February 24, 1993
Joseph A. Jenkins
Chairman
Permanent Community Impact Board
Department of Community and Economic Development
BUILDING MAIL
Re:

Attorney General Opinion 92-03 Use of Mineral Lease Monies for Economic
Development

Dear Mr. Jenkins:
You have requested an Attorney General's opinion regarding the use of Mineral Lease
Funds. Specifically, you have asked whether the Permanent Community Impact Board
may make loans and grants from the Mineral Lease Account for economic development
projects. We conclude that an economic development project, in and of itself, is not
eligible for funding with mineral lease monies because it does not qualify as "planning"
construction and maintenance of public facilities," or "providing a public service."
Economic development may be a goal or intended benefit of a particular project as long
las the project qualifies as "planning," "construction and maintenance of public facilities"
or "provision of public services." Our opinion deals primarily with issues of federal law,
although we briefly reference state law requirements that are consistent with the federal
mandates and requirements.
Under the Federal Mineral Lease Act of 1920, as amended, 30 U.S.c. 181 through -195
(1988), lease holders on public domain make royalty payments to the federal government
for the development and production of non-metalliferous minerals. In Utah, the primary
source of these royalties is the commercial production of fossil fuels (bituminous coal,
crude oil and natural gas) on federal land held by the U.S. Forest Service, the Bureau of
Land Management, and the various Indian Tribes. Since the enactment of the Mineral
Lease Act of 1920, a portion of these royalty payments have been returned to the States.
Current law provides that one-half of the monies received by the federal government
shall be returned to the state where the lease lands are located, to be used:
by such State and its subdivisions, as the legislature of the State may direct giving
priority to those subdivisions of the State socially and economically impacted by
the development of minerals leased under this chapter, for (i) planning, (ii)
construction and maintenance of public facilities and (iii) provisions of public
services.
Mineral Lease Act, 30 U.S.C. 191 (1988) (emphasis added).
The Utah Legislature has provided for the creation of a mineral lease account and for the
allocation of monies from that account in accordance with the requirements of the
Mineral Lease Act. See Utah Code Ann. 59-21-1, 2 (1992). The Permanent Community

 Impact board allocates a portion of those mineral lease funds pursuant to Utah statute,
which provides that the Impact Board shall:
make, subject to the limitations of the Leasing Act, grants and loans from the
amounts appropriated by the Legislature out of the impact fund to state agencies
and to subdivisions which are or may be socially or economically impacted,
directly or indirectly by mineral resource development, for:
(i) planning;
(ii) construction and maintenance of public
facilities; and
(iii) provision of public services
Utah Code Ann. 9-4-305(1) (Supp. 1992) (Emphasis added).
As you will note, the State statute imposes the same restrictions on the use of mineral
lease monies as the Federal Mineral Lease Act.
Until 1976, mineral lease monies returned to the State could only to be used for "the
construction and maintenance of public roads or for the support of public schools or other
public educational institutions." Mineral Lease Act, 30 U.S.c. 191 (1976). That limitation
on the use of the funds was specifically addressed along with various other issues in the
Federal Coal Leasing Amendments Act of 1975 (FCLAA), Pub L. No. 94-377, 9, 90 Stat.
1083 (1976). The House Report accompanying the FCLAA noted:
The current restrictions on the manner in which monies return to the States from
the sale of Federal leases within their boarders are onerous. When an area is
newly opened to large scale mining, local governmental entities must assume the
responsibility of providing public services needed for new communities including
schools, roads, hospitals, sewers, police protection, and other public facilities as
well as adequate local planning for the development of the community. Since
Section 35 of the Mineral Lease Act of 1920 [30 U.S.c. 1991] currently provides
that monies returned to the states be available only for schools and roads, it is
difficult for affected areas to meet the needs of their new inhabitants ...
The additional 12 1/2 percent that will go to the states is not earmarked for
schools and roads, and may be spent by the state for planning, public facilities and
public services, giving priority to those communities impacted by the mineral
development.
H.R. Rep. No. 681, 94th Cong.. , 2d Sess. 19-20 (1976).
The U.S. Department of the Interior, in its official response to Congress concerning the
Act, specifically requested that the restrictions on state use of the money be deleted in
there entirety. See H.R. Rep .. No. 681, 94th Cong., 2d Sess. 27, 43 & 37, 42 (1976)
(letters from Jack Horton, Assistant Secretary of the Interior, to the Honorable James A.

