BISMARCK — After North Dakota approved $16 million in federal coronavirus relief for fracking grants this fall, two state watchdog groups are questioning the legality of the decision.

The reallocation of millions of dollars in CARES Act funding for oil industry grants drew raised eyebrows from conservationists and some lawmakers before its approval in late October. On Tuesday, Dec. 15, the Dakota Resource Council and North Dakotans for Public Integrity upped the ante on that skepticism and submitted a formal complaint to two of the state's top oversight bodies.

Members of the North Dakota Industrial Commission and Emergency Commission both received the joint letter on Tuesday. Among other concerns, the Dakota Resource Council and North Dakotans for Public Integrity criticized the state's transparency in its distribution of the CARES Act money. The letter also alleges that the use of federal pandemic aid money for fracking grants violated the "gift clause" of the North Dakota Constitution and raised the possibility that the program violated federal guardrails on the use of pandemic aid funding.

The letter does not contain any threat of legal action, but J.J. England, an environmental attorney representing the two parties in the complaint, said the letter could mark a "first step" on the road to a lawsuit.

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More immediately, England said he hopes that the letter will prompt transparency from the state regarding which companies benefit from the fracking grants and how they are using the taxpayer money. The letter included a public records request calling on state agencies to disclose more information about the distribution of the funding.

Dakota Resource Council Director Scott Skokos added that Congress is approaching the deadline on a new coronavirus stimulus package, and he hopes that his organization's letter will lead to more transparency and different priorities in the distribution of a second round of federal pandemic aid.

Members of the Industrial Commission, which includes Gov. Doug Burgum, Attorney General Wayne Stenehjem and Agricultural Commissioner Doug Goehring, offered initial responses to the letter in a commission meeting on Tuesday afternoon.

"I'm sure I'm not supposed to comment, but I reject vehemently that these were gifts," Burgum said. The governor called the letter "an attack on one industry" and questioned how the fracking grants could be classified as gifts while other allocations of pandemic aid remain in the clear. "If these were gifts, then I think there might have been $4 trillion of gifts given out by the federal government this year, including to health care, education, small business, retailers, (and) hospitality," Burgum said.

The $16 million in fracking grants originated as leftover funds from a separate CARES Act program aimed at plugging and reclaiming old oil wells. When it became clear that the reclamation program would not be completed by the federal end-of-year deadline, North Dakota Oil & Gas Division Director Lynn Helms proposed reallocating unused money toward fracking. The proposal was greenlit by the Industrial Commission and Emergency Commission before drawing overwhelming approval from state lawmakers.

North Dakota Oil & Gas Division Director Lynn Helms, bottom, meets with members of the state Industrial Commission in July 2019 — from left, Agriculture Commissioner Doug Goehring, Gov. Doug Burgum and Attorney General Wayne Stenehjem. Tom Stromme / Bismarck Tribune
North Dakota Oil & Gas Division Director Lynn Helms, bottom, meets with members of the state Industrial Commission in July 2019 — from left, Agriculture Commissioner Doug Goehring, Gov. Doug Burgum and Attorney General Wayne Stenehjem. Tom Stromme / Bismarck Tribune

In an email, Secretary of State Al Jaeger, who also serves as secretary to the Emergency Commission, said he will fulfill the information requests included in the letter but added that he had no comment on the other questions it raised.

Helms, who first proposed the fracking grants in mid-October, also provided Industrial Commission members with the latest on the grant program's progress. The program is designed to extend $200,000 grants to companies to frack 80 uncompleted oil wells, and Helms reported that his division has approved 81 eligible wells, one more than will actually get the funding. Helms initially estimated the program would put 500-1,000 people to work by the end of this year, and he said Tuesday that it has so far employed at least 800 oil field workers.

"We think the program is accomplishing exactly what it was intended for," he told the commissioners.

England said that ambiguity around any infringement on the gift clause is at the heart of the letter's legal questions. While agencies like the state health and education departments have legal latitude to appropriate the COVID-19 funding, he argued that the Industrial Commission does not have jurisdiction, as defined by the state Legislature, to extend grants to oil and gas companies.

In addition to submitting their letter to the state commissions, the Dakota Resource Council and North Dakotans for Public Integrity looped in the U.S. Department of Treasury, which oversees implementation of CARES Act funds. England said the fracking grant allocation runs the risk of a federal audit under the new Democratic presidential administration, an outcome that could lead to the state paying back the $16 million to the federal government.

"Best-case scenario, you're taking on a lot of risk here," England said.

Readers can reach reporter Adam Willis, a Report for America corps member, at awillis@forumcomm.com.