2001 Montana Legislature

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HOUSE BILL NO. 572

INTRODUCED BY K. BALES, GROSFIELD, SHEA, WOLERY

Montana State Seal

AN ACT CREATING A COAL BED METHANE PROTECTION ACCOUNT; CLARIFYING THE DISTRIBUTION OF OIL AND NATURAL GAS PRODUCTION TAXES; DEPOSITING A PORTION OF THE OIL AND NATURAL GAS PRODUCTION TAX IN THE COAL BED METHANE PROTECTION ACCOUNT; RESTRICTING EXPENDITURES FROM THE ACCOUNT UNTIL AFTER JUNE 30, 2005, FOR EMERGENCIES AND UNTIL AFTER JUNE 30, 2011, FOR ALL OTHER PURPOSES; CREATING A COAL BED METHANE PROTECTION PROGRAM TO COMPENSATE LANDOWNERS AND WATER RIGHT HOLDERS FOR DAMAGE CAUSED BY THE DEVELOPMENT OF COAL BED METHANE; AUTHORIZING CONSERVATION DISTRICTS THAT HAVE COAL BED METHANE WITHIN THE DISTRICT TO ADMINISTER THE COAL BED METHANE PROTECTION PROGRAM; REQUIRING CONSERVATION DISTRICTS TO ADOPT PROCEDURES FOR EVALUATING CLAIMS FOR COMPENSATION; LIMITING THE AMOUNT OF COMPENSATION; RESTRICTING THE AWARD OF COMPENSATION UNTIL AFTER JUNE 30, 2005, FOR EMERGENCIES AND UNTIL AFTER JUNE 30, 2011, FOR ALL OTHER PURPOSES; AMENDING SECTION 15-36-324, MCA; AND PROVIDING A CONTINGENT EFFECTIVE DATE AND A TERMINATION DATE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:



     Section 1.  Short title. [Sections 1 through 5] may be cited as the "Coal Bed Methane Protection Act".



     Section 2.  Legislative findings and declaration of purpose. (1) The legislature finds that the need for an economical supply of clean-burning energy is a national and state priority.

     (2) The legislature further finds that Montana possesses plentiful reserves of clean-burning natural gas contained in coal beds.

     (3) The legislature further finds that the extraction of natural gas from coal beds may result in unanticipated adverse impacts to land and to water quality and availability.

     (4) The legislature declares that there is a compelling public need to promote efforts that preserve the environment and protect the right to use and enjoy private property. The legislature further declares that the purpose of [sections 1 through 5] is to establish a long-term coal bed methane protection account and a coal bed methane protection program for the purpose of compensating private landowners and water right holders for damage to land and to water quality and availability that is attributable to the development of coal bed methane wells.

     (5) The legislature further declares that the provisions of [sections 1 through 5] do not relieve coal bed methane developers or operators that own, develop, or operate coal bed methane wells and collection systems of their legal obligation to compensate landowners and water right holders for damages caused by the development of coal bed methane.

     (6) The legislature further declares that the provisions of [sections 1 through 5] do not relieve coal bed methane developers or operators from:

     (a) any liability associated with the exploration or development of coal bed methane; or

     (b) the responsibility to comply with any applicable provision of Titles 75, 82, and 85 and any other provision of law applicable to the protection of natural resources or the environment.



     Section 3.  Definitions. As used in [sections 1 through 5], unless the context requires otherwise, the following definitions apply:

     (1)  "Agricultural production" means the production of:

     (a)  any growing grass, crops, or trees attached to the surface of the land; or

     (b)  farm animals with commercial value.

     (2)  "Coal bed methane developer or operator" means the person who acquires a lease for the purpose of extracting natural gas from a coal bed.

     (3) "Department" means the department of natural resources and conservation as provided for in Title 2, chapter 15, part 33.

     (4) "Emergency" means the loss of a water supply that must be replaced immediately to avoid substantial damage to a landowner or a water right holder.



     Section 4.  Coal bed methane protection account -- use. (1) There is a coal bed methane protection account in the state special revenue fund.

     (2) At the beginning of each fiscal year, there must be deposited in the account a total of $400,000 of the proceeds from the distribution of oil and natural gas production taxes, as provided in 15-36-324.

     (3) All money paid into the account must be invested by the board of investments. Earnings from investments must be deposited in the account.

