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The original documents are located in Box 32, folder "Outer Continental Shelf, 1975:
Options Paper" of the Glenn R. Schleede Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
CANADA THE INTERIOR TERIOR
United States Department of the Interior
OFFICE OF THE SECRETARY
March
1849
WASHINGTON, D.C. 20240
3.
March 12, 1975
MEMORANDUM TO: JAMES M. CANNON
EXECUTIVE DIRECTOR OF THE DOMESTIC
COUNCIL
SUBJECT:
Option Paper on Sharing Outer Continental
Shelf Revenues
Attached is a new version of the option paper prepared
by my staff on sharing Outer Continental Shelf
revenues with States. This version includes
additional options by request of Jim Lynn of OMB.
Royston Assistant Royston C. Secretary Hughes C. Hughes
:
Program Development and Budget
Attachment
CC: James T. Lynn
Director, OMB
FORD if LIBRARY GERALD
(3/12/75)
OPTION PAPER
[Dept. Interior)
Sharing Outer Continental Shelf Revenues with States
An accelerated leasing program has been initiated on the Outer Continental
Shelf (OCS) to open up frontier oil and gas prospects and provide a badly
needed supplement to domestic onshore production. Coastal States are
troubled by the prospect of accelerated leasing off their shores because
they would have to bear the brunt of certain costs of development while
the entire Nation receives the benefit of increased domestic supplies of
oil and gas.
Coastal State concerns about OCS development involve:
- environmental damages, including possible oil spills
FORD is LIBRARY GERALD
- esthetic impacts
- economic effects, including possible disorderly development,
injury to existing industry, and the burden of providing new
public services.
To meet these concerns, the Federal Government has already proposed
increased planning money for the Coastal Zone Management Act, and is
developing a Comprehensive Oil Spill Liability bill.
It has, however, up to now opposed providing Coastal States with a share
of OCS revenues on the grounds that -
- OCS revenues belong to all the Nation, and their revenues should
benefit all citizens
- a number of Federal programs already exist which provide assistance
to States in ameliorating impacts of development
- sharing CCS revenues with Coastal States would reduce the amount
of revenues available to support other Federal expenditures and
require compensating adjustment elsewhere in the Federal budget
- onshore development induced by offshore activities will eventually
provide State and local governments with an increased tax base
to finance necessary public facilities, so that there may be no
need for a long-term sharing program for impact aid
- States' rights to revenues from öffshore minerals leasing were
legislatively determined in the Submerged Lands Act of 1953
which gave States complete jurisdiction over the first three
miles of seabed, but nothing beyond
- sources of opposition to OCS leasing are varied, and not all
might be eliminated by sharing of revenues
However, there are reasons for reconsidering this position.
- failure to respond to State concerns could solidify opposition
which would postpone leasing in frontier OCS areas and delay
receipt of the National benefits of accelerated development.
GERALD FORD LIBRARY
In Federal revenues alone, the loss in discounted-value terms
of even a one-year delay would be about $2.9 billion
- there may be a valid need for Federal assistance now that frontier
OCS areas will be opened. For example, "front-end" money would
help State and local governments begin building public facilities
before OCS developments provide an increased tax base on which to
finance such expenditures
- the three-mile state jurisdiction is of little revenue value to
States in frontier areas such as the Atlantic Coast, where oil and
gas reserves are all located farther offshore
- shared revenues could give Coastal States a financial stake in
prompt OCS development
- sharing OCS revenues would be consistent with various onshore
sharing precedents, notably the Minerals Leasing Act which gives
affected States 37 1/2 percent of Federal leasing revenues
- Congressional action on shared revenues is possible regardless
of the Administration position
There are three general approaches to providing funds to States:
- provide money for impact-amelioration projects--tie use of funds
to specific purposes which underwrite costs faced by States as
a result of CCS activity
- provide formula-based, no strings money to States affected by
OCS activity--make funds available which are sufficient to keep
Coastal States from being worse off on balance as a result of OCS
activity, and distribute these revenues generally in accordance
with expected impacts, but leave to the States the decision as to
how to use the money
- provide an "ownership" stake in OCS development through a share
of Federal revenues--distribute a proportion of revenues without
direct regard to expected impacts, perhaps to both inland and
Coastal States
2
Option I: Coastal State Impact Aid
