Senior Dems warn against sharing offshore drilling revenue with states

Three senior Senate Democrats on Monday launched a new battle over sharing revenue from expanded offshore drilling that could have huge implications for an upcoming climate change debate.

The effort by Sens. Jeff Bingaman (D-N.M.), Byron Dorgan (D-N.D.) and Jay Rockefeller (D-W.Va.) puts them on a collision course with sponsors of upcoming Senate energy and climate legislation, who plan to include “revenue-sharing” provisions to entice coastal states to back drilling.

The three senators warned steering a hefty share of revenues from expanded offshore oil-and-gas drilling to coastal states would have “devastating” financial consequences.

Bingaman, Dorgan and Rockefeller are circulating a “Dear Colleague” letter that warns against including expanded revenue sharing in the fiscal 2011 budget, or the energy and climate bill that Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) are drafting.

“If this formula were applied to all oil and gas resources in the OCS [Outer Continental Shelf], the federal treasury would lose hundreds of billions of dollars over the life of these offshore resources as compared to what will be received under existing law,” the Bingaman-Rockefeller-Dorgan letter states.

Bingaman and Rockefeller are the chairmen of the Energy and Natural Resources Committee and the Commerce Committee, respectively. Dorgan is a member of the Democratic leadership team as chairman of the Democratic Policy Committee.

Their letter adds: "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. There is no justification for using these significant national resources to provide benefits only for a few coastal states and their citizens.”

The letter puts them at odds with several coastal lawmakers. Expanded revenue sharing is a priority for Graham, as well as Sens. Lisa Murkowski (R-Alaska) and Mary Landrieu (D-La.).

“The one bottom line for me is revenue sharing. To have meaningful drilling you have got to allow the states to get part of the revenue, so I would want to expand that,” Graham told reporters last week.

“Once you start and a state begins to generate money in an environmentally sound way, other states are going to want to do it,” he added. Graham, Kerry and Lieberman plan to unveil their bill April 26.

A 2006 law provided a 37.5 percent share of leasing and royalty revenues from many Gulf of Mexico leases to Louisiana, Texas, Mississippi and Alabama. Some coastal lawmakers want to expand revenue sharing to include Alaska, as well as East Coast states that may have drilling off their shores.

Here's the whole letter:

Dear Colleague:

We are writing to express our serious concern about proposals to shift Outer Continental Shelf (OCS) revenues from the federal Treasury to coastal states.  This issue may arise in the context of the Senate’s upcoming work on the budget for fiscal year 2011 as well as during debates on other measures including climate and energy legislation.

We strongly oppose diversion of this important source of federal revenue, and we strongly urge you to resist its inclusion in any legislative vehicle.  As you may recall, a state “revenue sharing” amendment was offered to the budget resolution for FY 2010 in April 2009, and it was defeated by a vote of 60-38.  A similar effort was defeated by a vote of 13-10 during markup of S. 1462 in the Senate Energy and Natural Resources Committee in June 2009.     

The OCS receipts are one of the most significant sources of revenue to the U.S., amounting to billions of dollars each year.  These revenues will total about $6 billion in 2010 and are estimated by the Minerals Management Service (MMS) to total over $40 billion over the next five years.  

Revenue sharing proposals that have been offered by some Senators would allocate 37.5 percent of OCS revenues to state and local governments.  If this formula were applied to all oil and gas resources in the OCS, the federal treasury would lose hundreds of billions of dollars over the life of these offshore resources as compared to what will be received under existing law.   

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

In addition to the vital issue of fiscal responsibility, there are other important policy reasons for retaining the current law.  The resources of the OCS belong to the entire nation, not any one state.  In 1947, the 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.

In addition, our coastal states already receive significant revenue as a consequence of associated offshore production.  Under existing law, coastal states can claim a seaward boundary of up to three miles from their coastline (nine miles for Gulf Coast States), and these States receive 100 percent of the revenue from development of offshore minerals in these waters.  Further, coastal states receive 27 percent of all bonuses and royalties for mineral production in the three miles seaward of the states’ waters to compensate for any drainage that could occur as a result of production in Federal waters.  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 five years.  More than $3 billion has been paid to these states under this provision since it was enacted.

Again, we urge you to oppose the inclusion in any legislation of provisions directing federal OCS receipts to the states. We should not divert these important revenues from the federal Treasury and the benefit of all Americans. 

Sincerely,

Jeff Bingaman                   Byron Dorgan                    Jay Rockefeller