Given the economic ‘boom’ and ‘bust’ cycle associated with natural resource extraction, the decision to spend or save the revenue generated by such activity (which is considered a financial windfall), has important policy implications. Two streams of literature exist which help to explain and predict the behaviors of those facing such payments. One of these streams contends that the size of a windfall payment is inversely related to consumption. More specifically, this stream posits that as the size of a windfall in proportion to an individual or household’s budget increases, consumption of the windfall decreases. This study attempted to test this contention in the public arena by examining three counties in Pennsylvania that received windfall payments from a newly established natural gas impact fee.
Through interviews with public officials familiar with the payment decision-making process and an examination of archival materials from Clearfield, Greene, and Tioga Counties, this study found that windfall size is inversely related to consumption. Clearfield County, which received the smallest payment relative to the total budget of the county, intended to spend most of the windfall while Tioga County, which received the largest payment relative to the total budget, intended to save most of the payment. Greene County, which received a medium-sized payment, also intended to spend most of the windfall.
Furthermore, the study revealed that officials in Clearfield County largely perceived the payment to be an insubstantial cash “bonus” with limited investment opportunities. Officials in Greene County considered the payment additional income and planned to use the payment to fund various projects. Only Tioga County considered the payment a substantial sum and insisted that the payment be saved.
This study concludes that the stream of literature focused on windfall size proves applicable in the public arena. Furthermore, this study contends that given a better understanding of the perceptions of and attitudes toward the payment, policymakers in Clearfield and Greene Counties should alter current behaviors. In the future, jurisdictions facing windfall payments in Pennsylvania and elsewhere should be more prudent in the decision-making process in order to account for the long-term effects of resource extraction on the local economy as well as the impacts of the impending resource ‘bust’
