Recently, the tri-state region of OH, PA, and WV has been experiencing an enormous boom in the natural gas industry. Hydraulic "fracking" combined with new horizontal drilling technology is enabling energy companies to safely harvest huge amounts of clean natural gas. The Marcellus and Utica shale formations underlying the region have more than three trillion cubic feet of natural gas, just waiting to be produced. As a result, several energy companies have flocked to the area to cash in. Hundreds of rural families who have owned homesteads in relative poverty for generations have literally become overnight millionaires merely by leasing their natural gas rights. Employers can't hire people fast enough to keep up with exploding demand. Most law firms' bottom lines are getting hammered right now, but my employer regional law firm - headquartered in Bridgeport, WV - experienced record breaking profits last year. These profits mainly came from the dramatic increases in oil/gas title and transaction work from the fracking boom. In short, economic outlooks are looking really, really good across the board.
This boom has convinced Shell Oil and another unnamed oil company to construct two "cracker" plants somewhere in the region. Cracker plants, like the one pictured above, chemically break down ethane (a byproduct from natural gas drilling) into usable ethylene. Guess how much it costs the companies to invest in and build just one cracker plant? $3.2 billion. Guess how many short-term, shovel-ready construction jobs that one plant would create? About 8,000. Guess how many long-term, good paying jobs that one plant would create? As estimated by the American Chemistry Council, 12,271 (2,484 in the chemical industry; 6,262 in the supply chain; and 3,524 from the 'induced' increases in consumer spending).
Naturally, with two cracker plants up for grabs, OH, PA, and WV are fiercely competing with each other to entice the companies to invest those billions and bring those tens of thousands of jobs to their states. So politically, something encouraging, albeit counter intuitive, has taken place in WV. Newly elected Governor Earl Ray Tomblin (D) ran his campaign on a very simple and focused message: "Lower Taxes. More jobs." To his credit, Tomblin is striving to keep that promise by working closely with large Democrat majorities in the WV House and Senate.
Last week, the Legislature fast tracked a bill to the Governor's desk. The bill slashed state property, inventory, and machinery taxes that a cracker plant would have paid from $30 million per year to $1.5 million per year - for the next 25 years! Do the math, those savings add up. Despite strong opposition from environmental and anti-development special interest groups, the tax cuts passed unanimously in the Senate, and only 1 member of the House voted no (strangely, a Republican). Legislators were calling it "by far the most important legislation we will pass this year." Gov. Tomblin quickly signed the bill to take it with him on a sales trip to Houston, where Shell is headquartered, as part of his pitch to bring the crackers to WV instead of PA or OH. Obviously, this has been a very popular move with West Virginians, who elected Democrat Tomblin on the promise of creating more jobs.
I applaud the Dem leaders of WV who, bucking conventional partisan wisdom, are trying to create more jobs (and, consequently, more tax payers); not by jacking up taxes, but by slashing them. They understood that to be competitive with other states whose taxes are lower, and whose legal and regulatory environments are much more conducive to run a business, things had to be changed. Vilifying, demonizing, and "punishing" evil job creators with higher taxes wasn't the route they chose. They knew that WV didn't stand a chance with where our tax levels were compared to PA and OH. West Virginians are hoping that this legislation will pay off and deliver the grand prize: billions in new investment and tens of thousands of new jobs. This is a great case study in how you ultimately grow your tax base, your tax revenues, the employment rate, your approval ratings, and your reelection chances. The Obama administration should take notes.
