GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM Environmental | January 2015 Urban Drilling in Texas: The City of Denton and the Fracking Ban By Patricia M. Rosendahl On Nov. 4, 2014, nearly 59 percent of the voters of the City of Denton, Texas, approved an ordinance that banned hydraulic fracturing (fracking) within the corporate city limits.1 Some four months earlier, the city council of Denton had actually voted 5-2 to reject the ban, sending the measure to a citywide election.2 The ballot initiative was the most expensive campaign in Denton’s history with the group opposed to the ordinance raising almost $700,000 (mostly from energy companies) and the local groups in support of the ordinance raising about $75,000.3 In the end, the citizen-driven proposition cruised to a landslide victory at the polls and has since garnered national attention while setting off what appears to be a long legal fight.4 Analysis of the city election returns shows that the support for the fracking ban included both college students and conservative voters, and the ban would have passed even if the student vote was not counted.5 The Denton Drilling Awareness Group insists that the city’s controversial ordinance was a specific reaction to conditions in Denton, not a broader move against the industry.6 Denton’s mayor concurs and has made it clear that his city “wasn’t trying to pick a fight.”7 Hydraulic fracturing or fracking is the process of injecting water, sand, and chemicals underground to extract oil and gas from shale formations,8 which is a relatively new technology that has made many old wells productive again. Older wells are often “grandfathered” and exempt from newer regulations, and many of the current regulations and requirements for new wells are often inapplicable to fracking operations utilizing older wells. The fact that many older wells are located in urban areas and new residential communities complicates matters further. 1 http://www.texastribune.org/2014/11/05/denton-fracking-ban-sees-first-lawsuit/ 2 http://www.law360.com/articles/557327/texas-city-rejects-first-in-state-proposed... 3 http://www.dallasnews.com/news/politics/headlines/20141105-denton-fracking-ban-passed-in-landslide1.ece 4 Id. 5 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 6 http://www.star-telegram.com/news/local/article4877877.html 7 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 8 http://thinkprogress.org/climae/2014/11/10/3590690/texas-fracking-ban-denton/GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 2 Denton is located in the middle of the Barnett Shale, one of the nation’s largest gas fields, which covers 5,000 square miles in North Texas.9 By some estimates, the 277 wells inside Denton’s city limits produced 1.52 billion cubic feet of natural gas worth an estimated $3.82 million during the month of September 2014 alone.10 Denton is reportedly one of the most heavily-fracked towns in Texas, and residents have complained about poor air, disruptive noise in residential areas, and an increase in low-magnitude earthquakes.11 Although Denton is the first Texas city to expressly ban fracking, other Texas cities in the Barnett Shale region have enacted regulations that have restricted fracking. In the past three years, Dallas and suburbs Southlake and Flower Mound have enacted polarizing ordinances that the industry considers de facto bans on drilling, and some residents of Mansfield, emboldened by Denton’s move, are reportedly calling for similar restrictions.12 Meanwhile, other towns including Azle, Irving, and Reno have raised concerns about a spate of unexpected earthquakes that have shaken the region – a phenomenon thought to be linked to nearby disposal wells, deep-underground resting places for liquid oilfield waste.13 In the past year, the Railroad Commission has hired a seismologist and approved requirements that companies submit more information before drilling disposal wells.14 In a 24-hour period, on Jan. 6-7, 2015, 11 low-intensity earthquakes occurred in the greater Dallas area, and a link between seismic activity and fracking is under consideration.15 The Railroad Commission’s seismologist noted that no oil and gas disposal wells have been permitted in Dallas County, but a seismologist at Southern Methodist University notes that the area has old fault lines and the disposal of fluids in some cases can flow through pre-existing fault lines and trigger small quakes.16 Texas is an oil-friendly state, and the oil and gas industry is a mainstay of the state economy. The Texas Legislature has stated its support of the development of oil and gas in the state with unmistakable clarity in the Texas Natural Resource Code: “It is the intent of the legislature that the mineral resources of the state be