Pa. Supreme Court: State Forest Gas Lease Money Must Be Used For Conservation

The state Supreme Court recently ruled that the Pennsylvania legislature’s diversion of millions of dollars received from oil and gas leases in state forests to pay agency operating expenses is unconstitutional.

The 4-3 ruling, which overturned a Commonwealth Court decision, means that Pennsylvania governors and legislators must use money from leases in the Department of Conservation and Natural Resources (DCNR) Oil and Gas Lease Fund for conservation and recreational purposes, and cannot divert a portion to pay for other expenses.

At the heart of the case is the Environmental Rights Amendment to the state constitution, which states, “Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all people.”

The Pennsylvania Environmental Defense Foundation (PEDF) sued the state government after the General Assembly began in 2009 to transfer money from the special conservation account called the Oil and Gas Lease Fund to help pay for general operating expenses of the DCNR. The transfers began after proceeds from Marcellus lease sales in state forests raised more than $400 million.

In 2017, the state Supreme Court ruled that the money must continue to be placed in the lease fund, which under the Oil and Gas Lease Act required that it be used by the DCNR only for conservation projects. The high court found that under the Environmental Rights Amendment the trust assets must be used for that purpose.

Soon after that ruling, the state legislature approved the diversion of $110 million from the Oil and Gas Fund in FY 2017-18 to pay for operating expenses. It also repealed the the Oil and Gas Lease Fund Act. PEDF again appealed, and in October, the Commonwealth Court ruled that the “vast proceeds derived from oil and gas leases may be used in a variety of ways to benefit a wide array of Pennsylvania’s cherished natural resources,” and not just areas affected by oil and gas development.

The lawsuit also brought into question whether only lease payments must be kept in the special fund, while upfront bonuses and rental payments could be used for other purposes. The court previously determined that while leases were strictly to be used for conservation, two-thirds of rental and bonuses could be used for other purposes. The Supreme Court also found that those payments must only be used for conservation.

The Supreme Court ruling “affirms our belief that all funds from the oil and gas leases, including the royalties, bonus and rental payments, are part of the public trust, and must be used to conserve and maintain the public natural resources, including our state forest,” said PEDF attorney John Childe in a statement.

Childe goes on to say that bonus and rental payments were diverted over the past 10 years, the opinion does not state that the money must be paid back. However, the money has to be used for the intended purposes in the future.

However, the PEDF went to court several weeks later seeking repayment of more than $1.3 billion to the Oil and Gas Lease Fund. That petition will now be heard in Commonwealth Court.

The PEDF has filed a notice that it intends to appeal this latest Commonwealth Court ruling to the Supreme Court, as hundreds of millions of dollars from leases in state forests hangs in the balance. The state budget for fiscal 2020-21 again diverts money from the Oil and Gas Lease Fund – this time $48.8 million.