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PA Auditor General Says Impact Fee Law Must Change to Improve Oversight, Spending

Pennsylvania Auditor General Eugene DePasquale warned Tuesday that something must be done to change the "vague" spending guidelines, poor reporting requirements and lack of state oversight in the law that established an impact fee collected from shale drillers.

DePasquale released the findings of an audit his office started earlier this year that analyzed collections, distributions and how impact fee funds were spent by municipalities and counties from Feb. 2012 through April 2016.

"Right now, we essentially have 37 counties and 1,487 municipalities independently interpreting the flawed language of Act 13," DePasquale said of the bill passed in 2012 that established the fees and those in the state that are eligible for them. He said that part of the law must be "revisited" to better guide recipients on how to spend the funds, report those expenditures and even how to calculate what they're eligible to receive.

From 2012 to 2015, the 10 counties and 20 municipalities reviewed for the audit -- representing  $85.6 million of the $428 million in impact fees distributed to local governments -- spent 24%, or $20.2 million, of those fees on "questionable costs" that did not meet the standards of the law's purpose to help mitigate the effects of heavy natural gas development. Act 13 requires that counties and municipalities receiving the fees must use them for one of 13 "vague" and "broad" criteria, the auditor's office said.

While the funds are mostly used for emergency preparedness, water preservation and public infrastructure, the audit found some were using them for everything from balancing deficits and entertainment, to legal fees and charitable donations. In North Strabane Township in heavily drilled Washington County, DePasquale's office found that more than $32,000 was spent on community recreation and holiday celebrations, including food, party supplies, fireworks and inflatable party rentals. Some of that, the audit found, paid for a performance by an American Idol contestant.

"Where we are seeing a problem with the spending is when local governments fail to connect the expenditures to direct impacts of drilling," DePasquale said. "The current law should be amended to transfer the administration to a more appropriate entity such as the Department of Community and Economic Development or the Commonwealth Financing Authority and allow them to take a more active role in helping local government leaders" make sure spending plans meet standards.

The impact fee is charged for all unconventional wells in the state during their first 15 years in operation, regardless of how much they produce. It is calculated with a multi-year schedule that is based on the average annual price of natural gas. The Pennsylvania Public Utility Commission (PUC) collects the fees from producers and distributes the money to counties, municipalities and state agencies. Act 13 does not require the PUC, or any other state agency, to advise local governments on the appropriate use of impact fee funds or monitor how they're spent.

Auditors also noted that municipalities use various methods to report the total annual budget amounts the PUC uses to calculate municipality distributions. The law doesn't require the PUC to verify budget amounts, and DePasquale said his office found $863,000 of overpayments to some in the audited sample group.

"It is important to note that the PUC accurately calculated and distributed the impact fees based on the self-reported information submitted by municipalities," DePasquale said.

In a statement, the PUC said "these broader discussions regarding the structure of the act, reporting requirements for fee recipients, potential monitoring of impact fee uses and other issues raised by the auditor general are matters for the Pennsylvania General Assembly."

Since its inception in 2012, the state has collected more than $1 billion in impact fees from mostly shale gas producers.

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