fully and effectively exploited.”17 Most Texans have a benign view of the oil and gas industry, which has provided revenue for public schools, tax revenue for local and state governments, business opportunities for generations of entrepreneurs, and employment in the oil patch for countless others. For the most part, the oil industry has been a good neighbor to local communities. The fact that many in the local antifracking groups are Texans with no prior complaint about oil and gas activities in their communities is significant. What appears to be souring a previously good relationship between 9 http://www.star-telegram.com/news/local/article4877877.html 10 http://www.breitbart.com/texas/2014/12/16/texas-city-s-fracking-ban-will-likely-cost-taxpayers-millions/ 11 http://thinkprogress.org/climae/2014/11/10/3590690/texas-fracking-ban-denton/ 12http://www.gilmermirror.com/view/full_story/26257439/article-Amid-Tension--Texas-Mulls-Oversight-of-Urban-Drilling 13 Id. 14 Id. 15 http://www.upi.com/Top_News/US/2015/01/06/11-minor-earthquakes-rattle-Dallas-area/4431420594846/ 16 Id. 17 Tex. Nat. Res. Code §92.001; _____.GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 3 industry and local communities has been a situation where drilling activities are increasingly taking place in close proximity to heavily populated areas. Proponents of the Denton ordinance viewed the measure as a last-ditch effort to address the noise and toxic fumes from wells just beyond their backyards, after loopholes and previous zoning decisions rendered changes to the city’s drilling ordinance largely unenforceable.18 According to Frack Free Denton, a local group supporting the ordinance, since most wells in Denton are grandfathered under older regulations, fracking is allowed to occur within 250 feet of homes despite a current ordinance’s setback distance requiring 1200 feet.19 After the City appointed a task force with a majority of members allegedly from the oil and gas industry, a revised 2013 city ordinance failed to include a number of protections that neighboring cities have used in regulating oil and gas activities in urban areas, such as prohibiting open pits, compressor stations, venting, and flaring, and requiring the use of vapor recovery units and air and water monitoring.20 Voters in Denton apparently became frustrated with the city government’s seemingly ineffective efforts to control urban drilling after a company was allowed to explore for natural gas within a few hundred feet of homes21 and after a well blowout in 2013 spewed benzene and other chemicals into neighborhoods prompting evacuations.22 In a written statement issued immediately after the ordinance was passed by voters, Mayor Chris Watts, who initially voted against the ban on fracking, said, “The City Council is committed to defending the ordinance and will exercise the legal remedies that are available to us should the ordinance be challenged.”23 The ordinance, in relevant part, provides that: It shall be unlawful for any person to engage in hydraulic fracturing within the corporate limits of the City (§14.201). The violation of or noncompliance with this article by any person, firm, association of persons, company, corporation, or their agents, servants, or employees shall be punishable as a misdemeanor and, upon conviction, …shall be fined a sum of not less than one dollar ($1.00) but shall not exceed two thousand dollars ($2,000), and each day any violation or noncompliance continues shall constitute a separate and distinct offense… (§14.202).24 Although the ordinance does not ban all drilling within the city limits, just hydraulic fracturing, industry representatives contend that, since it is not cost-effective to drill conventional wells, 18 Id. 19 http://frackfreedenton.com/fracking-facts/ 20 Id. 21 http://www.star-telegram.com/news/local/article4877877.html 22 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 23 http://www.dallasnews.com/news/politics/headlines/20141105-denton-fracking-ban-passed-in-landslide1.ec 24Ordinance, http://s3.amazonaws.com/static.texastribune.org/media/documents/TXOGA_Petition_file_stamped.pdfGREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 4 the ordinance is effectively a ban on drilling.25 While the ordinance would allow operators to keep pumping from wells they had already drilled and fracked, the wells could not be fracked again, and, without that option, the flow weakens over time.26 Companies would be hesitant to drill new wells that could not be fracked at a later point.27 On Nov. 5, 2014, the morning after Denton voters overwhelmingly approved the new ordinance, two lawsuits were filed by opponents of the fracking ban, both seeking a declaratory judgment that Denton’s fracking ban was unconstitutional