Cities fighting restrictions on use of drilling cash

Date: February 28, 2011

Major projects can languish because money paid by drillers may be used only in certain ways.


BEAUMONT, Texas — Advances in drilling have helped American towns and cities strike natural gas, and just in time, it would appear. With many facing cash crunches, the millions of dollars they\’re reaping in royalties could go toward saving public services, jobs and badly needed road projects.

Not so fast. Because of restrictions built into deeds and federal grants, municipalities can\’t use most of to their newfound wealth to plug budget shortfalls.

And so, while elected officials struggle to make ends meet, the money sits there, close enough to smell but just out of reach.

“There are street projects we\’d like to move forward with, the designs are in place, but because of federal rules we\’re not in a position to utilize the funds,” said Kyle Hayes, city manager of Beaumont, Texas, a refinery town that has made millions on gas drilling at the airport. “Right now, it\’s just sitting there — $35.3 million.”

The rules differ slightly depending on whether they\’re dictated by a government agency, such as the Federal Aviation Administration, or by a charitable foundation or individual during a deed transfer. But the bottom line is the same: Revenues made from gas drilling often have to be reinvested into the area where the minerals were extracted.

With new technologies and drilling techniques making once out-of-reach gas reserves accessible, the problem is expanding and currently affects about a dozen airports, including several in Texas and Louisiana, and at least one in Pennsylvania, said Lynn Lunsford, an FAA spokesman.

“The FAA has been reevaluating this policy in light of these windfalls,” Lunsford said.

The FAA tied a reinvestment clause to the grants it gives out to ensure that money made at airports — for example from leasing stores or renting hangar space — gets reinvested there to help fund maintenance and improvements, Lunsford explained. The clause only became a problem recently with the millions made from natural gas extraction on airport properties.

Beaumont — a Southeast Texas refinery city of just over 110,000 residents — has made more than $35 million in the past 10 months from gas royalty checks. But because of the reinvestment clause, that money has to go back into its tiny airport, which handles no more than 18,000 flights annually and has 39 private hangars for single-engine planes.

“I couldn\’t spend that much money if I tore everything down and rebuilt it,” said Brenda Beadle, Beaumont\’s capital projects manager.

Fort Worth, a growing city of more than 720,000 west of Dallas, sits smack in “the honey hole” of the Barnett Shale, as Mayor Michael Moncrief likes to say. The geologic formation, like others that crisscross the nation and world, has long been known to contain rich natural gas reserves that were out of reach until new drilling methods made them accessible about five years ago.

Fort Worth, one of the first cities to enjoy the riches of new natural gas drilling, has made more than $89.5 million in the last 10 years from gas royalties, leases and bonuses from drilling in parks, golf courses and the major airport.

That money would cover the city\’s $72 million budget shortfall, which forced the closure of public pools and nearly shut down libraries. But only about $15 million of it was unrestricted, the rest has to be reinvested in areas where the money was made.

Pittsburgh is trying to arrange a deal with the FAA before signing a lease with a gas company to extract money from its airport, which sits on the lucrative Marcellus Shale.

Cash-strapped Allegheny County owns the airport land and its mineral rights, said county spokesman Kevin Evanto.

“Since county taxpayers purchased the land, we would like a significant amount of any revenues generated by gas drilling to benefit county taxpayers,” he said.

Copyright: Times Leader


Joe Price
Attorney Joe Price is a seasoned Trial Lawyer serving Northeast, Central and Southeast Pennsylvania for the past forty (40) years. He has handled serious personal injury cases in courts throughout the Federal system including New Jersey and New York. Attorney Price is A.V. Rated by Martindale Hubble. He is Board Certified in Civil Practice by the National Board of Trial Advocacy since 1996.