HARRISBURG, Pa. (8/18/11)--Credit unions located in rural areas of Pennsylvania and surrounding states will be affected by an economic development surge expected in the next 20 years along the Marcellus Shale, one of the world's largest gas fields. The impact is a mixed bag of opportunities and risks, according to the Pennsylvania Credit Union Association (PCUA). The natural gas in the Marcellus Shale stretches over 95,000 square miles from West Virginia through upper New York. Roughly 40,000 to 50,000 square miles of the formations are in what is dubbed a "Fairway" through the state of Pennsylvania (Times News Online
Aug. 5). Nearly 212,000 new jobs are expected, says American Banker
(Jan. 13). One gas company, Chevron Corp., says that for each Chevron employee, there are three or four employees of contractors working with the company. Those contractors use their own equipment and separate crews to work each stage of developing a well (Herald-Standard
May 7). PCUA sponsored a webinar recently for member credit unions where six experts detailed issues facing credit unions related to the expansion (Keystone Extra
Aug. 5). Credit unions can expect:
* An influx of deposits at credit unions from newly created jobs; * Mortgage loans with complex issues related to value and appraising land with wells and mineral rights; * Complex property leases and related issues; * More complex tax income classifications; and * Opportunities for loans to small businesses serving the population of workers.
In PCUA's webinar, Charles Kern, chairman/CEO of Charles Kern & Co. addressed impacts Marcellus Shale will have on the income taxes of borrowers. Credit unions should first understand the entity types that can generate income, either passive or earned income, he said. They also should understand the facts and circumstances of income to properly classify it and know where to verify the income on tax returns depending on the manner the income is claimed. Phil Lambling of CUNA Brokerage Services Inc. detailed ways to address the influx of deposits credit unions will receive from members, including that company's Independent Advisor Program. "Everything changes when valuable minerals are discovered," John Hosey, chief appraiser for DataQuick, told attendees. Credit unions no longer can use a traditional property appraisal where there are surface, mineral and/or royalty rights involved, he said. Property values are still affected when the minerals are no longer present. There could be lingering impacts to the environment, well caps, and other issues, he said. Kern noted there are different types of values--market value, fair market value and investment value. All are legal terms and mean different things. He urged credit unions to have qualified appraisers and legal guidance. Andrew Giorgione, an attorney with Buchanan Ingersoll Rooney, reiterated the legal and environmental impacts from Marcellus Shale and cautioned that even though a property might not have a gas well on it, it still might be subject to underground horizontal gas drilling. Another related concern is the impact those mortgages would have on the secondary market. Coz Manzo of First Heritage Financial, a mortgage credit union service organization, compared the impact to a Rubik's Cube, saying there are many moving pieces to be aligned. Paul Whitman, CMGMI, noted it is important to align the type of appraisal credit unions will accept to what the secondary market will require. Pennsylvania banks already are lining up to take advantage of an industry that could generate $18.8 billion in economic value by 2020, said the American Banker