and/or otherwise unlawful: (1) Jerry Patterson, Commissioner of the Texas General Land Office (GLO), sued the City of Denton in Travis County, Texas, 28 seeking declaratory relief based on the GLO’s constitutional obligation to manage public lands to help finance public schools,29 which includes the authority to lease mineral rights owned by the State of Texas.30 The GLO contends that the fracking ban is unconstitutional, because the Texas Constitution provides that no home-rule ordinance shall contain any provision inconsistent with the general laws enacted by the Texas legislature,31 and the Texas legislature has empowered the Railroad Commission of Texas with jurisdiction over all oil and gas wells in Texas and over persons engaged in drilling or operating oil or gas wells in Texas.32 Since the GLO leases state-owned mineral interests within the City of Denton, the suit contends that the fracking ban impairs the GLO’s right to manage and operate the State’s mineral interests and the State’s revenue would be adversely affected by the ordinance. Declaratory judgment and a permanent injunction is sought in this suit on the basis that (a) the ordinance is inapplicable to lands and mineral interests owned by the State of Texas; (b) the ordinance is preempted by State law; and (c) the ordinance is arbitrary, capricious and unreasonable and violates Article I, Section 16 of the Texas Constitution in that it impairs the obligation of contracts.33 In a statement issued by the GLO at the time the suit was filed, Patterson argued that the ordinance prohibits him from performing his duties. Patterson is constitutionally charged with the fiduciary obligation to maximize revenues 25 http://www.star-telegram.com/news/business/barnett-shale/article4284791.html 26 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 27 Id. 28 Cause No. D-1-GN-14-004628, Jerry Patterson, Commissioner, Texas General Land Office v. City of Denton, Texas, in the 53rd District Court of Travis County, Texas; http://s3.amazonaws.com/static.texastribune.org/media/documents/City_of_Denton_- _Original_Petition.pdf 29 Texas Const. art. VII; http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.7.htm. 30 Texas Natural Resources Code, §32.001 et seq.; http://www.statutes.legis.state.tx.us/Docs/NR/pdf/NR.32.pdf 31 Tex. Const. art. XI, §5; http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.11.htm. 32 Tex. Nat. Res. Code §81.051(a); http://www.statutes.legis.state.tx.us/Docs/NR/pdf/NR.81.pdf. 33 http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.1.htmGREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 5 from leasing public school lands. The GLO reportedly deposited a record $1.2 billion into the state’s $37.7 billion Permanent School Fund for fiscal year 2014, and these record earnings are claimed to be in large part due to hydraulic fracturing that has increased lease rental income on public lands that were previously of marginal value. Patterson claims that lease bonus income to the State of Texas in 2014 rose by 86 percent over 2013.34 George P. Bush has now taken over Patterson’s position at the GLO and will inherit the lawsuit. His only public comment on the issue thus far was made last July to the effect that “we don’t need a patchwork approach to drilling regulations across the state.”35 (2) The Texas Oil and Gas Association (TXOGA) filed suit in Denton County, Texas, the same day, seeking declaratory relief and an injunction on similar grounds.36 The TXOGA is a state-wide trade association founded in 1919 for the purpose of promoting and protecting the oil and gas industry in Texas, whose members allegedly account for over 90 percent of all crude oil and natural gas produced in Texas. Although individual TXOGA members own and operate wells and/or mineral leases within the corporate limits of the City of Denton, TXOGA contends that it has standing to challenge the ordinance without the participation of individual members in the suit. TXOGA contends that, under established preemption law, ordinances that are inconsistent with the Texas or federal constitutions or statutes are unconstitutional, and that an ordinance can be preempted by implication if it undermines or interferes with state policy or is inconsistent with state regulation that is so comprehensive and pervasive that it clearly occupies the field. The TXOGA argues that the Texas legislature vested the Texas Railroad Commission with authority to permit wells for enhanced recovery projects, including hydraulic fracturing,37 and since an outright ban on hydraulic fracturing directly conflicts with the Railroad Commission’s authority to permit wells within the City of Denton (and conflicts with other regulations issued by the Railroad Commission and the Texas Commission on Environmental Quality concerning hydraulic fracturing), the City’s ban is preempted. 