As you know, the City of Denton, Texas voted to enact an ordinance banning the use of hydraulic fracturing as a completion method within the city limits. That ordinance is now in effect but subject to two pending suits filed by the Texas Oil and Gas Association (TXOGA) and the General Land Office (GLO). In an anticipated move, Phil King (Rep. Weatherford) has filed two bills directed at not only Denton but all cities in Texas that may try to regulate oil and gas within their corporate limits. These bills are unprecedented in their scope and will impact not only cities that may try to ban fracturing but will substantially impact all cities ability to regulate oil and gas activity. These bills have been mentioned in the news, but the content and scope of the bills has not been widely discussed.
HB 539
This is the longest and most comprehensive of the two bills. The actual bill as filed is here. The ostensible purpose of the bill is to compel a city to calculate and pay the “lost” revenues incurred due to the passage of an ordinance regulating oil and gas production. Incidentally, this would be a standard that only applies to cities, not the state of Texas. Here is how it works:
- Every city ordinance or measure regulating oil and gas has to comply with the terms of the bill;
- At the city’s expense, it must request the preparation of a fiscal note and an equalized education funding impact from the Legislative Budget Board (LBB) in Austin to calculate the total cost of the regulation;
- The LBB in preparing the calculations, may rely on information from any source deemed reliable, including oil and gas producers;
- The assessment is to determine the fiscal impacts to the state, local governments and other political subdivisions, including lost taxes, permit fees and lost royalties for a five year period;
- The amount that the City will be required to pay the state annually for the lost revenues;
- The LBB must also prepare a calculation of the financial impact to school districts related to the proposed regulation;
- At any hearing where the proposed regulation will be considered, the city must provide public notice of 1)the LBB cost assessments; 2)the amount the city will have to pay the state if passed; and 3)where the city will get the money to pay the state for the assessed cost, including new taxes and increased taxes;
- Similar notice requirements exist for any ballot measure submitted to voters or the commencement of enforcing any ordinance;
- If passed and enforced, the City must remit the calculated five year cost to the State of Texas.
This bill is unambiguous in its scope. It will be a nearly complete and effective ban on cities regulating oil and gas production within their limits. No city will be prepared to incur the substantial financial and political price imposed by a calculation performed by a board in Austin. In other words, it will not happen. There are no safe harbors for reasonable regulations and no limits to what can be claimed as a “regulation” on oil and gas. Countless Texas cities have enacted balanced and well-crafted regulations of oil and gas production and spent significant sums to do so. This bill places that good balance at risk.
HB 540
This bill is much shorter but carries equal weight. It is also aimed at the City of Denton but would apply to every city in Texas, whether or not it has oil and gas production. The language of the bill as filed is here.
Where HB 539 is designed to control the enactment of ordinances, this bill will control city charter elections to enact or repeal existing city ordinances. Unlike HB 539, this bill is not limited to oil and gas regulation. It would govern any city charter based vote on ordinances. Prior to ordering an election, a city must submit the proposed ballot initiative to the Texas Attorney General. The Attorney General is to assess whether the proposed ballot initiative would violate the Texas or US Constitution, statute or rule and determine whether it would result in a governmental taking of private property. If the proposed ballot violates any of the state laws or results in a taking of any property, the election is prohibited.
This bill has the allure of simplicity. A quick review suggests that it only ensures that every ballot initiative is legal under state law. But it’s more complex. While a review of Constitutional requirements makes sense and could be straightforward, determining whether an ordinance “violates” state law could be harder to determine. Many local regulations cover the same subject area as state regulation and in many cases this dual regulation works without conflict. The harder question, which may well be the point of the bill, is the determination of whether a taking of private property will occur. Governmental takings are serious and should be carefully analyzed. But far too often industries facing needed and balanced regulations, vigorously assert that any regulation of their activities is a taking. This bill confers the Texas Attorney General with the right to veto any proposed municipal ballot measure, not only on the basis of a violation of state law but also on the assertion by an impacted industry that a taking may occur. That interrupts the existing balance between state and local control. We need both.