Description
This option provides funds to Coastal States to ameliorate negative impacts
of OCS development
- some modest proportion of Federal OCS revenues, would fund grants
to Coastal States
- funds would be made available soon enough for "front-end" costs,
not delayed until actual offshore production starts
- grants could be distributed either by formula based on general
GERALOR FORD LIBRARY
indices of impacts, or by project after a showing of specific
impacts, or both
- grants could either require State matching or provide full Federal
funding, and could be limited to needs not met by existing Federal
grant programs
Program Effects
Favorable:
- the option would focus specifically on ameliorating onshore impacts
of OCS development, and reduce them as a barrier to accelerated
leasing in frontier areas
- the use of grant funds would be tied directly to impacts
- budget outlays would be modest by comparison with the other options
considered
Unfavorable:
- mere amelioration of impacts might be insufficient to lead Coastal
States to accept OCS development
- the grants might be opposed on grounds that OCS revenues are a
National asset and should not be disbursed only to Coastal States
- clear identification and measurement of impacts for purposes
of awarding grants would be administratively difficult
3
- the impact rationale focuses assistance efficiently on future
impacts but makes no allowance for past impacts, which may seem
inequitable to States where OCS leasing has already occurred
- the option would not address the energy impact concerns of inland
States, and might appear to single out Coastal States for special
treatment, although inland States already receive 37 1/2 percent
of Federal revenues from minerals leasing within their boundaries
Three specific variants of this option warrant particular attention.
Option Ia: Formula Impact Aid
Description
This variant would distribute among Coastal States a fixed percentage of Federal
OCS revenues without time limit or annual dollar ceiling
- 10 percent of Federal OCS revenues would be deposited in the impact
aid fund
- alternatively, as in a current congressional proposal, the fund would be
financed by 10 percent of Federal OCS revenues or 40 cents per barrel of
oil, whichever is greater, although the structure of Federal revenues
(bonus plus royalties) would complicate the 40 cents per barrel calculation
- grants would be distributed by formula based on general indicators of
impact
Program Effects
GERALD FORD VIBRARY
Favorable:
- 10 percent funding as long as Federal revenues continued would provide
a continuing source of funds to meet Coastal State impact needs whenever
they arose
- 10 percent funding would be ample to meet currently anticipated needs
thereby reassuring Coastal States that their impact concerns would be
sufficiently provided for
Unfavorable:
- 10 percent funding might result in distributing more money than strict
impact accounting would require
4
Budget Outlays
Impact aid for Coastal States equal to 10 percent of Federal revenues
would range between $141 million and $724 million per year between 1975
and 1985, based on current production estimates. Revenue distribution by
State would depend on the project eligibility rules or the distribution
formula adopted, but if properly administered would closely approximate
the distribution of actual impacts. More detailed projections of the budget
outlays under this option and those that follow are provided in the
attached tables.
Option Ib: Targeted Impact Aid
Description
This variation would provide impact aid to Coastal States under terms that
would link the aid directly to the alleviation of negative impacts:
- the fund would be limited to a total of $600 million to be
built up from bonus receipts at $100 million per year
- aid to impacted communities for public capital investment would
be made in the form of 50 percent grant and 50 percent loan funds
- the balance of the fund not spent on actual, demonstrated impacts
would revert to the Treasury after 15 years.
Program Effects
GERALD FORD CIBRARY
Favorable:
- the timing and jurisdictions receiving aid would be directly tied
to impacts
- the loan feature would reduce the likelihood of overbuilding public
facilities
- the aid would be cut off after 15 years, which should be ample time
to meet impact needs
Unfavorable:
- clear identification and measurement of impacts for purposes of
awarding grants would require complex eligibility criteria and
administrative review
- grant amounts might appear to Coastal States to make inadequate
provision for their anticipated needs
5
Budget Outlays
Impact aid under this variation of Option I would be limited to $100 million
annually or less. The distribution by state would depend on the distribution
of demonstrated impacts.
Option Ic: Combination Impact Aid
Description
Under this variation of Option I, funds would be allocated to Coastal States
by formula but allocated funds would be paid out only for demonstrated need.
