US House Panel to Draft Plan to Split Federal Oil Money with States

WASHINGTON (Dow Jones Newswires), July 27, 2011

The House Natural Resources Committee plans to draft legislation that redirects a portion of federal oil royalties to coastal states, ramping up debate on an issue that has also intensified in the Senate.

Rep. Doc Hastings (R., Wash.), chairman of the Natural Resources Committee, said at a hearing Wednesday that he was "actively" reviewing proposals to share federal oil revenue with the states. He said his committee would take up legislation to address the issue after a summer recess.

"When it is all boiled down, a revenue-sharing proposal is, and must be, about fairness," Hastings said.

Hastings didn't say how much royalty revenue he wanted to steer toward the states. A proposal in the Senate directs 37.5% of federal oil royalties to the states. With the federal government reporting more than $5 billion in offshore royalty revenue in 2010, such a move would be a big win for coastal state governments.

Debate over revenue-sharing proposals has intensified in recent weeks as lawmakers look for ways to reduce spending and raise revenues as part of plans to increase the debt ceiling.

Opponents of revenue-sharing plans, often Democrats and lawmakers from non-coastal states, say it would be unwise for the federal government to give up billions of dollars of oil royalties at a time when it's struggling to claw its way out of debt.

Rep. Ed Markey (D., Mass.), the highest-ranking Democrat on the Natural Resources Committee, said Wednesday that a revenue-sharing plan would be a "big mistake" and that it's "just something [the federal government] can't afford."

"How can we even begin to discuss this subject right now?" Markey said.

Under current arrangements, states collect royalties from oil produced within the first three miles of a coastline. The federal government then collects most of the royalties on oil produced in the next three miles and lays claim to all of the royalties beyond that.

Supports of revenue sharing, often Republicans and coastal state representatives, say state officials will be incentivized to support more offshore oil production if they can collect a greater share of the royalties.

A battle over revenue sharing in the Senate has suspended action on a long-awaited bill that would strengthen safety standards for offshore oil drilling. At a committee-level markup last week, lawmakers blocked a vote on the bill after Sens. Mary Landrieu (D., La.) and Lisa Murkowski (R., Alaska) looked set to fail in their attempts to attach a revenue-sharing proposal to it.

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