34 Texas Land Office, Press Release, Nov. 5, 2014; http://www.glo.texas.gov/glo_news/press_releases/2014/november/oil-andgas.html. 35 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 36 Cause No. 14-08933-431, Texas Oil and Gas Association v. City of Denton, Denton County, Texas; http://s3.amazonaws.com/static.texastribune.org/media/documents/TXOGA_Petition_file_stamped.pdf 37 17 Texas Administrative Code §3.50; http://info.sos.state.tx.us/pls/pub/readtac$ext.viewtac (Note: Title 17 does not appear to be not accessible online but through a paid subscription).GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 6 The litigation was expected, but still a disappointment to grassroots groups that had put the ordinance on the ballot. According to a statement from Frack Free Denton, “They have apparently learned nothing from [the] landslide vote. Industry could have taken this moment to address why the ban was passed. Instead they’re going to try to squash it.”38 Two days later, Nov. 7, 2014, the Texas Railroad Commission announced that, despite Denton’s vote, the Railroad Commission would continue to give permits to companies wanting to drill inside the city limits.39 The agency’s chairwoman, Christi Craddick, said, “I believe it’s my job to give permits, not Denton’s.…We’re going to continue permitting up there because that’s my job.”40 A week later, in a guest column she wrote for the Denton Record-Chronicle, Craddick added: “…some confusion may persist about the commission’s role and how its authority intersects with local control. Let me be clear. The voice of the people of Denton should not be overruled, rather, cities and state regulators should work together to fulfill their responsibilities to the people… The commission’s role centers on issuing drilling permits, overseeing them and regulating operators. Conversely, companies doing business here [Denton] must comply with city ordinances and be good neighbors in the communities where they operate.”41 Frack Free Denton agrees with Craddick on this point: “Her own words make it clear that there is no conflict between state and local jurisdictions. Her office issues ‘drilling permits’ and ‘companies doing business here [in Denton] must comply with city ordinances.’ … Companies can still get drilling permits. But to operate in Denton they cannot use the well stimulation technique of hydraulic fracturing.”42 Craddick has also acknowledged that more needs to be done at the state level to tackle the issues raised by the fracking ban.43 In December, she told the agency’s executive director to explore the need for more inspections in highly populated, urban areas. “We are looking at a state in which drilling does not necessarily occur in less populated, rural areas, as it once did years ago,” Craddick said. “Because of both production and population growth across this state, our communities are more commonly touched by the development of oil and gas.44 We have heard the concerns expressed by those living in urban areas where drilling is occurring.”45 Communities in the Barnett Shale region expressed doubt that increased inspections would do much good unless the agency started levying more penalties on operators who break the rules.46 Moreover, Denton’s biggest complaint against the industry reportedly concerns air quality – an 38 http://www.texastribune.org/2014/11/05/denton-fracking-ban-sees-first-lawsuit/ 39 http://www.dallasnews.com/news/state/headlines/20141107-dentons-ban-wont-stop-fracking-permits-railroad-commissionchairwoman-says.ece 40 Id.. 41 http://www.dentonrc.com/opinion/columns-headlines/20141113-christi-craddick-guest-column.ece 42 http://frackfreedenton.com/2014/11/wake-up-rrc/ 43 http://www.star-telegram.com/news/local/article4877877.html 44 Id. 45 http://www.gilmermirror.com/view/full_story/26257439/article-Amid-Tension--Texas-Mulls-Oversight-of-Urban-Drilling 46 Id.GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 7 area over which the Railroad Commission has no jurisdiction, as those duties fall to the Texas Commission on Environmental Quality.47 The Railroad Commission has been under scrutiny lately from Texas legislators, who see a connection between the frustration of voters in Denton and the commission’s failure to address the impacts of hydraulic fracturing on urban communities. State Rep. Jim Keffer, chairman of the House Energy Resources Committee, said that he and many members of the public thought the commission “was not anywhere to be seen publicly” during the explosion in urban drilling.48 “There were a lot of people in Denton who had no idea the Railroad Commission existed,” said Keffer. “My frustration with the Railroad