     (4) Subject to the conditions of subsection (5), money deposited in the account must be used to compensate landowners and water right holders for damages attributable to coal bed methane development as provided in [sections 1 through 5].

     (5) Money deposited in the fund and earnings of the fund may not be expended until after June 30, 2005. For fiscal years beginning after June 30, 2005, principal and earnings may be expended only in the case of an emergency. For fiscal years beginning after June 30, 2011, principal and earnings in the account may be expended for any purpose authorized pursuant to [sections 1 through 5].

     (6) Money in the account must be appropriated to the department for use by conservation districts that have private landowners or water right holders who qualify for compensation as provided in [section 5].



     Section 5.  Coal bed methane protection program -- restrictions. (1) There is a coal bed methane protection program administered by conservation districts that have coal beds within the exterior boundary of the district or whose water sources may be adversely affected by the extraction of coal bed methane. The purpose of the coal bed methane protection program is to compensate private landowners or water right holders for damage caused by coal bed methane development.

     (2) A conservation district shall establish procedures, approved by the department, for evaluating claims for compensation submitted by a landowner or water right holder. The procedures must include:

     (a) a method for submitting an application for compensation for damages caused by coal bed methane development;

     (b) a process for determining the cost of the damage to land, surface water, or ground water, if any, caused by coal bed methane development;

     (c) the development of eligibility requirements for receiving compensation that include an applicant's access to existing sources of state funding, including state-mandated payments, that compensate for damages; and

     (d) criteria for ranking applications related to available resources.

     (3) An eligible recipient for compensation includes private landowners and water right holders who can demonstrate as the result of damage caused by coal bed methane development:

     (a) a loss of agricultural production or a loss in the value of land;

     (b) a reduction in the quantity or quality of water available from a surface water or ground water source that affects the beneficial use of water; or

     (c) the contamination of surface water or ground water that prevents its beneficial use.

     (4)  (a) Subject to the conditions of subsections (5) through (8), an eligible landowner may be compensated for the damages incurred by the landowner for loss of agricultural production and income, lost land value, and lost value of improvements caused by coal bed methane development. A payment made under this subsection (4)(a) may only cover land directly affected by coal bed methane development.

     (b) Subject to the conditions of subsections (5) through (8), an eligible water right holder may be compensated for damages caused by the contamination, diminution, or the interruption of surface water or ground water.

     (5) In order to qualify for a payment of damages under this section, the landowner or water right holder must demonstrate that it is unlikely that compensation will be made by the coal bed methane developer or operator who is liable for the damage to land or the reduction in or contamination of surface water or ground water as the result of coal bed methane development.

     (6) Compensation made to a landowner or a water right holder under this section may not exceed 75% of the cost of the damages. The maximum amount paid to a landowner or water right holder may not exceed $50,000.

     (7)  Conservation district administrative expenses for services provided under this section are eligible costs for reimbursement from the coal bed methane protection account.

     (8)  (a) Except as provided in subsection (8)(b), compensation for damages allowed under this section may be made only after June 30, 2011.

     (b) Compensation for an emergency may be made after June 30, 2005.     



     Section 6.  Section 15-36-324, MCA, is amended to read:

     "15-36-324.  Distribution of taxes -- rules. (1) For each calendar quarter, the department shall determine the amount of tax, late payment interest, and penalty collected under this part. For purposes of distribution of the taxes to county and school taxing units, the department shall determine the amount of oil and natural gas production taxes paid on production in the taxing unit.

     (2)  Except as provided in subsections (3) through (5), oil production taxes must be distributed as follows:

     (a)  The amount equal to 39.3% of the oil production taxes, including late payment interest and penalty, collected under this part must be distributed as provided in subsection (9).

     (b)  The remaining 60.7% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (2)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (12).

     (3)  The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on qualifying production occurring during the first 12 months of production must be distributed as provided in subsection (10).

     (4)  (a) The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on production from horizontally completed wells occurring during the first 18 months of production must be distributed as provided in subsection (10).

     (b)  The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on the incremental production from horizontally recompleted wells occurring during the first 18 months of production must be distributed as provided in subsection (9).

     (5)  (a) The amount equal to 13.8% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on the first 10 barrels of stripper oil production wells must be distributed as provided in subsection (10).

     (b)  The remaining 86.2% of the oil production taxes, plus accumulated interest earned on the amount allocated under this subsection (5)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (12).

