Commonwealth Court Rejects Constitutional Challenge to Natural Gas Production on State-Owned Lands and Use of Lease Funds in General Budget

by Buchanan Ingersoll & Rooney PC
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The Commonwealth Court of Pennsylvania has dismissed a lawsuit filed by the Pennsylvania Environmental Defense Foundation (PEDF) to declare unconstitutional and enjoin natural gas extraction from State park and forest land. PEDF also sought to stop the Legislature from using monies generated from mineral leases for purposes other than conservation.

PEDF’s claims were based on Article I, Section 27 of the Pennsylvania Constitution (the Environmental Rights Amendment), and the Pennsylvania Supreme Court’s discussion of that provision in Robinson Township v. Commonwealth (2013). PEDF asserted that extraction of natural gas from State lands causes immediate and long-term negative impacts to public natural resources held in trust for Pennsylvania citizens. Citing Robinson Township, PEDF argued that by allowing natural gas production on and under State lands, the Commonwealth violated its constitutional duty to protect those natural resources.

Pennsylvania has been leasing State lands for mineral extraction since 1947. Since 1955, rents and royalties obtained from the Commonwealth’s leasing program were deposited into the Oil and Gas Lease Fund and used for conservation, recreation, dams and flood control. Before the advent of shale gas development, annual revenues were about $2.7 million. But since 2009, the Commonwealth’s oil and gas lease program has generated over $500 million in new revenue.

In recent years, the General Assembly has transferred some of this revenue from the Oil and Gas Lease Fund to the General Fund to address budgetary needs, while continuing to adequately fund conservation and environmental programming. PEDF argued that the money generated from the Commonwealth’s oil and gas lease program is part of a public trust constitutionally protected by the Environmental Rights Amendment. According to PEDF, the Legislature is constitutionally required to use these trust funds solely for conservation and may not redirect it to other budgetary needs.

The Commonwealth Court considered PEDF’s case en banc: the panel consisted of seven judges rather than three as is customary. In its unanimous decision, the court rejected PEDF’s far-reaching constitutional arguments and denied all of its claims.

The court summarily dismissed PEDF’s claims relating to past and current leasing of State lands for gas extraction. First, PEDF seeks to extinguish the contractual rights of the leaseholders who paid for the right to conduct gas production operations on or under State lands, but PEDF did not make those leaseholders parties to the case. Because the leaseholders’ rights are so connected with PEDF’s claims, they are indispensable parties, and the court determined that it could not act in their absence.

Second, the court did not accept PEDF’s maximalist interpretation of the Environmental Rights Amendment and its aggressive use of the Robinson Township plurality decision. Rather, the Commonwealth Court noted that the rights and duties conferred by the Environmental Rights Amendment are balanced by other legitimate state interests, such as sustainable property use and economic development. The court also noted that because the plurality decision in Robinson Township did not command a clear majority, the Supreme Court’s treatment of Article I, Section 27 in that case is persuasive only to the extent it is consistent with existing precedent on the same subject. This means the balancing test established in the 1973 case Payne v. Kassab remains viable and controlling.

The Commonwealth Court’s rejection of PEDF’s constitutional theory regarding the meaning and scope of the Environmental Rights Amendment is perhaps the most significant aspect of the decision.

Finally, the court refused to second-guess the Legislature’s fiscal decisions with respect to budget priorities and the sources and uses of Commonwealth funds. Without a clear constitutional limitation on the use of monies generated by the State’s oil and gas leasing program, the Legislature remains free to make funding decisions without judicial oversight.

PEDF has indicated its intention to appeal the Commonwealth Court’s decision to the Pennsylvania Supreme Court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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