Senate Committee Holds Hearing on Unfair Bill to Incentivize Drilling and Burden Taxpayers

The Senate Committee on Energy and Natural Resources held a hearing July 23rd to discuss S. 1273, a bill offered by Senators Murkowski and Landrieu inappropriately entitled the FAIR Act “Fixing America’s Inequities with Revenues.” In addition to increasing our reliance on fossil fuels, and creating perverse incentives for states to drill in sensitive areas offshore, this bill will cost the taxpayers $6 billion, according to an analysis by the Congressional Budget Office. 

S. 1273 would divert 37.5% of federal revenues resulting from lease rental, royalty, and bonus bid payments associated with offshore oil and gas leasing to a small contingent of coastal states. It encourages increased -- and more environmentally damaging -- drilling, and includes an incentive for coastal states and local governments to allow drilling closer to shore. The more drilling off its coast, the more money a state gets; the closer to shore the drilling occurs, the more money a locality gets.

Offshore ocean areas beyond state waters are owned by all of the people of the United States, as confirmed by the Supreme Court in 1947. At the hearing last week we heard Senators argue that onshore oil production revenues are shared with states, thus offshore revenues should be similarly divided. However, this is a false comparison. Federal waters are wholly outside a state’s jurisdiction and don’t withdraw lands from the state’s tax base as does development on federal lands within a state. In fact, states -- not the federal government -- receive revenues from drilling that occurs within their state waters (three miles off the shoreline). They also receive a portion of revenues in the shared boundary area which extends an additional three miles.

While this bill would be an environmental poison pill at any time, it is particularly problematic that it’s being offered during a time of sequestration and diverting billions of dollars away from the federal Treasury. Congress has forced furloughs on federal workers, kicked children out of Head Start, and now the Environmental Protection Agency and the Department of Interior are facing another 25% cut in the funding of critical programs, including those that regulate offshore drilling. Offshore oil revenues have always gone into the federal Treasury and are a critical resource; in recent years these revenues have been the second largest source of federal income, second only to the income tax. This “revenue-to-selected-states proposal” sends a large slice of the income generated from selling our nation’s ocean resources directly to a handful of states with no accountability to the federal taxpayer. Federal oil revenues, which belong to all federal taxpayers, should be used for programs that would result in benefits for all Americans such as real environmental improvements and protections for our coasts and oceans. 

As we saw with the BP oil disaster, offshore drilling can create extensive environmental and economic harm and put coastal and ocean economies at risk. In fact, the federal government is responsible for addressing the BP disaster precisely because it occurred in federal waters. Revenue is collected from federal waters to fund federal departments and agencies that are responsible for dealing with such disasters should they occur. Louisiana would hardly have had the ability to address that blowout even if it had received additional revenues.  Moreover, fisheries and tourism are huge sources of income for coastal states and can easily be wiped out with unsafe, ill-advised drilling schemes. Even worse, Congress has passed no new laws or safeguards to protect coasts, communities or wildlife since the catastrophic Deepwater Horizon Gulf oil spill. Incentivizing additional drilling without the enactment of important environmental safeguards only invites more disasters for our beaches, coastal economies and marine life. In its continued attack on environmental safeguards, the House has voted on numerous bills to expand drilling while weakening protections. Should the Senate decide to consider revenue sharing -- or any of these egregious House bills -- the future of our coasts will be at risk.

Why, when federal programs are being obliterated by sequestration and we are still only beginning to recover from a disastrous oil spill, would a bill like this be introduced? One can only imagine it has everything to do with sending taxpayer money to a select few states, which is hardly FAIR at all.