Commission is that they have the expertise to do the job, it is just getting out there in public doing that job.”49 A difference of opinion appears to exist as to the type of expertise needed to regulate drilling in urban communities. According to Craddick at the Railroad Commission: “Local control’s great in a lot of respects, but I’m the expert on oil and gas. The City of Denton is not.”50 The mayor of Denton sees things differently: “The Railroad Commission is not an expert about the city of Denton.”51 The legal dispute centers on the jurisdictional authority of home-rule cities in Texas to regulate oil and gas exploration and drilling within city limits. While the Railroad Commission has jurisdiction over all oil and gas wells in the state,52 home-rule cities in Texas have full power of self-government,53 and the Texas legislature has expressly recognized “the authority of a homerule city to regulate exploration and development of mineral interests.”54 Nearly a hundred years of Texas common law jurisprudence supports municipal authority to regulate oil and gas activities to avoid exposing communities to potentially dangerous nuisances.55 As Tom Phillips, former Texas Supreme Court justice now representing TXOGA, explained the dispute, “While home-rule cities like Denton may certainly regulate some aspects of exploration and drilling, TXOGA does not believe that they may enact ordinances that outlaw conduct, like hydraulic fracturing, that has been approved and regulated by state agencies.”56 Local control over fracking is precisely what Denton and other cities across the county are demanding, however, based on the principle that local citizens, not state government, should be able to decide the terms of unconventional oil and gas drilling in their communities.57 The issue may come down to 47 Id. 48 http://www.star-telegram.com/news/local/article4877877.html 49 Id. 50 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 51 Id. 52 Tex. Nat. Res. Code §81.051(a); http://www.statutes.legis.state.tx.us/Docs/NR/pdf/NR.81.pdf 53 Tex. Loc. Govt. Code §51.072; http://www.statutes.legis.state.tx.us/Docs/LG/pdf/LG.51.pdf 54 Tex. Nat. Res. Code §92.007; http://statutes.laws.com/texas/natural-resources-code/title-3-oil-and-gas/chapter-92-mineraluse-of-subdivided-land 55 http://lawreview.vermontlaw.edu/files/2012/02/riley.pdf 56 http://www.texastribune.org/2014/11/05/denton-fracking-ban-sees-first-lawsuit/ 57 http://thinkprogress.org/climate/2014/11/10/3590690/texas-fracking-ban-denton/GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 8 whether Denton’s ban on fracking falls within or outside the scope of lawful regulation of mineral interests by a home-rule city in Texas. Another aspect of the dispute involves whether or not the ordinance represents a taking of property from mineral estate owners. The ban on hydraulic fracturing does not prohibit other types of drilling, so in theory, according to attorney Terrence Welsh who has helped write drilling ordinances for other Texas cities, “the mineral estate isn’t left valueless. You can drill, but you just can’t frack.”58 On the other hand, according to Phillips, “many of the wells in Denton cannot be produced without hydraulic fracturing, so a ban denies many mineral interest owners the right to gain value from the property.”59 A 2008 Texas Supreme Court opinion stated that “development in the Barnett Shale in north Texas is entirely dependent on hydraulic fracturing,” and another opinion from the Court in 2011 similarly held that “wells in the Barnett Shale require fracture stimulation in order to produce.”60 Considering that a gas well can produce for decades, eminent domain lawsuits from even a small percentage of mineral interest owners, if successful, could add up to millions in damages.”61 Jerry Simmons, executive director of the National Association of Royalty Owners, said that the “drilling ban in Denton is going to cost the city millions of dollars in avoidable litigation. Our members have property rights protected under the U.S. Constitution [and Article I, §17, of the Texas Constitution], and they subsequently have a right to just compensation if that property is taken from them, which is exactly what happens under a scenario in which oil and gas development is banned.”62 He estimated the ban would cost Denton about $8.6 million per year based on what Denton’s wells would have otherwise produced, which would have to be paid by local taxpayers if suits by royalty owners are successful.63 The City of Denton may not be standing alone against these legal challenges for much longer, however, as other groups are seeking to be named as defendants and intervenors in the two cases. The Denton Drilling Awareness Group, a local citizens group, and Earthworks, a