- the fund would be built by a deposit of 2 1/2 percent of annual
OCS lease revenues for a period of 10 years
- revenues in the fund would be allocated to the 22 Coastal States by
formula, giving an equal share to each state
- aid payments would be made to states out of this allocation when
triggered by a showing of need
- aid payments would be available as grants and loans
- the balance of funds not expended on need would revert to the
Treasury after 15 years.
GERALO, FORD LIBRARY
Program Effects
Favorable:
- equal shares would provide more aid per capita to the less populous
states, where impacts could be more pronounced
- formula aid would determine, in an administratively easy way, the maximum
amount a state could get
Unfavorable:
- equal sharing by Coastal States could lead to a misallocation of
resources because of impacts in rural areas of large, populous states
Budget Outlays
The outlays under Option Ic, as projected by OMB, would reach $100 million a
year, totalling $600 million. At 2 1/2 percent of OCS revenues, $1,120 million
would be available if needs exceeded that projection.
6
Option II: Coastal State Impact Aid and Production Shares
Description
In addition to the impact grants of Option Ia, this option includes
payment to Coastal States of 5 percent of the value of OCS oil and gas
which is brought cashore within their boundaries.
- the 5 percent share of the value of oil and gas would be
approximately equal to 37 1/2 percent of the minimum allowable
OCS royalty; thus setting production shares at 5 percent would
assure that those shares never constituted a higher proportion
of Federal OCS revenues than the proportion of leasing revenues
currently paid to States for onshore minerals
- basing the payment on the value of oil and gas rather than on
the Federal royalty income itself is intended to prevent the
level of royalties from becoming a political issue, and retain
needed flexibility in financial terms for leases
- the base for figuring the 5 percent payments could be limited,
if desired, to "new oil" only, or to production above the level
of a base period, say 1974
Program Effects
GERALD FORD LIBRARY
Favorable:
- the 5 percent production share adds to the front-end program of
Option I a continuing source of funds for the effects of bringing
OCS oil ashore
- making payments dependent on taking oil ashore would give the
States an increased stake in OCS development off their shores,
while it still targets payments on the areas which would feel
impacts
Unfavorable:
- like Option I, this Option is subject to the objection that
revenues from a National resource would be distributed only to
selected States
- outlays under this Option would be substantially greater than
under Option I
7
Budget Outlays
This Option would add to the costs of Option Ia an amount equal to 5
percent of the value of oil produced, or between $240 million and
$834 million per year over. the years 1975 to 1985. The total amount
shared would reach $1112 million per year by the end of the period
Option III: Coastal State Production Shares plus Nationally Shared
Revenues
Description
This Option would combine the 5 percent Coastal State production shares
of Option II with an additional sharing of Federal OCS revenues with all
States.
- the additional National sharing would be 37 1/2 percent of all
Federal OCS revenues minus the 5 percent Coastal State production
share. Thus, total revenues shared in the two parts of the
program would amount to 37 1/2 percent of all Federal OCS
revenues, the same proportion that is now shared with States in
onshore leasing programs
- the National shares could be distributed among States on a per
capita basis, or by the General Revenue Sharing formula. The
per capita basis emphasizes the idea that OCS reserves belong to
all citizens, while the General Revenue Sharing formula makes use
of an existing method for distributing Federal funds to States,
although that method could itself become a source of controversy
in the future
Program Effects
GERATO FORD (IBRAR)
Favorable:
- this Option would extend a direct financial stake in OCS leasing
and production to inland as well as Coastal States
- it would provide some front-end money to Coastal States through
their National share, which would become available to them well
before the 5 percent payments started as oil was brought onshore
- shared revenues would be of maximum value to States since they
would not be tied to any particular use and could be applied as
States saw fit
8
- the Option would feature a set of sharing formulas which, once
established, would be relatively easy to administer
Unfavorable:
- it would use a substantial amount of Federal funds, perhaps
more than strictly necessary to encourage prompt OCS development
- it would not recognize any special front-end money needs of
OCS-affected Coastal States, but would give them only the same
National share as other States until their 5 percent production
share became available
- it would not require that money shared with Coastal States be
used by them to ameliorate impacts, which could work against
the Federal interest in smooth development both on and offshore
and might not satisfy the impact concerns of some particular
groups who could still delay leasing
- it would result in a variable, and to a degree, unpredictable
flow of funds to States, since OCS bonus revenues fluctuate
considerably from sale to sale, though by averaging over more
than one year this problem can be eliminated
Budget Outlays
This Option would distribute 37 1/2 percent of all Federal OCS revenues
to States, or between $530 million and $2717 million per year over the
period 1975 to 1985. The 5 percent Coastal production share of this
total would be $240 million to $834 million per year. The remainder to
be distributed among all States would amount to between $106 million and
$2344 million per year.
