PEDF litigation appears to be nearing the last stage

This article appears in the August 2021 issue of The PIOGA Press.

Constitutionality of using Oil and Gas Lease Fund money for at least some operating expenses of environmental agencies must still be resolved

By Kevin Moody,
PIOGA General Counsel & Vice President for Government Relations

In our November 2020 newsletter, we reported that the constitutionality of using Oil and Gas Lease Fund money for operations of state environmental agencies, such as the Department of Conservation and Natural Resources (DCNR) and the Department of Environmental Protection (DEP), was still not resolved after the October 22, 2020, Commonwealth Court decision that the transfers of $110 million from the Lease Fund in 2017 and 2018 to DCNR were not unconstitutional under the Environmental Rights Amendment (ERA). That observation was also based on the then-pending Pennsylvania Environmental Defense Fund (PEDF) appeal of the Commonwealth Court’s decision on remand from the first PEDF appeal to the Supreme Court challenging the Commonwealth Court’s decision rejecting PEDF’s trust fund arguments, which the Supreme Court had reversed and remanded.

On July 21, the Pennsylvania Supreme Court ruled in PEDF’s favor in that second appeal (64 MAP 2019), setting the stage for our Supreme Court’s consideration, on PEDF’s third appeal (65 MAP 2020), of the issues decided in that October 22 Commonwealth Court decision. In its July 21 decision, the high court ruled that the transfer of hundreds of millions of dollars from leasing land in Pennsylvania state forests for oil and natural gas drilling to fill holes in the state budget in 2009 and 2010 were unconstitutional.

The 2009-2010 transfers were all to the General Fund for general operations of various state agencies, whereas the $110 million transfers to DCNR in 2017-18 were more specific:

$50,000,000 for general operations
$7,739,000 for state parks operations
$3,552,000 for state forests operations
$37,045,000 for general operations
$ 7,555,000 for state parks operations
$4,198,000 for state forests operations

PEDF’s third appeal also challenges the constitutionality of transfers from the Lease Fund to other funds: Keystone Recreation, Parks and Conservation Fund; Marcellus Legacy Fund; Environmental Stewardship Fund ; and Hazardous Sites Cleanup Fund.

The Supreme Court’s July 21 decision on PEDF’s second appeal relied primarily upon the court’s decision on PEDF’s first appeal, which PEDF primarily relied upon in its challenge to the 2017-2018 DCNR transfers and transfers to the other funds. As the Supreme Court’s July 21 decision rejected the basis for the Commonwealth Court’s October 22 decision upholding the constitutionality of the 2017-2018 DCNR and other fund transfers, there is no doubt that the Supreme Court will rule in favor of PEDF a third time and hold that the 2017-2018 transfers to DCNR for general operations as well as the transfers to the other funds were an unconstitutional use of ERA trust fund revenues for non-trust purposes. The question is whether the high court will invalidate the full amount of the transfers for state parks operations and state forests operations.

As PIOGA has argued throughout this PEDF litigation, which began in 2012, there is a valid basis―in the Supreme Court opinions and PEDF filings―for allowing ERA trust fund revenues to be used for the operating expenses attributable to the state employees who do the actual “conserving and maintaining” of our public natural resources required by the ERA. In its decision on PEDF’s first appeal, the court stated:

We also clarify that the legislature’s diversion of funds from the Lease Fund (and from the DCNR’s exclusive control) does not, in and of itself, constitute a violation of Section 27 [the ERA]. As described herein, the legislature violates Section 27 when it diverts proceeds from oil and gas development to a non-trust purpose without exercising its fiduciary duties as trustee. The DCNR is not the only agency committed to conserving and maintaining our public natural resources, and the General Assembly would not run afoul of the constitution by appropriating trust funds to some other initiative or agency dedicated to effectuating Section 27…. However, if proceeds are moved to the General Fund, an accounting is likely necessary to ensure that the funds are ultimately used in accordance with the trustee’s obligation to conserve and maintain our natural resources. (Emphasis added)

About two weeks after the Supreme Court’s decision and remand to Commonwealth Court, PEDF filed an application asking the Commonwealth Court to declare unconstitutional the $61,291,000 transfers to DCNR in 2017, which had not been enacted when PEDF filed its lawsuit in 2012 in Commonwealth Court (228 MD 2012). In that filing, PEDF argued:

If the Commonwealth can use our public natural resources for general operating expenses, including salaries and expenses, even assuming it is argued that the employees’ salaries and expensed are related to “conserving and maintaining” public natural resources, then no constitutional protection of the actual public natural resources will exist. The Commonwealth can and will argue that most, if not all, of DCNR employees are working to conserve and maintain our State Parks and Forests. The Department of Environmental Protection employees are also arguably working to conserve and maintain the public natural resources of our clean air and pure water. Other agencies also have obligations that could be viewed, under this interpretation, to be conserving and protecting our public natural resources, including both statewide and municipal entities…. The proceeds of the sale of trust assets must be directly related to conserving those resources. (Emphasis added)

Notwithstanding its “directly related” statement, PEDF asked Commonwealth Court to find the 2017 transfers to DCNR “to be unconstitutional, and to direct the Commonwealth to abstain from using the corpus of the public natural resource trust to operate Department of Conservation and Natural Resources and/or any other state agency or part thereof. (Emphasis added).