national nonprofit organization based in Washington, D.C., are attempting to join the litigation so that they can help provide “a vigorous defense of the legality and enforceability of the ordinance.”64 Both groups are being represented by lawyers from Earthjustice and the Natural Resources Defense Council.65 The City of Denton has been receptive to the offer of assistance. According 58 http://www.texastribune.org/2014/11/05/denton-fracking-ban-sees-first-lawsuit/ 59 http://www.latimes.com/national/la-na-texas-fracking-20141108-story.html 60 http://www.breitbart.com/texas/2014/12/16/texas-city-s-fracking-ban-will-likely-cost-taxpayers-millions/ 61 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 62 http://energyindepth.org/texas/report-denton-fracking-ban-cost-taxpayers-8-million-per-year/ 63 Id. 64 http://www.star-telegram.com/news/business/barnett-shale/article4284791.html 65 Id.GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 9 to a spokesperson, “We are happy to work with them and are open to their request to become an intervenor. We won’t oppose it.”66 In the words of Jim Bradbury, a Fort Worth environmental lawyer, “Denton has become a symbol, since Texas is a state where the oil and gas industry usually rules supreme…If Denton wasn’t followed by two little letters – TX – no one would care a hill of beans about it,” says Chris Faulkner, chief executive of Breitling Energy in Dallas.67 Ed Ireland, executive director of the Barnett Shale Energy Education Council, worries that bringing in the national environmental groups raises the profile of the Denton ban, which could cause opposition to fracking to spread: “They needed a Texas city to ban drilling, then they can take that model all over the country.”68 Other Texas oilmen are less concerned. T. Boone Pickens, for example, has commented that closing off Denton to fracturing “would mean a lot to those landowners there, but not to anybody else.”69 While the lawsuits work their way through the courts, the battleground has expanded to the Texas Legislature. State Rep. Phil King of Weatherford has filed the first two bills to address issues coming out of Denton, claiming that “I want to find that balance between local control and the need to have oil and gas regulated by an entity with the experience and capacity to do that.” He contends that, “I’m trying to get in front of this before it gets out of hand… You can’t have the cities and the state doing this. Multiple levels of regulation put too much uncertainty in there.”70 Two bills introduced by King on Dec. 18, 2014, would make it more costly and difficult for any city seeking to regulate oil and gas activities: (1) H.B. 539 has garnered the most attention since it would require a city to pay back the state for five years of lost state revenue resulting from a city’s regulation of oil and gas activities. The proposed new law would require a municipality to request a “fiscal note” and an “equalized education funding impact statement” from the Legislative Budget Board for any oil or gas measure. The Legislative Budget Board would be allowed to “use information or data supplied by any person, agency, organization, or governmental unit that the director considers reliable” in computing these amounts. In preparing the “fiscal note,” the Legislative Budget Board would be required to identify (a) “the fiscal implications” of the measure to the state and local governments; (b) the probable cost to the state that would result from the 66 Id. 67 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 68 http://www.star-telegram.com/news/local/article4877877.html 69 http://www.mrt.com/business/oil/article_a20fbbde-87e1-11e4-9916-179b4e7e5436.html 70 http://www.star-telegram.com/news/local/article4877877.htmlGREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 10 measure, including loss of tax revenue, loss of royalties, and loss of other revenue; (c) the probable cost to political subdivisions in the affected area that would result from the measure, including loss of tax revenue, loss of royalties, and loss of other revenue; and (d) the amount of money the municipality adopting the measure would be required to annually remit to the state as reimbursement for the cost to the state resulting from the measure. In preparing the “equalized education funding impact statement,” the Legislative Budget Board would be required to determine the difference between the amount of state revenue to which the school district would be entitled and the amount of state revenue to which the district would be entitled if the district’s taxable value of property were not reduced as a result of the measure. For each school district in the affected area, the comptroller would be required to project the anticipated