|
Who needs the revenues more? Ongoing debt crisis influences debate over whether the states deserve a cut of federal revenues from offshore energy development Eric Lidji For Petroleum News
Coastal states seeking sympathetic ears as they once again asked for a share of federal royalties from energy production in the outer continental shelf couldn’t have picked a tougher time to testify before the House Natural Resources Committee on July 27.
The title of the hearing, State Perspectives on Offshore Revenue Sharing, suggested a discussion friendly to the idea of letting the states have some of the revenue that the federal government gets from energy production off its coasts, but coming in the middle of an epic battle over reducing the federal deficit, the debate quickly became a referendum on many topics mostly unrelated to oil and gas development.
The federal government currently gives Texas, Louisiana, Mississippi and Alabama 37.5 percent of the revenue it collects from offshore developments in the Gulf of Mexico, but legislation making its way through both the House and the Senate would extend that provision to all coastal states, and possibly even include revenue from offshore renewable energy projects.
Those in favor of extending the provision say that states on the front line of offshore development need money to bolster environmental and emergency response programs, but those opposed to revenue sharing argue that the OCS belongs to the American public as a whole, and that the states already get revenue from onshore and near shore projects.
Incentive to production Committee Chair Rep. Doc Hastings, R-Wash., said revenue sharing would create an incentive to open more offshore areas to energy development, leading to increased domestic production, higher employment rates and greater federal and state revenues.
Those who opposed the idea, he said, generally opposed offshore drilling entirely, but did so behind the claim that revenue sharing would diminish federal coffers during a time when the federal deficit is a top priority. “This is quite a contorted argument to make — that revenue sharing unfairly gives away federal revenue, when if they had their way, we wouldn’t be collecting revenue from offshore drilling in the first place,” Hasting said.
Hastings said his office is reviewing several proposals for revenue sharing and would present legislation to the committee for further discussion sometime after August.
Ranking Member Rep. Edward Markey, D-Mass., said current proposals are “like putting straws into the revenues of the federal government and allowing the states to suck it out,”
Noting that the federal government could currently use the revenue it has already given to the Gulf Coast, Markey said, “What we’re doing here today is finding a way to take more revenues out of the federal government — the revenues that are paid by oil companies to the federal government for the right to drill for oil off the coastline of the United States.”
Markey plans to introduce legislation to rescind the Gulf Coast revenue sharing program, but said any future revenue sharing program should be “twinned” with legislation that increases the safety requirements for offshore development. (Sen. Lisa Murkowski recently proposed a revenue sharing amendment to an offshore safety bill in the Senate).
States on the front lines The conversation is in some sense premature because of the lack of existing energy development on the outer continental shelf outside of the Gulf of Mexico.
In Alaska, OCS development is stalled while the federal government considers permit applications and the federal courts labor over outstanding cases. In Virginia, energy companies are one step back, waiting for a federal lease sale to gain drilling rights. The U.S. Department of the Interior removed that sale from its 2007-12 OCS lease sale program following the Deepwater Horizon oil spill in the Gulf of Mexico last year.
That didn’t stop Virginia Secretary of Natural Resources Doug Domenech from testifying in favor of revenue sharing, saying states should get a cut of the revenue because “states are on the front lines of the effects of offshore leasing, not the federal government.”
Louisiana is no stranger to either offshore development or revenue sharing. Garret Graves, chair of the Coastal Protection and Restoration Authority of Louisiana, said that since Louisiana acted as a “guinea pig” for early offshore development efforts that have since brought $150 billion into the federal treasury, it is entitled to a share of the rewards.
He noted that the federal government already gives states a cut from onshore production.
“Every single program that exists today where revenues are produced from energy production on federal lands, those revenues are shared back with the states,” Graves said.
Graves challenged Markey on the impact of the existing offshore revenue sharing program. While Markey said the 2006 bill gave the Gulf Coast states around $150 billion in federal revenues, Graves said Louisiana received only $222,000 this year. (The debate appears to concern provisions in the bill that use revenue projections through a certain date and then revert to actual revenues. Rep. Jeff Landry, R-La., said the Congressional Budget Office estimated the program would cost less than $20 billion over 50 years.)
Graves argued that revenue sharing allowed the states to prepare for spills and hurricanes at the local level, thereby mitigating the amount the federal government would end up paying in the future to respond to those disasters. “You can’t afford to not share the revenues,” he argued. “Congress spent $150 billion responding to Hurricane Katrina.”
Alaska: ‘only fair to share’ Although Alaska officials did not attend the hearing, Gov. Sean Parnell submitted written testimony asking for all coastal states to get the same 37.5 percent granted to the Gulf Coast, and for an additional 12.5 percent to be set aside for renewable energy projects.
“It is not only fair to share part of the revenue from offshore development with coastal states, it is a vitally important part of an overall strategy,” Parnell wrote on July 26. “Communities in coastal states like Alaska are often concentrated in coastal areas. Development of offshore resources will require large, often complicated, construction projects. Such development increases demands on ports, transportation services, fuel supplies, pipeline and transmission corridors, and other vital infrastructure.”
Landry noted that not only do states bear most of the impact during oil spills from federal waters, but they also maintain infrastructure and production used by the whole country.
“This is an environmental bill. Revenue sharing protects the environment,” he said.
Sharing ‘downright foolish’ As the deficit debate raged on in other rooms on Congress, Democrats in the House Natural Resources Committee found an unlikely alley: Taxpayers for Common Sense.
The group said existing revenue sharing programs for onshore development made sense because drilling took place within state lines, but that offshore development occurred under federal waters located well outside the physical boundaries of coastal states.
Additionally, the federal government manages OCS development using federal tax dollars and therefore “all Americans get revenues from federal waters,” Ryan Alexander, president of Taxpayers for Common Sense, said. She added that expanding the program and reducing federal revenues during a debt crisis would be “downright foolish.”
Alexander also questioned whether revenue sharing would actual create an incentive for additional drilling, since oil companies would pay the same amount in either scenario.
An issue of states’ rights? The hearing, though, quickly became a referendum about issues unrelated to drilling.
While some members of the committee spoke about the need for revenues to support environmental issues such as migratory birds or the need to support military installations, Rep. Rush Holt, D-N.J., appeared to connect the issue to the nuances of federalism, referring to events in the 1860s, presumably the Civil War, that led Americans to start referring to the United States as a single entity, rather than as a collection of entities.
He asked if coastal states would prefer to remove the federal government entirely.
“Would you say that you wouldn’t be looking for the resources of the United States of America — that these are Virginia’s resources: Virginia should get the revenue? Virginia should have the responsibility for any clean up?” Holt asked Domenech, specifically.
Rep. Scott Tipton, R-Colo., said that opposition to revenue sharing showed federal overreach. “There seems to be a real mentality inside this Beltway that Washington needs money more than our states, than our communities, than our individuals,” he said.
Rep. Jeff Duncan, R-S.C., made the point much more explicitly.
“This really gets down to the root of the union and states’ rights, to some degree,” he said.
| 