Court ruling raises question: How can Pa. spend drilling money?
A Pennsylvania Supreme Court decision this week limiting the state’s use of gas drilling revenue could add a $100 million complication to state budget negotiations just a week away from the deadline for coming up with an annual spending plan.
The ruling struck down sections of a 2009 law that gave the Legislature the authority to spend oil and gas royalties from leases on state forests for general budget items unrelated to conservation.
In place of the unconstitutional sections, the court restored an earlier law that directs rents and royalties from state forest leases to a special fund under the control of the state Department of Conservation and Natural Resources to be used exclusively for conservation, recreation, dams or flood control.
Budget planners had different designs for that money.
In Gov. Tom Wolf’s proposed budget for the fiscal year that starts in July, roughly $100 million from oil and gas rents and royalties in the Oil and Gas Lease Fund was to pay for DCNR’s daily operations or be transferred to another fund for statewide environmental and infrastructure projects.
The House budget bill passed in April matched the governor’s proposal in terms of how much to transfer out of the lease fund for park and forest operations.
The Legislature and Wolf
administration have a June 30 deadline to come to a budget agreement and already have significant disagreements about how to pay for the roughly $31.8 billion they expect to spend next fiscal year.
Aides to Senate Republican leaders have said they expect the Supreme Court decision to have minor, if any, budget ramifications because money from the lease fund will still be spent to support DCNR.
A spokesman for Mr. Wolf said the court decision is still under review.
But John Childe, an attorney for the Pennsylvania Environmental Defense Foundation, which won the Supreme Court case, said spending state forest drilling royalties on DCNR operations “doesn’t comply with the court opinion on how the funds can be used.”
He said the Legislature faces two obstacles if it wants to continue to use oil and gas money, instead of the state’s general budget fund, to pay for DCNR’s operations: the Supreme Court voided the specific provision that gave the General Assembly authority to move money out of the lease fund and it required gas royalties from public lands to be spent on conserving and maintaining public natural resources.
He could not say whether the foundation will object to the funding transfer if budget planners go through with it. “My client hasn’t decided that,” he said.
A similar predicament was temporarily settled in 2014 when the Corbett administration agreed to drop a plan to sign more shale gas leases under state forests if the foundation agreed to drop its push for an injunction to block transfers from the lease fund for DCNR operational spending.
Since 2009, Pennsylvania has, to varying degrees, used oil and gas revenue to replace traditional taxpayer-funded support for the conservation agency. The starkest shift was in 2014, when the general fund contributed about 4 percent of DCNR’s budget. Oil and gas revenue contributed about37 percent.
Nearly a third of DCNR’s total proposed budget for the next fiscal year is expected to be supported by Oil and Gas Lease Fund revenues.
Nuances in the court decision could make a difference in how it affects the budget. The high court said oil and gas royalties from state lands have to be used for conservation purposes, but it was uncertain if the same limits apply to rents.
The state’s high court passed that question to a lower court to decide.
The bulk of the money in the Oil and Gas Lease Fund comes from royalties — about 89 percent of the total $73 million deposited in the account so far this fiscal year — and 11 percent comes from rents, a DCNR spokeswoman said. The same split is expectedto apply next year.
There is also room for interpretation in the lease fund law — it does not define “conservation,” for example — and some of those questions are likely to be addressed in future phases of the case, said John Quigley, a former DCNR secretary. But any expenditure from the fund based on an expansive interpretation of its terms is a risk at this point, he said.
He pointed to a 2004 auditor general’s audit and a 1991 guidance letter from the state attorney general that both advised DCNR that lease funds had to be used “directly for physical enhancement or conservation of natural resources,” not as a general funding source for the agency’s broad functions.
The 2004 audit criticized DCNR for violating the law’s limits by using drilling revenue for things like salaries, clothing and equipment back when the fund had a tiny fraction of the revenue it now raises from the sale of shale gas.
“These are fundamental questions that right now don’t have answers,” Mr. Quigley said, “so folks are appropriating oil and gas lease money at their peril right now.”