Option IV: Coastal State Production Shares, Nationally Shared Revenues,
and Nationwide Energy Impact Aid
FORD & LIBRARY GERALD
Description
This Option combines the 5 percent production shares and the 37 1/2 percent
nationally shared revenues of Option III with a program of impact aid like
that in Option I but available to all States to meet the front-end costs
of energy development, both off and onshore.
- the total amount paid out would equal 37 1/2 percent of OCS
revenues, as in Option III, but this sum would be divided three
ways: 5 percent of the value of the oil to Coastal States, up
to $500 million (or a like amount) for a nationwide impact grant
fund, and the remainder of the 37 1/2 percent for National per
capita or General Revenue Sharing distribution
9
- front-end grants would be available to all States on a project
or formula basis for all types of energy-related impacts
- grants could be limited to needs not met by existing Federal
grant programs
Program Effects
Favorable:
- this Option has the advantages of Option III, plus the beneficial
effects of impact-related front-end money for all States
- it would treat all energy-related impacts consistently, without
singling out OCS impacts for special consideration
- it would use OCS revenues, which are substantial, to ameliorate
energy impacts inland where needs may also be significant
- it permits taking advantage of the good features of both project
assistance and no-strings-attached revenue sharing
- it addresses expressed concerns of Western States about front-end
energy development costs, and encourages them to undertake energy
developments of National interest
Unfavorable:
- the timing of the flow of OCS revenues into the nationwide impact
aid fund would bear no necessary relationship to the demands on
that fund from inland energy development activities
- the impact aid fund would have the same administrative problems
as the fund in Option I, but on a larger, nationwide scale
- combining all three elements in one proposal may make it too
complex to be appealing
FORD & LIBRARY GERALD
Budget Outlays
The total amount to be shared with States would be identical to
Option III. The only difference would be that some percent of Federal
revenues, perhaps up to a ceiling such as $500 million per year, would
be earmarked for States experiencing energy development impacts. An
impact fund of 10 percent of Federal revenue up to $500 million per year
would leave between $0 and $1844 million per year for nationally shared
revenues.
10
Table 1
PROJECTIONS OF OCS PRODUCTION, VALUE AND FEDERAL REVENUES
Value of Oil
Federal Revenues
Oil Production
Production
(millions of dollars)
(millions of
(millions of
Year
barrels)
dollars)
Bonus
Royalty (16-2/3%) Total
1975
447
$ 4,792
$6,000
799
$6,799
1976
476
5,103
6,000
851
6,851
1977
506
5,424
6,000
904
6,904
1978
601
6,443
6,000
1,074
7,074
1979
696
7,461
6,000
1,244
7,244
1980
791
8,480
I
1,413
1,413
1981
944
10,120
-
1,687
1,687
1982
1,097
11,760
-
1,960
1,960
1983
1,250
13,400
I
2,234
2,234
1984
1,403
15,040
-
2,507
2,507
1985
1,557
16,691
-
2,782
2,782
Assumptions:
1. Production at levels corresponding to Project Independence Report.
2. Oil priced at $8 per barrel and gas priced at $0.70 per thousand
cubic feet, giving a total value 1.34 times the value of oil
production.
3. 16-2/3 percent royalty collected on all production from Federal
OCS lands.
