Fracking bans, taxation, and environmental policy.

Author:Cheren, Robert D.
 
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ABSTRACT

This Article investigates the tax bases of local jurisdictions that have imposed bans on horizontal slickwater fracturing, colloquially known as fracking. Local governments that draw little additional revenue from fracking are more likely to ban the practice because of environmental concerns. The correlation between the issuance of local fracking bans and the relative absence of additional local revenue from fracking indicates the importance of taxation in determining the proper balance between federal, state, and local governments in the process of making environmental policy.

CONTENTS INTRODUCTION I. LOCAL FRACKING BANS II. LOCAL TAXATION OF FRACKING III. REPRESENTATION THROUGH TAXATION IV. IMPLICATIONS FOR ENVIRONMENTAL POLICY A. Local Legislative Balance Selection B. Local Legislative Rigor and Restraint CONCLUSION APPENDIX INTRODUCTION

In November 1922, the Village Council of Euclid, Ohio, adopted an ordinance (1) "establishing a comprehensive zoning plan." (2) Ambler Realty challenged the ordinance on the grounds that its restrictions and controls would "confiscate and destroy a great part of [the] value" of land falling within regions zoned for limited residential purposes. (3) The United States Supreme Court held the ordinance a valid exercise of the police power of the state delegated to local jurisdictions like Euclid to keep pigs out of the parlors but permit pigs in barnyards. (4) Local jurisdictions to this day limit certain land uses to certain areas.

Further, just as in the Village of Euclid's 1922 zoning ordinance, certain land uses are "prohibited altogether" by local jurisdictions. (5) Recently, numerous jurisdictions across the United States have made natural gas exploration and production a prohibited use as a result of environmental concerns over the practice of horizontal slickwater fracturing, colloquially known as fracking. These fracking bans cover thousands of square miles of land above gas laden shale formations. This is a whole ocean of natural gas no one can get at. (6)

This is not an article on fracking technology or its environmental consequences. Rather, this Article uses the phenomena of local fracking bans to demonstrate an attribute of governmental entities relevant to the determination of the proper locus of environmental policymaking--taxation. This Article shows that local jurisdictions that draw no additional revenue from fracking are more likely to impose fracking bans and conversely local jurisdictions that draw additional revenue from fracking are less likely to do so.

Why the connection between fracking bans and taxation? When a potential land use will increase revenues, a local jurisdiction exercising its zoning power must either permit the use or forfeit the additional revenue. This Article posits that governmental entities tend to maximize their revenue. Accordingly, local jurisdictions will tend to permit revenue-generating uses. But whether any potential land use generates revenue for a local jurisdiction depends on the local jurisdiction's financial characteristics. These financial characteristics vary significantly from state to state and, to a lesser degree, from locality to locality within each state. In order to predict whether a local jurisdiction is likely or unlikely to ban fracking, one need only follow the money generated from the use of fracking and see whether any significant portion falls into the hands of the local jurisdiction.

  1. LOCAL FRACKING BANS

    This investigation of local fracking bans requires detailed data on their incidence. To this end, Geographic Information System maps were obtained for the political subdivisions of states covered by three overlapping shale plays, the Devonian, Marcellus, and Utica, a region laden with shale formations ripe for fracking. (7) These shale plays reach across New York, Pennsylvania, Ohio, West Virginia, Maryland, Kentucky, and Virginia. (8) Of the political subdivisions that govern these territories, the vast majority have not banned fracking. In all, political subdivisions covering 4,400.07 out of a total of 120,129.38 square miles have imposed a legislative fracking ban or moratorium. But these fracking bans and moratoria are almost entirely confined within New York and a small portion of Pennsylvania in and around Pittsburgh. Of the political subdivisions outside New York and this small portion of Pennsylvania, fracking bans and moratoria have touched only 21.24 square miles of the shale plays, less than half of one percent of the total area touched by legislative fracking bans in the shale plays. The concentration of 99.517% of fracking bans by area in the state of New York and the Pittsburgh metropolitan area represents a significant variance in legislative responses to fracking amongst political subdivisions in as opposed to outside these regions.

    The shale plays intersect 7,478.89 square miles of Kentucky political subdivisions and 4,966.86 square miles of Virginia political subdivisions. No local jurisdiction in either state has banned fracking.

