WASHINGTON, D.C. – Senator Byron Dorgan, chairman of the Energy and Water Appropriations Subcommittee; Senator Jeff Bingaman, chairman of the Energy Committee; and Senator Jay Rockefeller, chairman of the Commerce Committee, today reiterated their opposition to any efforts to redirect revenue from energy development in federal waters on the Outer Continental Shelf (OCS) from the federal Treasury to a small group of coastal states.  Such a giveaway would increase the federal budget deficit, reduce future federal budget revenues, and send funds that should belong to the entire country to just a few of the coastal states.

 

In a letter to colleagues, the Senators wrote, “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.”

 

The funds from OCS energy development are one of the most significant non-tax revenue sources to the U.S. Treasury, totaling about $6 billion in 2010.  According to the Minerals Management Service, it is estimated to total over $40 billion in revenue over the next five years. Traditionally, state governments get all of the revenue from oil and gas development within the first three nautical miles offshore, except in the Gulf of Mexico, where coastal states control up to 9 nautical miles.  In addition, the states get a portion of the bonuses and royalties from the next three miles seaward of state waters.  The rest of the royalties from the Outer Continental Shelf beyond these state boundaries should belong to all of the American people.  The Senators say it would be fiscally irresponsible to give any more of this money to a few coastal states.

 

“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,” wrote the Senators.

 

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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

 

 

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