At a state Senate budget hearing on March 2, Sen. Gene Yaw, the Lycoming County Republican who heads the chamber’s environment committee, asked how the Department of Environmental Protection is preparing for an unprecedented influx of federal funds to plug abandoned oil and gas wells.

Pennsylvania could be eligible to receive nearly $400 million from the federal Infrastructure Investment and Jobs Act to pay contractors to seal shut more than 15,000 unplugged, ownerless wells — a dramatic change of fortune after a decade when the state had the funds to plug fewer than 300.

“That’s a considerable increase in workload for DEP,” Yaw said.

“I wouldn’t say it’s an increase,” the department’s Secretary Patrick McDonnell responded. “It’s for all intents and purposes a new program for us.”

But what DEP officials have called a once-in-a-generation opportunity to tackle a historical pollution problem arrives as the regulatory program that will manage it is quickly running out of cash.

On Feb. 15, the agency presented a report that projects that its oil and gas program will end the 2022-23 fiscal year with a $4.7 million deficit.

In order to make up the program’s projected annual $10.5 million net loss going forward without finding a new source of funds, it said, it “would need to reduce its complement by almost 70 additional positions (or an additional 37% of oil and gas program staff)” — an approach the report called “untenable.”

The problem is a familiar one: The oil and gas program’s primary source of funding is a fee that oil and gas operators pay when they apply for a drilling permit.

Those fees keep falling short of expectations as companies submit fewer applications to drill new Marcellus and Utica shale wells.

DEP more than doubled the cost of a shale drilling permit in 2020 — to $12,500 — to make up for years of declining permit applications. Still, the department based its projections on receiving 2,000 shale well permits per year, which would fully fund the program’s $25 million annual operation.

Instead, in fiscal year 2020-21, it received 775 applications for shale wells and less than $8.6 million in permit fees.

The oil and gas program is authorized to have 226 positions, but it has been capped at 190 because it can’t afford more.

“They definitely need more staff, just for the general operations of regulating the oil and gas industry but also to manage and utilize this federal money to plug additional wells,” said state Rep. Greg Vitali, D-Delaware, the minority chair of the House environment committee.

He said the number of filled positions dropped as low as 181 in December.

DEP is slated to receive and spend $25 million of the federal well plugging grants in the coming fiscal year. It has been approved for an additional $79 million so far that it has to commit to projects within five years of receipt.

Officials have said they could be running as many as 300 plugging contracts a year when the funding peaks.

Between 2018 and 2020, they ran just nine plugging contracts.

DEP’s oil and gas office has identified the need for new staff in two waves to carry out the plugging program — to develop projects, manage data, distribute information and oversee operations in the field — spokesman Jamar Thrasher said.

The first wave is “immediate” and calls for 22 positions — nine in the central office and 13 in regional offices. The second would come as the office prepares for the next, larger round of funding and calls for three central office positions and 17 in regional offices.

Other positions could also be needed to support the plugging program in the agency’s grants, contracts and legal divisions, he said.

Still, the complement for the oil and gas program remains at 190, he said. “As we fill vacancies in the existing program and the new [Infrastructure Investment and Jobs Act] positions and approach the 190-position limit, we will work with the governor’s office to increase the complement if necessary and appropriate.”

Up to 10% of the plugging funds can be used for administrative costs, which could cover the needed positions for the duration of the program, but DEP is still waiting on guidance from the Department of the Interior on whether project oversight costs count as allowable expenses.

“I think we’re very well positioned for that initial $25 million,” McDonnell said at the budget hearing. “On the $79 million, we’ll have to see. We need some of those people in to see how we manage it.”

DEP has said little about how it intends to address the oil and gas program’s broader funding gap except a brief note in a regulatory agenda published in February.

It said it will propose a rule later this year to establish an annual fee for unconventional, or shale, natural gas operations and that the annual fee “will provide a stable source of funding through [fiscal year] 2027-28.”

The last fee increase took more than two years to implement — from draft proposal to final publication. According to the department’s projections, the oil and gas program will run a deficit within 16 months.

The new proposal is also likely to draw protests.

Pennsylvania’s oil and gas law authorizes regulators to establish a permit fee attached to “each application for a well permit” that “bears a reasonable relationship” to the cost of administering the program, but it is silent on other forms of fees.

The shale gas industry has supported the agency’s search for funding sources other than a one-time permit fee, but it has pushed back against being required to bear most of the cost of a program that spends 40% of its effort regulating conventional oil and gas operations.

“The caution that I would put out there is, as you look to alternative means of funding, to not look to one segment of the industry that’s being regulated to fund the entire program,” said Jim Welty, vice president for government affairs for the Marcellus Shale Coalition, after the fee presentation in February.

He suggested the state look to the taxpayer-supported General Fund as a possible source to make up the shortfall.

The Wolf administration is requesting the Legislature approve an increase in DEP’s General Fund budget for the next fiscal year to allow it to create 41 new staff positions. All of those jobs would be dedicated to the agency’s clean water and dam safety programs.