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PA Court Rejects Environmental Rights Amendment Challenge to Appropriation of Oil and Gas Lease Funds for DCNR’s General Operations

On October 22, 2020, the Pennsylvania Commonwealth Court rejected a facial constitutional challenge to two statutory enactments that directed over $110 million generated from oil and gas leases on state lands to pay for the general government operations of the Pennsylvania Department of Conservation and Natural Resources (“DCNR”), finding that the appropriations were not facially unconstitutional under Article I, Section 27 of the Pennsylvania Constitution, also called the Environmental Rights Amendment (“ERA”). Pa. Envtl. Defense Found. v. Commonwealth, No. 358 M.D. 2018 (Pa. Cmwlth.) (“PEDF IV”).

The ERA states:

The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. 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 the people.

In 2017, as reported here, the Pennsylvania Supreme Court, in Pa. Envtl. Defense Found. v. Commonwealth, 161 A.3d 911 (Pa. 2017) (“PEDF II”), applied the second and third sentences of the ERA in the context of private trust principles that existed at the time the ERA was enacted in 1971 and struck down as unconstitutional statutory enactments that directed oil and gas royalties to the Commonwealth’s general fund rather than a fund used exclusively for conservation purposes. The Supreme Court found that “royalties – monthly payments based on the gross production of oil and gas at each well – are unequivocally proceeds from the sale of oil and gas resources” and must therefore remain in the trust. The Supreme Court remanded to the Commonwealth Court the issue of whether rental payments and up-front bonuses made under those oil and gas leases constituted trust assets that must also be used exclusively for conservation purposes.

In 2019, as reported here, the Commonwealth Court, in Pa. Envtl. Defense Found. v. Commonwealth, 214 A.3d 748 (Pa. Cmwlth. 2019) (“PEDF III”), held that two-thirds of rental payments and up-front bonuses received by the Commonwealth as proceeds from oil and gas leases on state forest and park lands must be reserved for conservation purposes under the ERA. The Court held, however, that proceeds designated as income are not required to remain in the corpus of the trust and used solely for conservation purposes and may instead be appropriated for general fund purposes. The Court therefore found that the statutory enactments that directed the transfer of the rental and bonus payments to the Commonwealth’s general fund were not facially unconstitutionally, but the Court noted that an accounting is necessary to ensure that no more than one-third of the rental and bonus payments were used for non-conservation purposes. That decision is currently on appeal before the Pennsylvania Supreme Court.

In PEDF IV, the Commonwealth Court was asked to review whether the appropriation of over $110 million in funds generated from oil and gas lease funds to pay for DCNR’s general government operations was facially unconstitutional under the ERA. In rejecting this challenge, the Court noted that the enactments did not identify whether the funds were royalties, rents, bonuses, or interest, and therefore the Court could not determine that the enactments were facially unconstitutional. The Court, however, similar to its holding in PEDF III, required the Commonwealth to conduct an accounting to ensure that the assets of the trust are being used for purposes authorized by the trust or necessary for the preservation of the trust in accordance with the ERA. The Court likewise rejected an argument that the use of the funds is restricted to the Marcellus Shale region, noting that the public trust under the ERA encompasses all public natural resources and not just one specific type. The Court also upheld the repeal of the 1955 Lease Fund Act, finding that the “Commonwealth has a constitutional obligation to ensure that trust proceeds are used to conserve and maintain the corpus of the trust, regardless of any statutory safeguards.”

An appeal of the Commonwealth Court’s decision in PEDF IV is likely. The Supreme Court’s decision in the pending appeal of PEDF III may instruct how the Supreme Court will address an appeal of PEDF IV.