipeline once operational is summarized in the following table: Table 12: Total Economic and Fiscal Impact once Operational (thousands) New York Pennsylvania Total Total Employment (Direct + Spillover) Labor Income $490.4 $196.2 $686.6 Income Tax Revenue $75.5 $6.0 $81.5 Sales Tax Revenue $11.8 $3.5 $15.3 Property Tax Revenue $12,700 $250 $12,950 SUMMARY The economic impact of the proposed Constitution Pipeline has been modeled in this report. During this three year project approximately 125 miles of pipeline will be installed in New York and Pennsylvania. In addition to the pipeline, two meter stations one in New York and one in Pennsylvania - will be built. Based on the proposed project expenditures forecast by CPC the economic impact for the region during the construction phase can be summarized as: 1,300 direct jobs in the construction industry and 275 spillover jobs; $130 million of direct labor income, $26 million going to region residents; $12 million in spillover income, about $11m going to the region; and $ 17million in sales and income tax revenue from increases in income (both direct and spillover) and project spending. Once operational the pipeline s economic impact will include a total of: 12 jobs in the region; Over $600 thousand in labor income in the region; and $13 million in sales, income and property tax revenue in the region.

15 10 APPENDIX Estimated Impact on the Region s Unemployment Rate To estimate the impact of the Constitution Pipeline on the unemployment rates we begin with unemployment data published by the BLS. Number Unemployed (2012) Labor Force Unemployment Rate Susquehanna, PA 1,754 23, % Broome, NY 8,179 92, % Chenango, NY 2,088 24, % Delaware, NY 1,911 21, % Schoharie, NY 1,472 15, % 5 County Region 15, , % Source: Bureau of Labor Statistics, LAUS Table 4 in the report gave the number of workers not needing to relocate because they live in the county where the work is expected to be performed. The table estimates the additional construction worker jobs by county. We assume the construction industry is working at full capacity; therefore all 307 jobs will be filled by unemployed workers 9. Additional Construction Workers Number Unemployed Unemployment Rate Susquehanna, PA 61 1, % Broome, NY 41 8, % Chenango, NY 18 2, % Delaware, NY 110 1, % Schoharie, NY 78 1, % 5 County Region , % 9 Please refer to the footnotes on page 6 of the report for a discussion about the assumptions used in these calculations.

16 11 Breakout of Spillover Employment by Industry Spending on goods and services to construct the Constitution Pipeline will spur job creation in other industries. The following is an estimate of the breakout of the 275 additional jobs by industry group.

17 12 Economic and Fiscal Impact By County The following tables give county level estimates of the economic impact of the Constitution Pipeline. NOTE: The allocation of employment, income and tax revenue across individual counties is impossible to estimate with precision because differences in labor supply, the location of subcontractors, housing differences, consumer preferences and the nature of retail markets will all influence the locus of the economic effect. These should be considered best-guess estimates only. Table 13: Economic and Fiscal Impact Broome, NY (millions) Total 5 County Region County Residents Construction Phase Construction Employment Labor Income $17.7 $3.5 $3.2 Income Tax Revenue $1.8 $0.7 $0.7 Sales Tax Revenue $0.2 $0.1 $0.1 Spillover Employment 32 N/A N/A Labor Income $1.4 N/A N/A Income Tax Revenue $0.2 N/A N/A Sales Tax Revenue $0.03 N/A N/A Construction Spending $17.2 N/A N/A Sales Taxable Items $10.8 N/A N/A Construction Materials $4.9 N/A N/A Spending Sales Tax Revenue $0.9 N/A N/A Construction Materials $0.4 N/A N/A Other Sales Taxable Items N/A N/A Operational Phase Permanent Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Spillover Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Property Tax Revenue $2.1 N/A N/A

18 13 Table 14: Economic and Fiscal Impact Chenango, NY (millions) Total 5 County Region County Residents Construction Phase Construction Employment Labor Income $8.6 $1.7 $1.4 Income Tax Revenue $0.9 $0.4 $0.29 Sales Tax Revenue $0.1 $0.04 $0.03 Spillover Employment 16 N/A N/A Labor Income $0.7 N/A N/A Income Tax Revenue $0.1 N/A N/A Sales Tax Revenue $0.02 N/A N/A Construction Spending $8.4 N/A N/A Sales Taxable Items $5.3 N/A N/A Construction Materials $2.4 N/A N/A Spending Sales Tax Revenue $0.4 N/A N/A Construction Materials $0.2 N/A N/A Other Sales Taxable Items N/A N/A Operational Phase Permanent Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Spillover Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Property Tax Revenue $1.3 N/A N/A