 Haley, Chairman, Committee of Internal and Insular Affairs, House of Representatives
(March 13, 1975 and July 22, 1975). Although Congress did expand the uses of the funds
being returned to the state, it did not remove all restrictions on the use of the funds.
The FCLAA allowed an additional twelve and one-half percent (12 1/2) of the royalty
payments received by the federal government to be returned to the states to be used solely
for:
(1) Planning;
(2) Construction and maintenance of public
facilities
(3) Provision of public services.
FCLAA, Pub. L. No. 94-377 9, 90 Stat. 1083, 1089 (1976).
In its section-by-section analysis of the FCLAA, the House Report emphasized
this limitation of the allowable uses:
Section 9 amends Section 35 (30 U.S.c. 191) of the Mineral Lands Leading Act
by ... raising the percentage of the revenues going to the States from 37.5 % to
50%. The 37.5% of the funds which is currently returned to the States under the
law would remain available only for use in construction and maintenance of
schools and roads. The additional 12.5% returned to the States would be available
for use in the planning, construction and maintenance of public facilities, with
priority to be given to those areas impacted by the by the development of the
resources involved.
H.R. Rep. 681, 94th Cong., 2d Sess. 25 (1976).
The operative section returning mineral lease monies to the states, 30 U.S.C. 191, was
amended one month later by the Land and Water Conservation Fund Act of 1965
(LWCFA), Pub. L. No. 94-422, 90 Stat. 1313, 1323 (1976). The LWCFA made two
changes to 191. First, it eliminated the distinction between the use of the 37.5% revenues
(to be used in construction and maintenance of schools and roads) and the 12.5%
revenues (to be used in planning, construction and maintenance of public facilities and
provisions of public services), by allowing the entire 50% of the royalties returned to the
state to be used in the same manner. Second, it required that the money only be used for
"planning, construction and maintenance of public facilities, and the provisions of public
services." In making the change the LWCFA altered the operative language of section
191 to the language used in the congressional report that accomplished the prior FCLAA:
All monies paid to any state from the sales, bonus, royalties and rentals of oil
shale from public lands may be used by such state and its subdivision for
planning, construction, and maintenance of public facilities, and provision of
public services, as the legislature of the state may direct, giving priority to those

 subdivisions of the State socially or economically impacted by the development
of the resource.
LWCFA, Pub. L. No. 94-422301,90 Stat. 1313, 1323 (1976).
The Report accompanying the LWCFA explaining the expanded use of the mineral lease
monies, stating:
This amendment would permit each State to use its share of oil shale revenues for
planning, construction and maintenance of public facilities and provision of
public services.
This Nation has recently embarked on a program of leasing those public lands for
the development of our shale resources.
This Nation has recently embarked on a program of leasing those public lands for
the development of our shale resources.
If, as seems likely, there is a substantial oil shale boom, State and local
governments will have to provide a wide range of community service to large
numbers of new residents. Roads and schools are just part of such services.

The need to provide the necessary flexibility to State and local governments to
use funds derived from sales, bonuses, royalties, and rentals of public lands for oil
shale development is obvious. The local people will bear the impact of helping to
meet national energy needs. This provision will help them provide the necessary
planning and construction funds to help them.
S. Rep. No. 367, 94th Cong., 2d Sess. 8 (1976).
The Public Lands and Local Government Funds Act (PL & LGFA), P. L. 94-565, 90 Stat.
2662 (1976), affected a number of federal statutes that provide assistance to local
governments to alleviate the impact of federal lands and activities, including 30 U.S.c.
191, the Mineral Leasing Act. The Report accompanying the PL & LGFA, Senate Report
No. 94-1662, discussed the problems faced by local governments because of the
limitations on the use of federal funds generally and mineral lease monies specifically:
[T]oo many of the revenue sharing provisions restrict the use of funds to only a
few governmental services -most often the construction and maintenance of roads
and schools. Yet, local governments are called upon to provide many other
services to the federal lands or as direct or indirect result of activities on the
Federal lands. These services include law enforcement; search rescue and
emergency; public health; sewage disposal; library; hospital; recreation; and other
general local government services. It is only the most fortunate of local
governments which is able to juggle its budget to make use of those earmarked

 funds in a manner which will accurately correspond to its community's service
and facility needs.
S. Rep. No. 1262, 94th Cong., 2d Sess. 9 (1976).
The Report also noted that not enough of the funds given to the states went to the
impacted local subdivisions:
In far too many States, the result has been that the funds are either kept at the
State level and not distributed to local governments at all or are parceled out in a
manner which provides shares to local governments other than those in which the
federal lands are situated and where the impact of the revenue and fee generating
activities are felt.
Id.
One day after the PL & LFGA was passed, the Federal Land Policy and Management Act
of 1976 (FLPMA), Pub. L. No. 94-579 317, 90 Stat. 2743, 2770-71 (1976) returned the
language of 30 U.S.C. 191 to the prior wording and phrasing of FCLAA. In discussing
that prior language and its meaning, Senate Report 1262 noted:
In this Congress, the Senate has made numerous efforts to amend these statutory
provisions to increase the amount of, and render more useful, the payments to
State and local governments. The Federal Coal Leasing Amendments Act of 1975
... amended section 35 of the Mineral Lands Leasing Act [30 U.S.c. 191) to
increase the States' share of revenues derived under the Act from 37.5 percent to
50 percent. It also authorized the use of the additional 12.5 percent not just for
roads and schools but for "(1) planning, (2) construction and maintenance of
public utilities [sic), and (3) provision of public services" and required that
priority for distribution of that 12.5 percent be afforded the local governments
which experience the social and economic impacts of the mineral development
from which the revenues are derived.
S. Rep. No. 1262,94 Cong., 2d Sess. 7 (1976).
The federal legislative history consistently shows the intent\and approach of Congress
regarding mineral lease monies, notwithstanding some changes in the language. Although
Congress expanded the uses of the mineral lease funds by local governmental entities
beyond roads and school, it resisted the Interior Department's request to remove all
restrictions on the use of the funds. Congress recognized that local communities need the
funds to assist them in building governmental infrastructure and providing local
governmental services during the boom and bust cycles that accompany natural resources
development. By restricting the use of the funds to planning, constriction and
maintenance of public facilities, and to the provision of public services, Congress
provided a source of funding for traditional local governmental services that are
impacted, such as law enforcement, public health, and governmental facilities.

