Cities Seek to Cut Strings Tying Up Gas Money
Washington PA Observer Reporter
5 December 2010
By Ramit Plushnick-Masti
Associated Press
BEAUMONT, Texas - Advances in drilling have helped American towns and
cities strike natural gas, and just in time, it would appear. With many
facing cash crunches, the millions of dollars they're reaping in
royalties could go toward saving public services, jobs and badly needed
road projects.
Not so fast. Because of restrictions built into deeds and federal
grants, municipalities can't use most of their newfound wealth to plug
budget shortfalls.
And so, while elected officials struggle to make ends meet, the money
sits there, close enough to smell but just out of reach.
"There are street projects we'd like to move forward with, the designs
are in place, but because of federal rules we're not in a position to
utilize the funds," said Kyle Hayes, city manager of Beaumont, Texas, a
refinery town that has made millions on gas drilling at the airport.
"Right now, it's just sitting there - $35.3 million."
The rules differ slightly depending on whether they're dictated by a
government agency, such as the Federal Aviation Administration, or by a
charitable foundation or individual during a deed transfer. But the
bottom line is the same: Revenues made from gas drilling often have to
be reinvested into the area where the minerals were extracted.
With new technologies and drilling techniques making once out-of-reach
gas reserves accessible, the problem is expanding and currently affects
about a dozen airports, including several in Texas and Louisiana, and
at least one in Pennsylvania, said Lynn Lunsford, an FAA spokesman.
"The FAA has been reevaluating this policy in light of these
windfalls," Lunsford said.
The FAA tied a reinvestment clause to the grants it gives out to ensure
that money made at airports - for example from leasing stores or
renting hangar space - gets reinvested there to help fund maintenance
and improvements, Lunsford explained. The clause only became a problem
recently with the millions made from natural gas extraction on airport
properties.
Beaumont - a Southeast Texas refinery city of just over 110,000
residents - has made more than $35 million in the past 10 months from
gas royalty checks. But because of the reinvestment clause, that money
has to go back into its tiny airport, which handles no more than 18,000
flights annually and has 39 private hangars for single-engine planes.
"I couldn't spend that much money if I tore everything down and rebuilt
it," said Brenda Beadle, Beaumont's capital projects manager.
"I couldn't spend $3 million out there, let alone $35 million," Hayes
said, laughing.
The city has tried to give the FAA money back, hoping to cut ties to
get full access to the gas money. But Hayes said the city was given
this answer from the agency: "We've never had anyone want to return the
money. We don't know if we can do that."
Lunsford acknowledged that grant contracts are not designed to allow
for payback because they "rarely are looking to give money back."
Improvement grants have a 20-year clause that requires all revenue in
that time to be reinvested in the airport, he said. Grants used for
land acquisition have a "forever obligation" and nearly all major
airports - and many smaller ones - have received federal grants.
Beaumont's sales tax revenues dropped $4 million last year and it faced
a possible $600,000 budget shortfall for 2010. The city increased
nearly all its fees, from rentals to licensing and permits, and
eliminated 30 city positions through attrition, Hayes said. Tax
revenues rebounded a bit this year - they're up 2 percent - but the
city is still far from making up for the money it lost.
Nevertheless, Beaumont is determined to begin a much-needed $30 million
infrastructure project. The roads, some major arteries leading to the
town's major retail areas, are 30 years old. Potholes have been patched
and re-patched, asphalt and concrete are failing, Hayes said.
"Now there is money," he said in frustration, because the FAA "pointed
out that there is a clause in the contract that says any revenue from
mineral interests has to be utilized at the airport."
Fort Worth, a growing city of more than 720,000 west of Dallas, sits
smack in "the honey hole" of the Barnett Shale, as Mayor Michael
Moncrief likes to say. The geologic formation, like others that
crisscross the nation and world, has long been known to contain rich
natural gas reserves that were out of reach until new drilling methods
made them accessible about five years ago.
Fort Worth, one of the first cities to enjoy the riches of new natural
gas drilling, has made more than $89.5 million in the last 10 years
from gas royalties, leases and bonuses from drilling in parks, golf
courses and the major airport.
That money would cover the city's $72 million budget shortfall, which
forced the closure of public pools and nearly shut down libraries. But
only about $15 million of it was unrestricted, the rest has to be
reinvested in areas where the money was made.
"It has been a tremendous challenge for this council," Moncrief said of
the cash shortfall it faced and the need to balance the budget. "But
that budget gap could have been much more had it not been for the great
impact of the natural gas play for the Barnett Shale."
Pittsburgh, meanwhile, is watching and learning. It is trying to
arrange a deal with the FAA before signing a lease with a gas company
to extract money from its airport, which sits on the lucrative
Marcellus Shale.
Cash-strapped Allegheny County owns the airport land and its mineral
rights, said county spokesman Kevin Evanto.
"Since county taxpayers purchased the land ... we would like a
significant amount of any revenues generated by gas drilling to benefit
county taxpayers," he said.
In Houston, Joe Turner, the director of the parks and recreation
department, is simply hoping to have such concerns. In August, the city
signed a three-year lease with a gas drilling company. Exploration will
take at least a year. If gas is extracted and the city makes money, any
revenues made from the largest 770-acre Herman Brown Park has to be
reinvested there due to deed restrictions, Turner said. The city will
almost definitely reinvest revenues made in two smaller parks in them
as well.
"We're trying to protect the parks in the long term. No one ever
envisioned that they'd earn this kind of income. We could only hope we
could earn a fraction of that," Turner said, after learning about
revenues made elsewhere.