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Budget deal cuts oil and gas royalties to Utah, other states

Published December 20, 2013 7:49 pm

Politics • Revised split favoring feds will cost states $415M over the next decade.
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Washington • The budget deal in Congress will cost Utah, Wyoming, New Mexico and other states $415 million in lost oil and gas royalties over the next decade, according to the Congressional Budget Office.

Legislation implementing the agreement makes permanent an effective 51-49 percent split that favors the federal government in dividing the 12.5 percent royalty collected from energy companies on oil and gas production on federal land.

Until 2008 when the Interior Department began setting aside 2 percent of the royalties as an administrative fee, the split between the federal and state government had been 50-50. The administrative fee, renewed several times by Congress, had been scheduled to expire in January.

The government last year paid $2.1 billion to 35 states under the royalties-splitting program for on-shore oil and gas production on federal lands. The largest payments went to five Western states: Wyoming, New Mexico, Utah, Colorado and California.

Returning to the effective 50-50 split would have provided Wyoming an extra $19 million next year and nearly $200 million over the next decade. New Mexico would have collected an additional $10 million next year and Utah $2.8 million.

While supporting the budget deal, Rep. Rob Bishop, R-Utah, said making the 51-49 split on royalties permanent "has an extremely negative impact, primarily on the Mountain West."

Rep. Cynthia Lummis, R-Wyo., called the 51-49 split unfair.

"By perpetuating the policy of taxing mineral-producing states to pay for federal government bureaucracy, the deal unfairly burdens Wyoming to support increased spending in Washington," she said. "We need real cuts and real savings now, not more promises of cuts and savings years from now."

Lummis, Bishop and other Western lawmakers have pushed legislation that would allow states to collect their share of the federal royalties on their own and eliminate the 2 percent administrative fee collected by Washington.

Patrick Etchart, a spokesman with the Interior Department's Office of Natural Resources Revenue, said the budget deal does not reduce federal payments to states below what they have received the past several years.

"The recent budget agreement makes (the 2-percent fee) permanent and will not change the disbursement formula" used for royalty payments to states, he said.

The dispute follows an earlier battle between states and the federal government over whether the states' share of royalties fell under the auto­matic spending cuts that trimmed federal spending by $85 billion in 2013. Citing the automatic spending cuts, the Interior Department withheld about $105 million in royalty payments to 35 states before eventually releasing the money after lawmakers from Western states complained.

In a related development, the Government Accountability Office released a report this week urging the Interior Department to increase royalty rates on oil and gas production both on federal land as well as from offshore leases, where the rate is 18.75 percent.

Energy companies generated $66 billion in sales of oil and natural gas on federal lands and waters in 2012, according to the GAO. Interior collected about $9.7 billion in royalties. Royalty rates have remained unchanged for decades.

Janice Schneider, nominated by President Barack Obama to be assistant interior secretary for land and minerals management, said at her confirmation hearing that she intends to address the issue.

Taxpayers "should be getting a fair return for the use of public lands and the Outer Continental Shelf," she said.