Senate Democrats oppose OCS revenue shares for coastal states

This story was updated on Apr. 20.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Apr. 19 -- Three leading US Senate Democrats reiterated their opposition to sharing federal offshore energy development revenue with coastal states. Calling the idea a giveaway, Jeff Bingaman (NM), Byron L. Dorgan (ND), and John D. Rockefeller IV (W.Va.) said it would increase the budget deficit, reduce federal revenue, and send money belonging to the entire country to a few coastal states.

“The fiscal consequences of such a loss would be devastating, particularly given the enormous demands on the federal Treasury and our need to reduce the deficit,” they said in an Apr. 19 letter to other US senators.

“There is no justification for using these significant national resources to provide benefits only for a few coastal states and their citizens,” the trio continued. “Rather, they must be available for the important public needs of all Americans.”

They said they were writing the letter because the proposal could arise as the Senate works on the federal government’s fiscal 2011 budget “as well as during debates on other measures including climate and energy legislation.”

Federal lawmakers from potentially affected coastal states have said that a share of federal revenues from new US Outer Continental Shelf energy resource development would be necessary to help state and local governments pay for supplying additional services and cope with environmental and other impacts.

States get shares
The 2006 Gulf of Mexico Energy Security Act, which Congress approved and then-president George W. Bush signed into law, contained a provision giving Texas, Louisiana, Alabama, and Mississippi a 37.5% share of federal revenue from developing energy on new GOM tracts. Bingaman, Dorgan, and Rockefeller noted in their letter that a similar proposal offered as an amendment to the fiscal 2010 budget was defeated by 60 to 30 votes in April 2009, and the Senate Energy and Natural Resources Committee, which Bingaman chairs, defeated a similar proposal by 13 to 10 votes as it marked up its energy bill in June 2009.

“The resources of the OCS belong to the entire nation, not any one state,” the three senators maintained. “In 1947, the [US] Supreme Court clearly ruled that the offshore areas are owned by the United States as an important feature of national sovereignty. In contrast to federal lands onshore, the offshore resources do not lie within the border of any state and do not affect the property tax base of the states.”

Coastal states already receive significant revenue as a consequence of associated offshore production, they added. Under existing law, they can claim a seaward boundary of up to 3 miles from their coastline (9 miles for Gulf Coast states) and received 100% of revenue from offshore mineral development in these waters, they said.

Coastal states also receive 27% of all bonuses and royalties for mineral production in the 3 miles seaward of the states’ waters for any drainage that could occur as a result of production in federal waters, the senators said. “In 2010, six coastal states will receive an estimated $79.4 million under this so-called ‘8(g)’ provision, and these payments are estimated to total about $590 million over the next 5 years,” they said. “More than $3 billion has been paid to these states under this provision since it was enacted.” 

‘Ignoring the facts’
A fourth Senate Democrat, Mary L. Landrieu (La.), who was instrumental in getting the revenue-sharing provision for the four Gulf Coast states in the 2006 bill, responded on Apr. 19 that she was not surprised that some senators oppose extending the provision. They are “conveniently ignoring the facts about the current system,” she asserted.

Landrieu noted that the 1920 Mineral Leasing Act provides that 50% of all revenue from mineral production taking place on federal lands goes directly to the state in which it occurs, since that state bears the impacts. The law benefits mostly western interior states with large portions of federal land within their borders, such as New Mexico, which has received more than $2.5 billion in such federal payments since 2004, Landrieu said.

“However, coastal states that support offshore energy production bear the impacts just like states that support production from onshore federal lands,” Landrieu said. “These oil and gas wells are major industrial facilities that require substantial onshore infrastructure in coastal communities. All facilities are served by local ports and pipelines that traverse the seabed and coastline. Yet most states do not receive a penny from the federal government when energy production takes place off its shore.”

Landrieu, who is an Energy and Natural Resources Committee member, said that Bingaman, Dorgan, and Rockefeller “are still endorsing the status quo—a system where only coastal states have to shoulder the responsibilities of energy production, without reaping the rewards.” She said, “We need a new plan in place that incentivizes partnerships for production.”

In addition to chairing the Energy and Natural Resources Committee, Bingaman chairs the Finance Committee’s Energy, Natural Resources, and Infrastructure Subcommittee. Rockefeller chairs the Commerce Committee and the Finance Committee’s Health Care Subcommittee. Dorgan chairs the Appropriations Committee’s Energy and Water Subcommittee and serves on 3 Energy and Natural Resources subcommittees.

Contact Nick Snow at nicks@pennwell.com.

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