    Ohio's political subdivisions that intersect the shale plays cover 24,761.36 square miles of the state. (9) No legislative bans have been imposed by political subdivisions within Ohio's shale plays. The state's only legislative ban was imposed by Yellow Springs, a village located far outside the shale plays. (10) The only legislative activities in political subdivisions in the state apart from the Village of Yellow Springs are pronouncements by the political subdivisions that fracking will not be pursued on public lands. Residents of two cities within Ohio's shale plays voted to amend their city charters to ban fracking by wide margins--62.87% to 37.13% in Mansfield (11) and 66.37% to 33.63% in Broadview Heights. (12) These margins are even greater than the only other voter ban, enacted by the voters of Ferguson Township, Pennsylvania, by a margin of 52.17% to 47.83%. (13) Despite this evidence of significant local opposition to fracking in Ohio, no local legislatures within Ohio's shale plays has enacted a ban on fracking.

    The shale plays cover nearly the whole of West Virginia--intersecting political subdivisions covering 21,867.91 square miles. Only the cities of Morgantown (14) and Wellsburg (15) enacted legislative fracking bans, neither of which is still in force. (16) These jurisdictions cover only 12 square miles of the state. Thus, fracking has only ever been legislatively restricted by political subdivision in a scant 0.055% of West Virginia's shale plays.

    Maryland has one fracking ban among its political subdivisions that intersect the shale plays. These political subdivisions cover 1,077.92 square miles. Only the 1.94 square mile town of Mountain Lake Park imposed a legislative ban on fracking. (17) Thus, only 0.18% of Maryland's shale plays have been restricted. Yet, the majority of Maryland's shale plays are inside two counties. Maryland's counties differ greatly in their financial characteristics from Maryland's cities and towns. It is therefore worthy of note that the ban covers 13.99% of Maryland's non-county political subdivisions in the shale plays.

    Pennsylvania's political subdivisions that intersect the shale plays cover 33,669.29 square miles of the state. (18) Legislatures in six boroughs and the city of Pittsburgh covering a mere 76.40 square miles of the shale plays have imposed fracking bans. (19) This is only 0.227% of the area of Pennsylvania's political subdivisions in the shale plays. Five of the six boroughs that have banned fracking are in the immediate vicinity of Pittsburgh, a highly localized concentration. (20) In addition, no new local legislatures in Pennsylvania have imposed fracking bans after the passage of Pennsylvania's Act 13, an act providing for additional regulation of fracking as well as the collection and distribution of a fracking impact fee, on February 14, 2012. (21) The only fracking ban imposed in Pennsylvania after Act 13 was imposed in the Township of Ferguson--a town apparently just outside the shale plays--by the town's voters, not its legislators. (22)

    New York has numerous political subdivisions that have imposed legislative fracking bans and moratoria. New York's political subdivisions that intersect the shale plays cover 26,451.75 square miles. Of those, fracking bans have been imposed by 42 political subdivisions covering 1,746.38 square miles and fracking moratoria have been imposed by 68 political subdivisions covering 2,563.35 square miles. (23) Thus, 16.293% of New York's shale plays have been restricted by legislative bans and moratoria imposed by political subdivisions. (24) In addition, several political subdivisions that are just outside EIA's 2011 map of the shale plays have also imposed fracking bans and moratoria. (25)

    New York political subdivisions account for a whopping 97.947% of the area in which local legislative bans have been imposed in the shale plays. The Pittsburgh metropolitan area accounts for another 1.570% of the area, and all Pennsylvania local legislative bans precede the passage of Pennsylvania Act 13 on February 14, 2012. All other legislative ban jurisdictions combined constitute only 0.483% of the area in which a legislative ban has been imposed in the shale plays.

  2. LOCAL TAXATION OF FRACKING

    Suppose governmental entities tend to maximize revenue by preferring policies that increase tax receipts. Revenue maximization would render some forms of taxation representative of certain interests in that the presence of these forms of taxation would yield governmental cultivation and protection of those interests in order to maximize revenue. Conversely, a relative absence of taxes that represent certain interests in this way would result in lesser governmental cultivation and protection of those interests. If this were true, revenue maximization behavior by local jurisdictions would play a significant but unappreciated role in the fight over...

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