     (c)  The amount equal to 100% of the oil production taxes, including late payment interest and penalty, collected from working interest owners on stripper well exemption production from pre-1985 pre-1999 wells and post-1985 post-1999 wells must be distributed as provided in subsection (10).

     (6)  Except as provided in subsections (7) and (8), natural gas production taxes must be allocated as follows:

     (a)  The amount equal to 14% of the natural gas production taxes, including late payment interest and penalty, collected under this part must be distributed as provided in subsection (11).

     (b)  The remaining 86% of the natural gas production taxes, plus accumulated interest earned on the amount allocated under this subsection (6)(b), must be deposited in the state special revenue fund in the state treasury and transferred to the county and school taxing units for distribution as provided in subsection (12).

     (7)  The amount equal to 100% of the natural gas production taxes, including late payment interest and penalty, collected from working interest owners under this part on production from wells occurring during the first 12 months of production must be distributed as provided in subsection (10).

     (8)  The amount equal to 100% of natural gas production taxes, including late payment interest and penalty, collected from working interest owners on production from horizontally completed wells occurring during the first 18 months of production must be distributed as provided in subsection (10).

     (9)  The department shall, in accordance with the provisions of 15-1-501, distribute the state portion of oil production taxes specified in subsections (2)(a) and (4)(b), including late payment interest and penalty collected, as follows:

     (a)  86.21% to the state general fund;

     (b)  5.17% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and

     (c)  8.62% to be distributed as provided in 15-38-106(2) follows:

     (i) a total of $400,000, including the proceeds from subsections (10)(b)(i) and (11)(c)(i), to the coal bed methane protection account established in [section 4];

     (ii) 50% of the remaining proceeds to the reclamation and development grants special revenue account established in 90-2-1104; and

     (iii) 50% of the remaining proceeds to the orphan share account established in 75-10-743.

     (10) The department shall distribute the state portion of oil and natural gas production taxes specified in subsections (3), (4)(a), (5)(a), (5)(c), (7), and (8), including late payment interest and penalty collected, as follows:

     (a)  37.5% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and

     (b)  62.5% to be distributed as provided in 15-38-106(2) follows:

     (i) a total of $400,000, including the proceeds from subsections (9)(c)(i) and (11)(c)(i), to the coal bed methane protection account established in [section 4];

     (ii) 50% of the remaining proceeds to the reclamation and development grants special revenue account established in 90-2-1104; and

     (iii) 50% of the remaining proceeds to the orphan share account established in 75-10-743.

     (11) The department shall, in accordance with the provisions of 15-1-501, distribute the state portion of natural gas production taxes specified in subsection (6)(a), including late payment interest and penalty collected, as follows:

     (a)  76.8% to the state general fund;

     (b)  8.7% to the state special revenue fund for the purpose of paying expenses of the board as provided in 82-11-135; and

     (c)  14.5% to be distributed as provided in 15-38-106(2) follows:

     (i) a total of $400,000, including the proceeds from subsections (9)(c)(i) and (10)(b)(i), to the coal bed methane protection account established in [section 4];

     (ii) 50% of the remaining proceeds to the reclamation and development grants special revenue account established in 90-2-1104; and

     (iii) 50% of the remaining proceeds to the orphan share account established in 75-10-743.

     (12) (a) By the dates referred to in subsection (13), the department shall, except as provided in subsection (12)(b), calculate and distribute oil and natural gas production taxes received under subsections (2)(b), (5)(b), and (6)(b) to each eligible county in proportion to the oil and natural gas production taxes received under subsections (2)(b), (5)(b), and (6)(b) that are attributable to production in that county.

     (b)  The department shall distribute 5% of the oil and natural gas production taxes received under subsections (2)(b), (5)(b), and (6)(b) from pre-1999 wells to eligible counties in proportion to the underfunding that would have occurred from the tax liability distribution of pre-1985 oil and natural gas production taxes for production in calendar year 1997.

     (c)  Except as provided in subsection (12)(d), the county treasurer shall distribute the money received under subsection (12)(b) to the taxing units that levied mills in fiscal year 1990 against calendar year 1988 production in the same manner that all other property tax proceeds were distributed during fiscal year 1990 in the taxing unit, except that a distribution may not be made to a municipal taxing unit.