However, in its initial brief in its third Supreme Court appeal, PEDF acknowledged some significant facts and made some legal conclusions that contradict its 2017 “abstain” request to Commonwealth Court: (emphasis added)

  • DCNR is the Commonwealth agency with the statutory authority, and the scientific knowledge and expertise, to conserve and maintain our State Forests and Parks . . . in compliance with Section 27.
  • To comply with its Section 27 trustee duties, DCNR developed a strategic plan, entitled Penn’s Woods, Sustaining Our Forests, to manage our State Forest based on the science of ecosystem management.
  • DCNR’s ability to use the OGLF [Oil and Gas Lease Fund] is vital to meeting its statutory and constitutional duties.
  • When DCNR and its predecessors made the decisions to lease State Forest land for oil and gas extraction and sale, they did so with the knowledge that they would control the proceeds from such leases to carry out the actions necessary to conserve and maintain our State Forest and Park public natural resources under the authority of the 1955 OGLF Act.
  • To accomplish its Section 27 mission to conserve and maintain our State Forest through ecosystem management, as articulated in its strategic plan, DCNR must control the proceeds from the conversion of these trust assets to maintain the corpus of our State Forest and Park trust through actions, such as the following [: ]
    • purchasing subsurface mineral rights on these public lands currently in private ownership
    • acquiring additional lands with high value habitat
    • restore the soil, hydrology, habitats and other natural elements of our State Forests
    • fully assess the degradation and diminution of our State Forest air, surface water and groundwater resources from past, present and future resource extraction activities and implement projects to fully restore the quality of these resources
    • restore abandoned mine lands and plug abandoned and orphaned oil and gas wells on State Forest and Park land in northcentral Pennsylvania
    • Allowing DCNR to lease State Forest land for the extraction and sale of valuable minerals, including oil and gas, and giving DCNR the power and authority to exercise control over the OGLF worked in tandem to enable DCNR to lease State Forest land for oil and gas extraction in compliance with its constitutional duties under Section 27.
    • DCNR was appropriated all funds in the OGLF and given sole responsibility to decide which projects to approve and lands to acquire for such purposes. These safeguards limited the use of the OGLF to purposes that benefited the State Forest and Park public natural resources converted to generate the OGLF.

Finally, in its July 21 decision, the Supreme Court used the 1955 OGLF Act to describe the “circumstances under which the trust is to be administered” (emphasis added):

Those circumstances include that, at the time of the ERA’s enactment, the Commonwealth was already generating revenue, including income, by leasing mineral rights. The Commonwealth established the Oil and Gas Lease fund in 1955 and the General Assembly required that all rents and royalties generated by leasing minerals be “exclusively used for conservation, recreation, dams, or flood control or to match any Federal grants which may be made for any of the aforementioned purposes.” PEDF II, 161 A.3d at 919 (quoting statute). That was still the case in 1971, and it remained the case through 2009 when revenues soared as a result of leasing lands within which the Marcellus Shale lies. From the perspective of the settlors, the ERA was enacted when the Commonwealth was already devoting the revenues generated by mineral leases to conservation purposes. Redirecting those revenues to non-trust purposes is inconsistent with the backdrop against which the ERA was enacted.

These facts and legal conclusions are significant because they show that the “conserving and maintaining” of public natural resources do not occur without human activity. The Introduction of the DCNR strategic plan touted by PEDF as complying with its Section 27 trustee duties, Penn’s Woods, Sustaining Our Forests, describes how the plan was developed:

To capitalize on this juncture, the department undertook a strategic planning effort to address the issue of long-term sustainability of our forest resources. This planning process relied heavily on extensive public input. This input included the Citizen’s Advisory Council report, These Woods Are Ours, a meeting with special interest groups in Harrisburg, two meetings with resource professionals, 25 public meetings throughout the state and hundreds of individual letters and discussions.

These activities of DCNR employees seems to “be directly related to conserving those [public natural] resources” as argued by PEDF in its 2017 application two weeks after the Supreme Court’s remand on PEDF’s first appeal. Similarly, the DCNR employees with the scientific knowledge and expertise necessary, according to PEDF, to conserve and maintain state forests and parks in compliance with the ERA Section 27 seem to “be directly related to conserving those [public natural] resources.”

In addition, the DCNR employees tasked with carrying out the actions authorized by the 1955 OGLF Act, which both PEDF and the Supreme Court have acknowledged conserve and maintain state forest and state park public natural resources, seem to “be directly related to conserving those [public natural] resources” as argued by PEDF in its 2017 application. Moreover, presumably DCNR has entered into contracts with non-governmental entities for OGLF projects, which would provide for the use of OGLF funds to pay these non-governmental entities for the labor, materials and equipment needed to carry out these projects that the Supreme Court has determined were devoted to conservation, or trust, purposes.

Finally, the purchasing, acquiring, restoring, assessing and implementing activities described in PEDF’s initial brief in its third Supreme Court appeal as necessary to accomplish DCNR’s Section 27 mission to conserve and maintain our State Forest through ecosystem management seem to “be directly related to conserving those [public natural] resources” as argued by PEDF in its 2017 application.

It’s not clear how the Supreme Court will dispose of PEDF’s third appeal beyond rejecting Commonwealth Court’s holding that Lease Fund transfers for the Commonwealth’s general budgetary expenses are constitutional under the ERA. The court may determine that the record is not sufficiently developed on the question of what operating expenses of DCNR or DEP employees are “directly related to conserving [and maintaining] those [public natural] resources,” which PEDF acknowledged in its 2017 application is the appropriate test to determine whether expenditures are for trust purposes and therefore constitutional under the ERA.

Briefing in this appeal was completed in May, about two weeks before the Supreme Court issued its decision on PEDF’s second appeal. So, the parties did not have the benefit of that decision, which has brought the issues in the third appeal into sharper focus, when preparing their briefs. No matter how the court decides to dispose of the issue addressed in this article, it is clear that the end of this litigation is within sight.

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