A recent bill in the Colorado legislature would have required any local government, such as La Plata County, to compensate natural-gas royalty owners if the value of their interest were reduced by at least 60 percent as a result of a local government ban on hydraulic fracturing (fracking). It was rejected this time, but it could back again – is it a good idea?
If your goal is to prevent local governments from enacting fracking bans, it’s a great idea because the drafters of the bill know that local governments cannot afford such monetary claims, and so the law would act as a passive-aggressive measure to ban local decision-making regarding fracking. But if your goal is good government and locally made decisions, it’s a terrible idea and one not supported by our nation’s history of permissible land-use regulations.
At first glance, the 60-percent provision sounds like it might be reasonable. After all, should a government regulation be able to take away 60 percent of your property? But framing the question that way simply betrays self-serving bias because the value of your mineral right is itself defined in part by the permissible method of extraction, which makes the 60-percent figure a fiction. If I could prove that I could get 100 units gas out of the ground with a nuclear explosion, but only 20 units using “conventional” methods, should that mean that the state should have to give me the value of the other 80 units if it does not permit nuclear explosions?
Of course not. Regardless of whether fracking should be banned, a local government should have the right to make that decision and other regulations that it believes are in the public interest, something the 60-percent bill would effectively prohibit. The local ballot box protects majority rights against local regulatory overreach, and the Constitution protects individuals. The U.S. Supreme Court set the boundaries for such “regulatory takings” claims under the Fifth Amendment in the 1920s, deciding in Pennsylvania Coal Co. vs. Mahon that a state law effectively banning coal mining meant that the state had to pay mineral owners the lost value of the coal; in Village of Euclid vs. Ambler Realty the court held that a Cleveland suburb could zone factories out of residential areas without compensating property owners since their land still had some value, as residential property – even if it might have been more valuable as commercial property.
The difference in the two cases shows that as long as your property interest has some value when subject to regulation, no compensation is required – but the government cannot completely regulate away the economic value of your property. This constitutional protection remains without the 60-percent bill. In the fracking context, if an owner has already extracted gas through conventional methods but is denied the ability to extract more through fracking, it is hard to see how that is unfair, any more than it is unfair to say that your house and property can only be sold as residential land, even though you might be able to make more money if it were zoned commercial. The 60-percent bill would not put mineral owners on par with surface owners, it would give mineral owners preferential treatment.
Whether local-fracking bans are wise in particular communities should be for them to decide. But those communities should be free to make that decision without an economic Sword of Damocles held over their heads. Both surface owners and mineral owners now have equal protections under the law ensuring that they can use their interests in the land reasonably, and there should be no special rights for mineral owners over surface owners like the 60-percent bill would create.
Matt Kenna is a Durango attorney practicing public interest conservation law. Reach him at matt@kenna.net.