reduction in the district’s taxable value of property. Under this bill, any city seeking to regulate oil and gas activities would be required to reimburse the state the sum of the cost identified in the “fiscal note” and the amount of any applicable difference reflected in the “equalized education funding impact statement.”71 Such amounts would be projected for each year of a five-year period. Additionally, for any hearing at which an oil or gas measure would be considered, the city would be required to provide public notice that included a copy of the measure, the “fiscal note,” and the “equalized education funding impact statement,” as well as a statement from the city of its obligation to reimburse the state for such costs and a statement describing the source of money the city would use to reimburse the state. The ballot submitted to voters would be required to contain the same documents. (2) H.B. 540 would require cities to submit any ordinance proposed by petition from its citizens to the state attorney general before ordering an election. No later than 90 days after receiving the submission, the attorney general would be required to determine if (a) any portion of the proposed measure violated the Texas or federal constitution, a state statute, or a rule adopted as authorized by state statute; and (b) whether passage of the ordinance would cause a governmental taking of private property that would require compensation to be paid to the property owner. The city would be prohibited from holding an election on the proposed ordinance, notwithstanding any 71 H.B. No. 539; http://www.star-telegram.com/news/local/article4877847.ece/binary/House%20Bill%20539.pdfGREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | WWW.GTLAW.COM 11 provisions of a municipal charter requiring the city to order an election following receipt of a petition, if the attorney general determined that any portion of the proposed ordinance violated the Texas or federal constitution or would cause a governmental taking of private property.72 King’s bill requiring cities to reimburse the state for any alleged losses of state revenue resulting from a city’s regulation of oil and gas activities has had a mixed reaction. Bennett Sandlin, executive director of the Texas Municipal League, described King’s bill as a “non-starter…It’s taking a smaller problem and hitting it with a sledgehammer,” Sandlin said. “It’s as bad as it gets…I’ve never seen any legislation that has the city pay the state for something it’s done.”73 On the other hand, Sen. Craig Estes of Wichita Falls praised King’s early efforts: “I think all of the issues need to be fairly addressed and vetted to decide if a course of action is needed.”74 Keffer, whose House Energy Resources Committee may deal with some of the legislation, said everyone should “take a breath” and look carefully at what road to take.75 Acknowledging that missteps may have been made by the state and the industry in dealing with urban drilling, he said “things have changed. You’ve got more people involved in urban drilling that you have to assure and talk to and let them know they are protected. It is a two-way street, and nobody needs to be winning over the other… we need to find a win-win not a lose-lose situation.”76 The underlying dispute is not limited to the City of Denton or even the Barnett Shale region. According to Texas Monthly, rumors are circulating that groups in Mansfield, Arlington, and Alpine, in Far West Texas, are planning their own anti-fracking petitions.77 To further illustrate the broad scope of the issue, Denton community leaders who spearheaded the fracking ban were recently invited to oil-friendly St. Tammany Parish in Louisiana for a “symposium on hydraulic fracking” sponsored by the Tammany Together Fracking Education Campaign.78 A drilling and fracking project proposed near Mandeville has created an uproar in St. Tammany, and the parish government and town of Abita Springs have already filed lawsuits in hopes of blocking the project.79 Urban drilling by its very nature raises a lot of complex legal, economic, and technical issues, but agreement on the ways and means that urban drilling is undertaken must somehow be reached that meets the needs of industry as well as residents of urban communities living on top of oil and gas reserves. This story will continue, and this blog will provide updates of new developments as they occur. 72 H.B. No. 540; http://www.star-telegram.com/news/local/article4877850.ece/binary/House%20Bill%20540.pdf 73 http://www.star-telegram.com/news/local/article4877877.html 74 Id. 75 Id. 76 Id. 77 http://www.texasmonthly.com/story/denton-fracking-ban/page/0/1 78 http://www.nola.com/environment/index.ssf/2015/01/denton_texas_fracking_opponent.html 79 Id.