On January 28, the PA Environmental Defense Foundation submitted a brief to the PA Supreme Court continuing its legal battle to have revenue from oil and gas drilling on State Forest land used for conservation purposes as required by the Environmental Rights Amendment to the state constitution.

In 2017, PEDF won a PA Supreme Court decision saying public officials, local and state governments and agencies like the Department of Conservation and Natural Resources have a duty, as trustees of the environmental public trust created by the Environmental Rights Amendment, to manage the monies resulting from oil and gas drilling on State Forest land in a manner consistent with the Amendment.

The decision declared monies diverted from DCNR’s Oil and Gas Lease Fund to balance the state budget as unconstitutional as a result.

The PA Supreme Court then remanded the case to Commonwealth Court to determine, consistent with their 2017 decision, which payments made by the drillers were proceeds of the trust and therefore should remain with the trust and not transferred for other purposes.

There are generally two types of payments made under the leases signed by DCNR for natural gas drilling on State Forest land-- bonus and rental payments and royalty payments based on cubic feet of production from the wells.

In a July 2019 Commonwealth Court ruling, the court said two-thirds of the bonus and rental payments made should remain part of the trust, but one-third could be transferred for use for other purposes.

There was no legal argument over whether royalty payments should have remained with the trust and in the DCNR Oil and Gas Lease Fund because those payments were the result of extracting the natural gas.

To describe the scope of the payments involved, there were an estimated $383 million in bonus and rental payments made during the 2009 and 2010 fiscal years covered by the original legal action and transferred to the General Fund.

Using the one-third rule, Commonwealth Court said one-third of those payments could be transferred for other uses-- $127 million-- while the remainder-- $255 million-- should not have been transferred.

While the original cases being pursued by PEDF dealt with the legality of the transfers made from DCNR’s Oil and Gas Fund from natural gas drilling payments-- somewhere around $1 billion, PEDF did not ask for the return of those funds to the Fund for the benefit of the trust until recently.

In a legal action filed in July 2019, PEDF asked the Court to order for the return of $69.774 million from the Oil and Gas Fund used by the General Assembly to pay the operating expenses for State Parks and State Forests, consistent with the Environmental Rights Amendment and the 2017 PA Supreme Court decision. Click Here for more.

New Brief

In its new brief to the PA Supreme Court, the Foundation said Commonwealth Court ignored the  2017 opinion of the PA Supreme Court saying revenue from natural gas drilling on State Forest had to be held in trust under the Environmental Rights Amendment to the Constitution and only used for conservation purposes.

PEDF said Commonwealth Court attempted to rewrite the Environmental Rights Amendment and started from the mistaken belief the Amendment authorizes the sale of trust assets to generate income for the state, when, in fact, this concept has no support in the language of the Environmental Rights Amendment, trust law or the terms of the leases themselves.

PEDF said Commonwealth Court erred when it never tried to determine the true character and purpose of the bonus and rental payments the PA Supreme Court said could not be used by the General Assembly to balance the state budget.

The Foundation said the plain language of the State Forest leases says they, and all the payments, are for the “...exploring, drilling, operating, producing, and removing of oil and gas and liquid hydrocarbons… [and] laying pipelines, and constructing roads, tanks, towers, stations, and structures thereon to produce, save, take care of, and transport extracted products.”

PEDF said Commonwealth Court erred in saying the,  “...bonus and rental payments under the lease are to secure the right to enter the land for the sole purpose stated in the lease, not just to secure the lease, or just to explore for oil and gas.”

The Court also concluded one-third of the upfront bonus and annual rental payments were income under the state Principal and Income Act of 1947 so they could be transferred to the General Fund.

The Foundation said nothing in the 2017 PA Supreme Court decision says “...any proceeds designated as income do not need to be used for trust purposes and can be transferred to the General Fund for general government operations.

“[T]he Commonwealth Court has ignored this [PA Supreme] Court’s direction and mandate in PEDF II to evaluate revenue streams under the leases for amounts other than for the purchase of the oil and gas extracted, “in strict accordance and fidelity to Pennsylvania trust principles, to determine whether the bonus and rental payments belong in the corpus of the trust.”

“Beyond the Commonwealth Court’s failure to acknowledge or discuss the fact that Article I, § 27 [Environmental Rights Amendment] provides no express authority to lease or sell part of the corpus of the public trust for income, it also fails to examine the relevant trust principles established in PEDF II to even consider the possibility that payments other than royalties required by the State Forest oil and gas leases must still be used solely for trust purposes.”

“DCNR’s specific fiduciary duty under Section 27 is to conserve and maintain the corpus of trust-- our State Forest trust assets – for the benefit of the beneficiaries.

“When DCNR, as trustee, enters into a contract for the extraction and removal of the oil and gas from our State Forest and the sale of these trust assets, it authorizes degradation, diminution and depletion of trust assets.

“For DCNR, as trustees, to then treat payments made under such contracts as income for its own use, whether through transfers to the General Fund or direct appropriations for its own operations, DCNR violates its specific fiduciary duties as trustee.” 

Click Here for a copy of the brief.

For more information on this case, visit the PA Environmental Defense Foundation website.  Questions should be directed to John E. Childe, 717-743-9811 or send email to: childeje@aol.com.

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