Report: Royalty revenue sharing plan would cost taxpayers $49 billion

WASHINGTON — A congressional proposal to give coastal states a greater share of government royalties tied to oil and gas drilling would cost taxpayers more than $49 billion over the next three decades, according to a new analysis set to be released Friday.

The assessment, by the left-leaning Center for American Progress, takes a close look at the price tag for royalty sharing legislation being advanced by Sens. Mary Landrieu, D-La., and Lisa Murkowski, R-Alaska.

Their bill, which received a hearing in July, aims to put coastal states that support energy development near their shores on nearly level footing with inland states that generally claim 50 percent of the revenue from oil and gas production on federal lands within their borders.

Existing law will give four coastal states — Alabama, Louisiana, Mississippi and Texas — 37.5 percent of oil an gas royalty revenue on most Gulf of Mexico leases beginning in 2017, but it is capped at $375 million annually. Known as the FAIR Act, Landrieu and Murkowski’s bill also would allow the program to start right away and would phase out the cap on payments by 2024.

Landrieu and coastal governors say the approach is equitable, given that their states provide the infrastructure to support nearby offshore oil and gas development, while bearing the risk when things go wrong.

“Our states are serving as platforms for the production of (offshore oil),” Landrieu said during a June hearing on the issue. If coastal states can keep a greater share of offshore oil and gas revenue, they can use that money to rebuild eroding shoreline and protect coastal communities from storms, she said.

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But the Center for American Progress says the measure “is anything but fair.”
The legislation “would result in a significant and arguably inequitable windfall for a handful of states,” said the center’s report.

The Congressional Budget Office estimated the potential price tag for Landrieu and Murkowski’s bill is $6 billion, but that projection only went through 2023, before it would completely lift limits on state payouts.

The Center for American Progress’ $49 billion pricetag is calculated through 2040.

The group projects that under the bill, federal payments tied to energy development would rise to nearly $2 billion per year by 2025 — just for Louisiana alone. That’s roughly 33 times more than what the average energy-producing state — both inland and coastal — is currently collecting.

According to the Center for American Progress, Louisiana’s projected payout also is about a dozen times greater than what two other oil-and-gas-producing giants are collecting in federal energy payments.

The center makes the argument that it would be irresponsible to divert more offshore drilling dollars away from the federal government now, while agencies already face across-the-board cuts and lawmakers are aiming to slash other programs:

Against the backdrop of painful and unnecessary automatic across-the-board spending cuts and the ongoing debate about how to put the nation’s finances on a more sustainable track, Congress needs to ensure that taxpayers are receiving the full benefit and return from the natural resources that belong to them. Costly diversions of (outer continental shelf) revenues away from taxpayers would have far-reaching policy implications and, in a budget-constrained world (and) would limit Congress’s ability to address other natural resource priorities.

Instead of sending more offshore drilling revenue to coastal states, the center says Congress should use the money to permanently supply the government’s Land and Water Conservation Fund and create an energy security trust to help pay for clean energy research and development.

The group also wants Congress to force the oil and gas industry to pay more for the right to drill on the outer continental shelf. It proposes a new “mitigation fee” designed to help offset the environmental damage and costs of offshore oil and gas development, with the revenues dedicated specifically to protecting and restoring coastal resources affected by the work.

Industry representatives, including the American Petroleum Institute, have insisted they already pay a hefty price for the right to search for — and extract — oil and gas in U.S. waters. The government collects about $11 billion each year in oyalties tied to the development of natural resources on public lands and waters, with much of it coming from oil and gas production.

Under existing federal law, Gulf Coast states already take in 27 percent of the revenues from oil and gas activities within three miles of their shores — amounting to roughly $300 million for Louisiana, Alabama, Mississippi and Texas between 2007 and 2012.

Under phase one of the Gulf of Mexico Energy Security Act that was enacted seven years ago, the four states also claim 37.5 percent of all revenues from development in a specific 8.3-million-acre region in the eastern Gulf of Mexico.

In 2017, when phase two of the program begins, the coastal states will be able to nab 37.5 percent of all revenues from leases in other Gulf areas — with the money capped at $375 million each year.