     (d)  The board of county commissioners of a county may direct the county treasurer to reallocate the distribution of oil and natural gas production tax money that would have gone to a taxing unit, as provided in subsection (12)(c), to another taxing unit or taxing units, other than an elementary school or high school, within the county under the following conditions:

     (i)  The county treasurer shall first allocate the oil and natural gas production taxes to the taxing units within the county in the same proportion that all other property tax proceeds were distributed in the county in fiscal year 1990.

     (ii) If the allocation in subsection (12)(d)(i) exceeds the total budget for a taxing unit, the commissioners may direct the county treasurer to allocate the excess to any taxing unit within the county.

     (e)  The board of trustees of an elementary or high school district may reallocate the oil and natural gas production taxes distributed to the district by the county treasurer under the following conditions:

     (i)  The district shall first allocate the oil and natural gas production taxes to the budgeted funds of the district in the same proportion that all other property tax proceeds were distributed in the district in fiscal year 1990.

     (ii) If the allocation under subsection (12)(e)(i) exceeds the total budget for a fund, the trustees may allocate the excess to any budgeted fund of the school district.

     (f)  The county treasurer shall distribute oil and natural gas production taxes received under subsection (12)(a) between county and school taxing units in the relative proportions required by the levies for state, county, and school district purposes in the same manner as property taxes were distributed in the preceding fiscal year.

     (g)  The allocation to the county in subsection (12)(f) must be distributed by the county treasurer in the relative proportions required by the levies for county taxing units and in the same manner as property taxes were distributed in the preceding fiscal year.

     (h)  The money distributed in subsection (12)(f) that is required for the county mill levies for school district retirement obligations and transportation schedules must be deposited to the funds established for these purposes.

     (i)  The oil and natural gas production taxes distributed under subsection (12)(c) that are required for the 6-mill university levy imposed under 20-25-423 and for the county equalization levies imposed under 20-9-331 and 20-9-333, as those sections read on July 1, 1989, must be remitted by the county treasurer to the state treasurer.

     (j)  The oil and natural gas production taxes distributed under subsection (12)(f) that are required for the 6-mill university levy imposed under 20-25-423, for the county equalization levies imposed under 20-9-331 and 20-9-333, and for the state equalization aid levy imposed under 20-9-360 must be remitted by the county treasurer to the state treasurer.

     (k)  The amount of oil and natural gas production taxes remaining after the treasurer has remitted the amounts determined in subsections (12)(i) and (12)(j) is for the exclusive use and benefit of the county and school taxing units.

     (13) The department shall remit the amounts to be distributed in subsection (12) to the county treasurer by the following dates:

     (a)  On or before August 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending March 31 of the current year.

     (b)  On or before November 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending June 30 of the current year.

     (c)  On or before February 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending September 30 of the previous year.

     (d)  On or before May 1 of each year, the department shall remit to the county treasurer oil and natural gas production tax payments received for the calendar quarter ending December 31 of the previous calendar year.

     (14) The department shall provide to each county by May 31 of each year the amount of gross taxable value represented by all types of production taxed under 15-36-304 for the previous calendar year multiplied by 60%. The resulting value must be treated as taxable value for county classification purposes and for county bonding purposes.

     (15) (a) In the event that the board of oil and gas conservation revises the privilege and license tax pursuant to 82-11-131, the department shall, by rule, change the formula under this section for distribution of taxes collected under 15-36-304. The revised formula must provide for the distribution of taxes in an amount equal to the rate adopted by the board of oil and gas conservation for the expenses of the board.

     (b)  Before the department adopts a rule pursuant to subsection (15)(a), it shall present the proposed rule to the appropriate administrative rule review committee.

     (16) The distribution to taxing units under this section is statutorily appropriated as provided in 17-7-502."



     Section 7.  Codification instruction. [Sections 1 through 5] are intended to be codified as an integral part of Title 76, chapter 15, and the provisions of Title 76, chapter 15, apply to [sections 1 through 5].



     Section 8.  Coordination instruction. If House Bill No. 642 and [this act] are both passed and approved, and both amend 15-36-324(9) through (11), then [section 3] of House Bill No. 642 is void.



     Section 9.  Contingent effective date. [This act] is effective on July 1 immediately following the date that the governor by executive order certifies to the secretary of state that the resource indemnity trust fund balance has reached $100 million. The secretary of state shall notify the department of revenue, the department of administration, the code commissioner, and the legislative fiscal division of this certification.



     Section 10.  Termination. [Sections 4(2) and 6] terminate June 30, 2011.

- END -




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