SEQUESTRATION:

Interior forced to cut mineral revenue payments to states, prompting backlash

The Interior Department has informed dozens of states that it will withhold millions of dollars in federal mineral revenue payments due to budget cuts necessitated by sequestration, a move that stunned the state of Wyoming, which receives nearly $1 billion in annual payments.

Interior's Office of Natural Resources Revenue (ONRR) has informed the treasurers in 36 states that sequestration will force withholding millions of dollars in monthly mineral lease payments for oil and natural gas development and coal production on federal lands through at least July, and possibly through fiscal 2013 ending Sept. 30.

The 36 states stretching from North Carolina to Alaska received a total of $2.1 billion from energy and mineral production on onshore and offshore federal lands in fiscal 2012.

But the cuts are expected to hit Western states the hardest, especially Wyoming, which received $955 million in fiscal 2012. Likewise, New Mexico received $488 million last fiscal year, followed by Utah ($164 million), Colorado ($157 million) and California ($111 million), according to ONRR, which is responsible for managing all revenues associated with federal onshore and offshore mineral leases.

Still, ONRR estimates it will only withhold a total of $109 million in state mineral lease payments -- about 5 percent of the total annual mineral revenue payments to the states.

The White House Office of Management and Budget in a report this month to Congress stated that up to 5.1 percent of the total mineral revenue payments is eligible as "Sequestrable Budgetary Resources and Reductions."

ONRR Director Gregory Gould wrote in a letter sent Friday to the states that the sequester necessitates cutting payments for at least six months, though he added there "is also a possibility that recoveries would continue into August and September."

Warnings about sequester cuts have been coming for some time.

House Appropriations Committee Democrats issued a report last month warning of steep cuts, including reduced federal payments to Western states (Greenwire, Feb. 14).

In addition, Interior cautioned that the cuts would curtail $200 million in payments in lieu of taxes, mineral revenues and grants to states and county governments, which could trigger local cuts to law enforcement, schools and roads.

But news of the federal mineral payment withholdings stunned state leaders in Wyoming.

Gould's two-page letter to Wyoming Treasurer Mark Gordon sent shock waves yesterday through the state government, with Gordon hinting that the state would struggle to make ends meet without the $10 million in monthly federal minerals revenue payments.

ONRR has proposed over the next six months to withhold $53 million in federal mineral payments to Wyoming -- the most of any state.

"The opportunity to take a lot more of what the states are properly owed proved to be too tempting to the federal government," Gordon said yesterday.

Gov. Matt Mead (R) said his office received a copy of Gould's letter Monday, and he said he was dismayed that Interior would withhold the mineral revenue payments without giving his state and others time to prepare for the shortfall.

"This is no way to achieve adequate notice or give our state an opportunity to respond before the action is underway," Mead said in a statement. "As far as communications go, this method of passing along significant information that greatly impacts Wyoming gets a grade of F minus or worse. It is not acceptable."

Mead said that under federal law, Wyoming is owed half of the revenues from mineral leasing on federal lands in the state, and he hinted that the state might take legal action to retain the federal payments. He said he is consulting with Wyoming Attorney General Gregory Phillips (D), as well as members of the state's congressional delegation, on a future course of action.

"When [Wyoming] reduced its budget by over 6 percent it did not achieve its reductions by withholding mineral revenue due under state leases," he added. "That would be taking someone else's property. Similarly, the Department of Interior should not be able to meet its budget reduction by taking mineral revenues, which belong to the states under the law."

While that's a matter of some dispute, Interior officials told EnergyWire that the agency is authorized to withhold the payments as part of the mandatory sequester cuts.

That position is supported in the Office of Management and Budget report this month to Congress that noted federal "mineral leasing and associated payments" are not shielded from budget sequestration cuts.

Streater writes from Colorado Springs, Colo.