December 1997 Vol. 218 No. 12  Washington

Charles D. Matthews,  Contributing Editor

Is OCS impact assistance ripe yet?

When the first commercially successful oil well was drilled in the Gulf of Mexico completely out of sight of land, the offshore oil and gas industry was born. However, battles between the diverse federal, state and local groups wanting to cash in on the new bonanza were just beginning, and they are still squabbling over how the slices of the big pie should be divided and who should clean up the kitchen.

Generally, the offshore oil and natural gas industry has taken the point of view that coastal states and communities should be provided some impact assistance where oil and natural gas exploration and development is, or will be, occurring off their coastlines. After all, compensation to localities for federal impacts is not an unusual activity.

Onshore oil and gas production, mining, grazing and lumbering on federal lands are all accompanied by some form of impact assistance or payments in lieu of taxes. In section 8(g) of OCSLA, Congress recognized that a coastal state might be adversely impacted by production occurring on federal leases draining oil or gas from the state side of the boundary.

For many years, all the federal revenues from OCS bonuses, rents and royalties went directly into the general funds of the Federal Treasury. Now, at least a portion of those revenues also goes into two special-purpose accounts, the Land and Water Conservation Fund (LWCF) and the National Historic Preservation Fund (NHPF). The LWCF supports parks and recreation through 50-50 matching grants to all 50 states and 6 U.S. Territories.

From FY 1969 through FY 1996, almost $9 billion has been appropriated from the LWCF. The much smaller NHPF is a 50-50 matching grant program that provides grants to assist states and Territories in their historical preservation activities.

Interior's OCS Policy Committee plays a major role. For years, much has been said and written about the advantages and disadvantages of sharing more federal OCS revenues with coastal states and localities where there are oil and/or natural gas activities off their shores. The Policy Committee has long been one of the focal points of some of these considerations because its members represent the coastal states and constituencies impacted by the OCS program.

Even with all the talk over the years about OCS impact assistance and revenue sharing, there has been relatively little real action in Congress. In 1984, the Senate Commerce Committee voted 15 to 1 to report out a bill by Sen. Ted Stevens (R-Alaska), to share a percentage of OCS revenues with states for various ocean and coastal resource activities. Nothing more happened. In September 1988, a Task Group of the Policy Committee recommended revenue sharing legislation to assist affected coastal states.

The House, on four different occasions through the years, has passed OCS block grant legislation that would allocate funds to coastal states for enhancement and management of coastal resources. During the debate on the 1992 National Energy Strategy Act, the subject of OCS impact assistance came up. With the new leadership and life in the Republican 104th Congress, some thought things might be different. But it came and went with minimal attention being given to the whole issue. Now, the first session of the 105th Congress has adjourned sine die. The second session is yet to come.

But, is OCS impacting assistance getting ripe now? At its spring meeting this year, the OCS Policy Committee had a special panel discussion of "Sharing of Benefits with the States." The panel discussed past legislative efforts related to these issues. Following their discussion, the full committee adopted a resolution reiterating its support for impact assistance and recommended that the Interior Department initiate a legislative proposal for the 105th Congress.

A six-man Coastal Impact Assistance Working Group was formed to examine the issue, develop a proposal and issue recommendations on how to implement an OCS impact assistance program. The working group was chaired by Jerome Selby, Mayor of Kodiak Island Borough, Alaska, and included Jack Caldwell from Louisiana, Warner Chabot representing the environmental community, Kim Crawford from North Carolina, Eldon Hout from Oregon and Paul Kelly, Senior Vice President of Rowan Companies, representing the oil field service industry (see Mr. Kelly's "What's ahead" article, page 49).

The Working Group made its report to the OCS Policy Committee at its fall meeting on Oct. 29–30, 1997, in Galveston, Texas. The Policy Committee accepted the report and unanimously approved a resolution urging the Secretary of the Interior to accept the recommendation and forward it on to Congress.

Funding? The approved report proposes that the LWCF which is currently authorized at a level of $900 million per fiscal year, be used to distribute, annually, payments equaling 27% of new OCS bonuses, rents and royalties to states and Territories that have an approved coastal management plan or are making satisfactory progress toward such a plan.

The proposal unanimously approved by the OCS Policy Committee sounds pretty interesting. But the offshore industry should be cautioned to study the small print of the details with high-tech microscopes remembering always the wise old warning, "The Devil may be in the details."

Merry Christmas to you and your loved ones. May the New Year bring you health, happiness and prosperity.

Charles D. Matthews is president of Charles Matthews & Co., consultants and advocates on government relations, Arlington, Virginia.

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