Moratoria on Drilling are Legally Dubious

With the New Year come resolutions. Here, then, is a modest resolution for 2012: Cities and towns should exercise caution before adopting prohibitions on oil and gas extraction that could expose the municipalities to costly litigation and could make them less competitive at a time when job creation is both a national and regional priority.

A quick review of the latest city to adopt a moratorium – Binghamton – demonstrates why such a resolution is needed. New York, Gov. Andrew Cuomo and the Department of Environmental Conservation have spent nearly four years developing draft regulations to address gas development in the Marcellus Shale. The regulations – which, as the duration of rulemaking would suggest, were drafted with both caution and sensitivity to environmental concerns – would prohibit drilling within most if not all of Binghamton’s city limits given its proximity to a primary aquifer.

So Binghamton was unlikely to see much, if any, drilling in the near future, regardless of the city council’s action. The members of the city council nonetheless voted in favor of a two-year moratorium to, as some present at the hearing reportedly said, “send a message.”

But what message did they send? That they would prohibit drilling largely in areas where it would otherwise be prohibited? Or, as one business owner in Binghamton lamented at the hearing, “that Binghamton is not open for business?”

Binghamton may, however, be open for litigation. Other municipalities that instituted bans, such as Dryden, have found themselves hauled into court, defending their legally dubious positions.

The legal problem is that New York reserves the authority to regulate oil and gas through its Environmental Conservation Law, which is intended to prevent waste, provide for “greater ultimate recovery of oil and gas” and to protect the environment while also protecting the rights of oil and gas leaseholders and landowners. Rather than provide a patchwork of regulation, the DEC and ECL create a comprehensive framework, delving into details such as spacing of location of wells.

Of course, it is not just that localities will be spending tax revenue to defend these laws. It is that these moratoria necessarily mean that the cities are foregoing jobs and tax revenues. An average well developed in the region would generate more than $190,000 annually in tax revenues that would provide relief to counties which have had to make tough cuts during the recession. And at a time when New York’s unemployment rate persists at near 8 percent, development of the Marcellus Shale would produce sought-after, high-paying jobs.

Those who have promoted the moratoria have done so citing the need for caution. But greater caution needs to be taken before localities implement moratoria that potentially conflict with state law and draft regulations, create legal uncertainty and expense for cities and towns, and simultaneously cost jobs and tax revenue.

Robert Alt is a fellow in legal and international affairs at the Ashbrook Center.