Kevin Roden for Denton City Council

Four Policy Suggestions for the Texas Legislature on Fracking

November 18th, 2014Uncategorized3 comments

This is a time for robust policy suggestions. The problems associated with urban drilling will only intensify. The lesson from Denton on November 4 is that a reliably conservative city who has had to put up with the consequences of natural gas production in its city limits has said enough is enough. Any state leader serious about continuing the Texas “energy revolution” must learn something from this. The rules of the game must change.

Briefly, here are a few of my suggestions:

FIX THE GRANDFATHERING PROBLEM – VESTING 
As I pointed out a year prior to this vote, the problem moving forward with cities like Denton isn’t how to regulate new well operations, it’s dealing with existing well sites. Currently state laws allow such sites to be vested in whatever rules applied at the time they first started some sort of activity or permit process for that site. The site could be 30 years old, but claim that new rules and regulations (including recently adopted setback requirements) don’t apply. The state can and should fix this in this legislative session and adopt provisions that set timelines and deadlines on activities at drill sites and prevent vesting in perpetuity.

REMOVE DOMINANCE OF MINERAL ESTATE OVER SURFACE ESTATE
The severance of mineral and surface rights has resulted in a situation where only about 2% of our city’s mineral owners actual reside in the city – yet the state allows their rights to be the dominant rights in disputes with surface owners in our city. The future of surface development in Denton (or any city for that matter), therefore, is largely in the hands of out-of-town mineral owners and their out-of-town operators. A city’s interest in the orderly development of the land within its limits is threatened by this. The Texas Legislature should commence a review of this policy and consider an equalization of rights within cities of a certain population or greater, if not state-wide.

GIVE EXPLICIT AUTHORITY FOR CITIES TO LIMIT OIL/GAS DEVELOPMENT TO INDUSTRIAL ZONED LAND
A provision that allows for oil/gas development is present in every zoning category in the city of Denton. There are significant legal questions as to whether or not the city is preempted from zoning oil/gas production as it would any other major industrial activity. But just as no homeowner has to worry about whether or not a major manufacturing facility will show up in their residentially zoned neighborhood, no homeowner should worry about whether or not a major petro-chemical extraction operation can show up 300 feet from their home. That’s the entire reason we have zoning categories. The Texas Legislature should work on a fix that would provide explicit authority for home rule cities to restrict oil/gas production activities to industrial-use zoning categories.

FIX THE ECONOMICS OF FRACKING – LET CITIES KEEP THE BULK OF SEVERANCE TAXES
There is no question that oil and gas exploration is an economic boon for the Texas economy. Oil and gas extraction brought in nearly $4.5 billion to the state coffers through severance taxes alone in 2013. 27 of the state’s top 50 public companies are oil/gas companies.  In 2009 when the state’s revenue stream plummeted nearly $3 billion in the wake of a national economic recession, the oil and gas industry nearly matched the shortfall with $2.2 billion in production taxes. Consider the following chart showing oil and gas severance taxes over the last several years:

If you ever wondered why the elected state policy makers and their regulatory agencies are so committed to keeping this industry alive and well in Texas, this is certainly a big part of the answer – revenue for the state government. Keep this in mind along with the previous stat of the number of big oil and gas companies in Texas when you see this next table:

Briefly, there’s a lot of money to be made for the Texas state government and there’s a whole lot of money to be made by some of our biggest companies who just so happen to help fund the campaigns of those making all the decisions on just what counts as “responsible drilling” in the state of Texas.  Policy making tends to be influenced by such things.

Meanwhile, state lawmakers and industry folk keep telling us that this is good for our local economy as well despite the fact that the numbers tell a very different story. What you have is the very strange economic dynamic whereby the economic health of the state of Texas is dependent upon robust oil and gas drilling operations in cities like Denton, TX without any meaningful economic benefit to those locales. And worse, we are given very little tools to regulate the situation ourselves. We become a sort of sacrifice city for the betterment of the collective whole.

I seriously wonder whether the November 4 election results would be different if there really was a meaningful economic benefit to the presence of so much gas production in our city. How might things have turned out differently if a city’s roads, schools, neighborhoods, parks, and overall infrastructure were significantly better in cities with such activity than in cities without it?  Instead just about all of the economic benefits from this activity go to out-of-town mineral rights holders, out-of-town companies with their out-of-town workers, and out-of-town state governments who take 100% of the production taxes and distribute it evenly across the state.  Why wouldn’t the citizens in such a situation move to ban such activity from their city?

This is easy to fix. The state legislature should consider returning at least 50% of the oil and gas production taxes to the jurisdictions where the minerals were developed. This will accomplish two things. First, it will make the state less dependent on this revenue from the industry, thus loosening its interest in maintaining such dominant regulatory control over the industry. Second, this will result in more robust legal authority for cities to regulate how they see fit. And, perhaps more importantly, such regulation can take place in an environment where the citizens can weigh meaningful economic benefits with the risks associated with with the very activity that brings it to their city.