This past June, the New York State Court of Appeals issued a ruling that could have repercussions in all 50 states. In a 5-2 decision, the Appeals Court ruled the towns of Dryden (in Tompkins County) and Middlefield (in Otsego County) are allowed to ban fracking completely. The way they can do this is through their locally-controlled zoning authority, known as “home rule.” At first glance, the Court’s decision appears to be the right one. In accordance with federalism principles, states and localities should have the choice of what activities to allow within their borders. However, allowing each locality to choose whether to ban fracking can have negative effects on a state’s economy — and the economy of the nation. According to Hudson Institute senior fellow Irwin Stelzer, allowing individual towns to ban fracking “is a bad idea because counties bear the costs and the nation the benefits, from which it should not be deprived. That means, however, that counties should be reimbursed for the costs imposed on them, perhaps by taxes set equal to any of those costs not captured by the landowner via royalties in return for mineral rights.”
At first glance, the Court’s decision appears to be the right one … However, allowing each locality to choose whether to ban fracking can have negative effects on a state’s economy — and the economy of the nation.
Allowing each locality to choose whether to ban fracking has the potential to slow down fracking in those states where it is allowed. First, state governments are usually more stable and, in an industry that requires much foresight and initial investment, a stable regulatory environment is necessary. Second, complying with countless regulations from town to town also has the potential to slow down America’s oil and gas renaissance. Lastly, state governments have more available resources and expertise to properly craft regulations for an industry that is both complex and rapidly advancing. Fracking has proved to be a major source of growth, and towns should be compensated for their costs. People desire the economic benefits that accompany increased oil and gas production and, if the experience of the United States is any indicator, these benefits are extensive. In North Dakota, the GDP grew by 9.7 percent in 2013 — five the overall U.S. rate of 1.8 percent. The state’s unemployment rate is 2.8 percent, far lower than the U.S. rate of 6.2 percent. Further, fracking has increased the value of land in North Dakota. Since 2008, median sale prices for homes fell nearly 7 percent in the United States. Prices are yet to fully recover. In North Dakota, thanks to the oil boom, home prices increased by 49 percent over that same period. While North Dakota is the leader, benefits from fracking have been seen throughout the United States. Texas had a growth rate of 3.7 percent in 2013, and the growth rate in Colorado was 3.8 percent. The ruling only applies to New York State, but other states could use the legal reasoning as a guideline when deciding similar cases. This is especially true for states with home rule statutes. This would slow the development of their oil and gas resources. New York State could overcome the court ruling and allow fracking statewide by passing legislation that specifically exempts fracking from local zoning decisions. Taking New York State’s political climate into consideration, this is unlikely to happen.
The ruling only applies to New York State, but other states could use the legal reasoning as a guideline when deciding similar cases. This is especially true for states with home rule statutes.
Towns in neighboring Pennsylvania are able to zone fracking out of certain areas, but not ban it in towns entirely. On December 19, 2013 in a 4-2 ruling, state judges struck down some key provisions of Act 13, a law that attempted to stop localities from using zoning powers to control fracking. In Colorado, the Boulder Country District Court ruled on July 24, 2014 that the town of Longmont cannot ban fracking (passed by voters in November 2012) since doing so is not allowed under the Colorado Oil and Gas Conservation Act. Local interests are not allowed to impede state interests on topics of mutual concern. Similarly, the voter ban in Fort Collins, Colorado was overturned by the District Court of Larimer Country on August 7, 2014. This ballot initiative was passed in November 2013 and put a five-year ban in place. It is important to keep in mind that there is a moratorium on fracking in New York State, one that has been in place since 2008 and will last until at least May 2015. The most recent moratorium extension passed 96 to 37 in the State Assembly this June and, if taken up by the Senate and signed by Governor Cuomo, it extends the moratorium until 2017. Fracking can deliver affordable energy, economic growth, energy security, and job opportunities. Despite the claims of overzealous regulators, this is what most people want. Allowing individual jurisdictions to put up roadblocks would slow development to the detriment of those who need employment and growth. ___________________________________ Diana Furchtgott-Roth is director of Economics21 and senior fellow at the Manhattan Institute for Policy Research. You can follow her on Twitter here.