Changes in Administration and Budget Constraints Expected to Impact Pennsylvania's Environmental Agenda in 2011

November 7, 2011
Client Alert Newsletter Forecast 2011

As our clients are aware, MGKF strives to remain attuned to changes in governance at the state and federal levels, in order to anticipate regulatory changes and how these developments will impact our clients. We are focusing close attention now to the change in administration in Harrisburg and the unprecedented budgetary constraints facing the Commonwealth. This, coupled with the prominence of the Marcellus Shale, will likely result in a realignment of environmental priorities and strategies in Pennsylvania.

Like many governors around the country, Governor Tom Corbett will be working to address substantial budgetary shortfalls, while simultaneously balancing the budget and intending to honor election-related commitments to avoid tax increases. These constraints necessarily leave two options: (i) reductions in staff and other regulatory agency expenses, and (ii) creation of and increases in alternative forms of revenue. Industries subject to environmental regulation in Pennsylvania are likely to feel the impact of both options in 2011. As a concrete example from an expenditure perspective, budgetary restrictions are likely to result in a reduction in permit application review staff, and therefore, may cause further delays in securing necessary environmental permits and approvals from these agencies.

We expect the Corbett administration to take a strong role in issues concerning drilling in the Marcellus Shale and protecting clean air and water in the Commonwealth, from both environmental and economic perspectives. These issues and the challenges they bring will likely be an early focus of the Honorable Michael Krancer, incoming Secretary of the Pennsylvania Department of Environmental Protection ("PADEP"), serving as the Acting Secretary until his official confirmation as Secretary. Based on our experience with Acting Secretary Krancer, it is fortunate for the regulated community and environmental practitioners that he is well-versed in the nuances of Pennsylvania environmental law, accumulated over his twenty-five years in private practice, as in-house counsel and as former Chairman and Chief Judge of the Pennsylvania Environmental Hearing Board.

Other issues we foresee on the near horizon include the likelihood that PADEP will be confronted with the resolution of a jurisdictional issue concerning the permitting of transmission pipelines between the Commonwealth and the federal government, which will implicate PADEP, the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers. In addition, we anticipate a reduction and reassignment of energy grants within PADEP, which will likely transpire in the context of a broader effort to determine which Commonwealth agency will administer those grants. On the revenue side, Pennsylvania agencies have proposed significant increases in air quality emission fees and mining fees and it is expected that the natural gas industry will also face significant increases in regulatory fees.

Revenue-restructuring efforts are also underway at the municipal level in Pennsylvania. A prime example is the Philadelphia Water Department's ("PWD") new billing system for stormwater management services. Under the former billing system, PWD customers were charged for stormwater management based on the size of their water meters. Under the new system, non-residential customers are charged based upon the property’s size and how much of the property is covered by impervious surfaces (e.g., roofing and pavement). Beginning on July 1, 2011, customers' bills will be calculated so that 50 percent of stormwater fees will be based on the historic billing system and 50 percentwill be based on the new system. It is expected that stormwater fees under the new system will increase (sometimes dramatically) for those customers with large impervious surface areas. MGKF has been successful in assisting customers to obtain relief from increased fees by implementing stormwater management practices and/or demonstrating that existing practices already reduce the burden on PWD's system.