19 14 Table 15: Economic and Fiscal Impact Delaware, NY (millions) Total 5 County Region County Residents Construction Phase Construction Employment Labor Income $44.7 $8.9 $8.8 Income Tax Revenue $4.5 $1.9 $1.83 Sales Tax Revenue $0.4 $0.21 $0.21 Spillover Employment 82 N/A N/A Labor Income $3.6 N/A N/A Income Tax Revenue $0.4 N/A N/A Sales Tax Revenue $0.09 N/A N/A Construction Spending $43.4 N/A N/A Sales Taxable Items $27.3 N/A N/A Construction Materials $12.3 N/A N/A Spending Sales Tax Revenue $2.2 N/A N/A Construction Materials $1.0 N/A N/A Other Sales Taxable Items N/A N/A Operational Phase Permanent Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Spillover Employment N/A N/A N/A Labor Income N/A N/A N/A Income Tax Revenue N/A N/A N/A Sales Tax Revenue N/A N/A N/A Property Tax Revenue $4.9 N/A N/A

20 15 Table 16: Economic and Fiscal Impact Schoharie, NY (millions) Total 5 County Region County Residents Construction Phase Construction Employment Labor Income $32.1 $6.4 $6.2 Income Tax Revenue $3.3 $1.3 $1.30 Sales Tax Revenue $0.3 $0.15 $0.15 Spillover Employment 61 N/A N/A Labor Income $2.7 N/A N/A Income Tax Revenue $0.3 N/A N/A Sales Tax Revenue $0.06 N/A N/A Construction Spending $32.2 N/A N/A Sales Taxable Items $20.3 N/A N/A Construction Materials $9.1 N/A N/A Spending Sales Tax Revenue $1.6 N/A N/A Construction Materials $0.7 N/A N/A Other Sales Taxable Items $0.9 N/A N/A Operational Phase Permanent Employment 5 N/A N/A Labor Income $0.4 N/A N/A Income Tax Revenue $0.1 N/A N/A Sales Tax Revenue $0.01 N/A N/A Spillover Employment 4 N/A N/A Labor Income $0.1 N/A N/A Income Tax Revenue $0.01 N/A N/A Sales Tax Revenue $0.003 N/A N/A Property Tax Revenue $4.4 N/A N/A

21 16 Table 17: Economic and Fiscal Impact Susquehanna, PA (millions) Total 5 County Region County Residents Construction Phase Construction Employment Labor Income $26.8 $5.4 $5.0 Income Tax Revenue $0.8 $0.2 $0.15 Sales Tax Revenue $0.2 $0.10 $0.09 Spillover Employment 50 N/A N/A Labor Income $2.2 N/A N/A Income Tax Revenue $0.1 N/A N/A Sales Tax Revenue $0.02 N/A N/A Construction Spending $26.4 N/A N/A Sales Taxable Items $16.6 N/A N/A Construction Materials $7.4 N/A N/A Spending Sales Tax Revenue $0.5 N/A N/A Construction Materials $0.4 N/A N/A Other Sales Taxable Items $0.02 N/A N/A Operational Phase Permanent Employment 2 N/A N/A Labor Income $0.1 N/A N/A Income Tax Revenue $0.004 N/A N/A Sales Tax Revenue $0.003 N/A N/A Spillover Employment 1 N/A N/A Labor Income $0.1 N/A N/A Income Tax Revenue $0.002 N/A N/A Sales Tax Revenue $0.001 N/A N/A Property Tax Revenue $0.3 N/A N/A Property Tax Revenues by County Property taxes will accrue to different levels of government in different proportions. The figures in the accompanying charts provide estimates of the percentage breakdown for property tax revenues that will accrue between school districts, local governments and the counties.

22 17 Figure 1: Distribution of Broome County Property Tax Revenues by Type of Government Figure 2: Distribution of Chenango County Property Tax Revenues by Type of Government

23 18 Figure 3: Distribution of Delaware County Property Tax Revenues by Type of Government Figure 4: Distribution of Schoharie County Property Tax Revenues by Type of Government

24 Figure 5: Distribution of Susquehanna Property Tax Revenues by Type of Government 19

25 Map of Proposed Pipeline 20