Administration opposes bill to share OCS revenue with coastal states

Tighter federal budgets and more pressure to reduce the budget deficit make sharing US Outer Continental Shelf energy revenue with coastal states and communities unaffordable and impractical, an Obama administration official told the Senate Energy and Natural Resources Committee on July 23. Two cosponsors of an OCS revenue-sharing bill countered that it’s essential and long overdue.

“The revenue-sharing provisions of S. 1273 would ultimately reduce the net return to taxpayers in every state from the development of offshore energy resources owned by all Americans, have significant and long-term costs to the federal treasury, and increase the federal deficit,” said Pamela K. Haze, deputy US Interior secretary for budget, finance, performance, and acquisition.

“In addition, the bill does not appear to be targeted to achieve clear conservation or energy policy outcomes,” Haze said, adding, “For these reasons, the administration cannot support the bill.”

But the bill’s sponsors—Lisa Murkowski (R-Alas.), the committee’s ranking minority member, and Mary L. Landrieu (D-La.)—countered that coastal states in general and communities in particular are asked to withstand energy development impacts without getting any of the revenue directly.

“It doesn’t make any difference if your project is one, three, or 20 miles offshore,” Murkowski said. “It still uses coastal communities’ resources, and their assets are limited. We know there will be infrastructure impacts because we can see what’s happened to states farther south.”

Landrieu said, “Whether you’re standing on the coast of Oregon, Florida, Louisiana, or Alaska, you can see oil and gas platforms and windmills generating revenue for the federal government, but not for the communities that can’t afford an emergency room at their local hospital.”

More than $5 billion

Haze said US Department of the Interior calculations made since Murkowski and Landrieu introduced the bill a week earlier would like reduce offshore energy revenue deposits to the US Treasury by more than $5 billion through 2022, and at a greater rate thereafter. “This loss of revenue to the Treasury is a major concern for the administration as agencies are already forced to do more with less under sequestration,” she observed.

The measure also would provide $62.5 million/year—slightly less than 7% of the Land and Water Conservation Fund’s annual $900 million commitment—to the fund’s state grants, which are only part of its operation, Haze said.

“The bill’s insufficient funding and exclusion of most LWCF programs are major concerns, and are inconsistent with the president’s budget request to establish mandatory dedicated funding for LWCF programs, with full funding at $900 million annually beginning in 2015,” she indicated.

But witnesses from coastal states and communities supported Murkowski and Landrieu’s assertion that receiving a share of federal offshore revenue is both fair and necessary.

“Congress should pass this legislation now, because it helps to ensure that state and local governments will have resources they need to keep up with infrastructure requirements, expand emergency response and search and rescue capabilities, take an active role in oil spill preparedness, and work to maintain healthy communities and a healthy ecosystem,” maintained Charlotte Brower, mayor of Alaska’s North Slope Borough.

Reggie Dupre, executive director of the Terrebonne Levee and Conservation District in Houma, La., explained that levees in the state and other Mississippi River flood control measures since the early 20th century have benefited the rest of the country, but advanced the state’s subsidence and coastal erosion rates.

‘Answers the call’

“Today, the people of Louisiana’s gift to the country is affordable domestic energy through its service of the oil and gas industry,” he said. “My region is a leader in this service especially that of deepwater oil and gas production. Our ability to work on this coast is threatened by our problems, but our dedication and resilience answers the call each time.”

Cathie J. France, deputy director for energy policy in Virginia’s Mines, Minerals, and Energy Department, said, “I’m always taken aback that we have to pick winners and losers, and that there’s this false line 3 miles offshore.”

She added, “Virginia has one of the most robust ports on the East Coast. With offshore energy production—whether oil, gas, or wind—upgrades will need to be made to bring that energy to all the other states. Giving the states an unfunded mandate to do that is false and ingenuous. It has to be a true partnership to mitigate impacts on coastal communities.”

The discussion is largely academic if most of the federal OCS remains closed to energy resource development, noted National Ocean Industries Association Pres. Randall B. Luthi. “Companies invest capital where they’re allowed to work. This could divert operations to other countries,” he warned.

“It’s only by providing additional oil and gas access that this theoretical resource revenue can become reality,” Luthi said. “Congressional delegations from South Carolina and Virginia have introduced legislation to open areas off their shares. Only in Washington, DC, do we think that getting 100% of nothing is preferable to getting 60% of something.”

Murkowski said S. 1273’s aim was not to open more of the OCS to energy development, but correct a revenue-sharing inequity that could advance that goal in the long run. She added that she and Landrieu plan to find ways to offset any of the bill’s costs to the federal treasury before moving their bill out of committee and seeking a full Senate vote.

Contact Nick Snow at nicks@pennwell.com.

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