 Your question centers on whether the Permanent Community Impact Board may make
grants and loans for economic development consistent with the state and federal
restrictions on the use of the funds. Specifically, it must be determined if a grant or loan
for economic development constituent "planning," "construction and maintenance of
public facilities" or the "provision of public services." Based on the language of the acts
and the purposes for which they were passed, it is our conclusion that grants or loans
"merely" for economic development are not authorized under the state and federal acts.
However, a grant and loan for the construction and maintenance of a public facility or the
provision of public service, which may have economic development as an additional goal
or benefit, would be authorized
Economic development, by itself is not one of the traditional local government services
that Congress intended to be eligible for funding by mineral monies. Had Congress
adopted the interior Department's suggestion of removing all restrictions on the use of the
funds so that the funds could be spent on any lawful public purpose, undoubtedly
economic development would be an appropriate program to be funded. Congress,
however, chose to limit the use of the funds to assist local communities in providing
those traditional local government services and facilities that may be impacted by
resource development.
This conclusion is consistent with past interpretations of the federal law by the Utah
Legislature and the Impact Board. The Impact Board in its rules and regulations and in its
grants and loans had avoided projects that only provide economic development as an
appropriate grant project. The Board has always required the construction and
maintenance of a public facility or the provision of a traditional local governmental
service in order to fund a project.
This is not to say that economic development cannot be a goal or purpose of a funded
project. Many of the project funded over the years by the Impact Board and the
Legislature have had the enhancement of economic development as a main component.
The funded project, however, has always been the construction and maintenance of a
public facility or the supervision of a traditional local governmental service. For example,
the Board funded a golf course to be owned an operated by a local governmental entity.
Recreation is a traditional public service provided by local governmental but, as in this
case, it may also be designed to further economic development, encourage tourism, and
encourage the influx of new business. To retain its character as a public facility, however,
to golf course was required to be publicly owned and operated. See Informal Op. Utah
All'y Gen. No. 84-80 (December 3,1984). If the Impact Board is funding: (1) a project
which is a public facility, i.e., one owned and operated by a public entity or to which the
public has a right to use that cannot be denied at the pleasure of the owner, Union Pac.
R.R. v. Public Servo Comm'n 211 P.2d 851, 895 (Utah 1949); or (2) a project that
provides a traditional local governmental service, such as public safety or public health,
funding the project would be a lawful use of the mineral lease monies even if economic
development were one of the primary anticipated results.

 The use of mineral lease monies for "mere" economic development--usually meaning
assistance to private businesses and enterprises in their operations--raises Utah
Constitutional issues. The Utah Supreme Court has held that article VI, section 29 of the
Utah Construction bars the State from subscribing to stock (or lending its credit) in aid of
any private enterprise, regardless of whether or not there are public benefits. Utah
Technology Finances Corp. v. Wilkinson, 723 P.2d 406, 413-14 (Utah 1986). In addition,
the Court has recognized a constitutional principle that "public funds cannot be expended
for private purposes." See id. at 412-13. The Court stated:
[Tllhe fundamental test of the constitutionality of the statute requiring the use of
public funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals.
Tribe v. Salt Lake City Corporation, 540 P.2d 499, 504 (Utah 1975).
Further:
While it is improper to send public funds for private purposes, such private
benefits incidental to a dominant public purpose do not detract from the
constitutionality of the legislation.
Utah Housing Finance Agency v. Smart, 561 P.2d 1052, 1055 (Utah
1977.)
The funding by the Impact Board of economic development projects, without extensive
legislative factual determinations of public purposes and need, raises significant
constitutional issues that would have to be resolved on a fact intensive basis for each
proposes project. Utah Technology Finance Corp. V. Wilkinson, 723 P.2d 406, 412-413
(Utah 1986). Limiting grants and loans to funding the construction and maintenance of
public facilities and providing public service avoids such constitutional questions.

If you have additional questions or if we may be of further assistance to you in this

matter, please do not hesitate to call.
Sincerely,
RICHARD D. WYSS
Assistant Attorney General
THOM D. ROBERTS
Assistant Attorney General
RDW\TDR\bbs