Bill aims to protect states' shares of federal royalties

US Rep. Cynthia Lummis (R-Wyo.) introduced legislation to ensure states that normally receive half of federal onshore oil and gas royalties under the Mineral Leasing Act actually receive the money.

MLA mandates that the federal government pay states where the federal government controls most of the land 50% of any revenue it collects from mineral leases there to offset taxes which otherwise would have gone to the state and county.

Lummis, who co-chairs the House Western Caucus, and other federal lawmakers from the Rocky Mountains say the federal government diverted nearly $110 million of revenue their states should have received to offset sequestration impacts. “This spring, my home state of Wyoming saw $53 million in royalty funds disappear right before their eyes,” she said on May 14 as she introduced her bill.

Her State Mineral Revenue Protection Act would amend the MLA to grant states the option to collect their share of the mineral royalties, and grant those states full property interest in their share. Participation in the program would be voluntary, and states could still continue to participate in the current federal royalty distribution system.

Operators in states that choose to collect their part of a federal royalty would pay the state share directly to the state, and also pay the federal government its 50% share. The royalty rate itself would not increase under the bill.

“It is becoming more and more apparent that when the federal government is a middle man for funds owed to the state, the middle man cannot be trusted to make the payments,” Lummis said. “The solution? Remove the middle man. States are fully capable of collecting these royalty payments, and states are much better off if their share of the revenue never leaves the states’ borders.”

US Sen. Mike Enzi (R-Wyo.) introduced similar legislation in the Senate. “It sets a dangerous precedent when Washington thinks it’s ok to take state money instead of cutting its own spending,” he said. “The government needs to uphold its end of the deal.”

The Energy Producing States Coalition, a group of state legislators founded in 2011 to work together to develop areas of common interest on policies and issues that affect domestic energy production and transmission, applauded both bills.

“EPSC believes that withholding state mineral revenue payments under any circumstance is inappropriate and supports congressional actions to eliminate the possibility of any future occurrences,” it said on May 14. “EPSC encourages their entire congressional delegations to support this important legislation.”

Contact Nick Snow at nicks@pennwell.com.

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