FORD if LIBRARY GERALD
Table 2
SUMMARY OF PAYMENTS TO STATES UNDER FOUR OPTIONS
(millions of dollars)
Option Ia
Option II
Option III
Option IV
Coastal
Coastal
Pro-
Pro-
Pro-
Nationwide
State
State
duction
duction
National
duction
Energy
National
Year
Impact Aid
Impact Aid
Shares
Total
Shares
Shares
Total
Shares
Impact Aid
Shares
Total
1975
680
680
240
920
240
2310
2550
240
500
1810
2550
1976
685
685
255
940
255
2314
2569
255
500
1814
2569
1977
690
690
271
961
271
2318
2589
271
500
1818
2589
1978
707
707
322
1029
322
2331
2653
322
500
1831
2653
1979
724
724
373
1097
373
2344
2717
373
500
1844
2717
1980
141
141
424
565
424
106
530
424
106
--
530
1981
169
169
506
675
506
127
633
506
127
--
633
1982
196
196
588
784
588
147
735
588
147
735
1983
223
223
670
893
670
168
838
670
168
--
838
1984
251
251
752
1003
752
188
940
752
188
--
940
1985
278
278
834
1112
834
209
1043
834
209
--
1043
Definition of options:
Option Ia
-- Coastal State Impact Aid at 10 percent of Federal OCS revenues.
Option II
-- Coastal State Impact Aid at 10 percent of Federal OCS revenues.
--- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
Option III
-- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
-- National Shares to all States equal to 37.5 percent of OCS revenues less 5 percent of the value
of oil landed.
Option IV
-- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
-- Nationwide Energy Impact Aid equal to 10% of OCS revenues not to exceed $500 million per year.
--- National Shares to all States equal to 37.5 percent of OCS revenues less 5 percent of the value
of oil landed and less 10% of OCS revenues not to exceed $500 million per year (no negative
payments to States)
GERALD
R.
FORD
LIBRARY
Table 3
SUMMARY OF PAYMENTS UNDER VARIANTS OF OPTION I
Option Ia
Option Ib*
Option Ic*
1975
680
--
--
1976
685
--
--
1977
690
--
--
1978
707
50
50
1979
724
50
50
1980
141
100
100
1981
169
100
100
1982
196
100
10C
1983
223
100
100
1984
251
100
100
1985
278
*Note: Payments for Options Ib and Ic are limited to OMB projection
of $600 million in expected impacts. Option Ib would have
$600 million available whereas Option IIb would have a
total of $1120 million.
FORD LIBRARY & GERALD
Table 4
SUMMARY OF STATES' AND FEDERAL
SHARES UNDER FOUR OPTIONS
(millions of dollars)
OPTION I
OPTION II
OPTIONS III & IV
Total
Federal OCS
States'
Federal
States'
Federal
States'
Federal
Year
Revenues
Share
Share
Share
Share
Share
Share
1975
6799
680
6119
920
5879
2550
4249
1976
6851
685
6166
940
5911
2569
4282
1977
6904
690
6214
961
5943
2589
4315
1978
7074
707
6367
1029
6045
2653
4421
1979
7244
724
6520
1097
6147
2717
4527
1980
1413
141
1272
565
848
530
883
1981
1687
169
1518
675
1012
633
1054
1982
1960
196
1764
784
1176
735
1225
1983
2234
223
2011
893
1341
838
1396
1984
2507
251
2256
1003
1504
940
1567
1985
2782
278
2504
1112
1607
1043
1739
GEBALOR FORD LIBRARY
Table 5
REGIONAL DISTRIBUTION OF
PRODUCTION SHARE
(millions of dollars)
Total OCS Production
Year
Total
Gulf of Mexico
Pacific
Alaska
Atlantic
1974
224
215
9
0
0
1975
240
226
14
0
0
1976
255
235
20
0
o
1977
271
247
24
0
0
1978
325
267
48
0
10
1979
373
287
67
0
19
1980
419
305
89
0
25
1981
505
334
116
15
40
1982
589
359
147
24
59
1983
670
382
174
40
74
1984
752
406
203
53
90
1985
844
434
234
67
109
OCS Production Above 1974 Levels Only
Year
Total
Gulf of Mexico
Pacific
Alaska
Atlantic
1974
0
0
0
0
0
1975
16
11
5
0
0
1976
31
20
11
0
0
1977
47
32
15
0
0
1978
101
52
39
0
10
1979
149
72
58
0
19
1980
195
90
80
0
25
1981
281
119
107
15
40
1982
365
144
138
24
59
1983
446
167
165
40
74
1984
528
191
194
53
90
1985
620
219
225
67
109
FORD LIBRARY
Table 6
DISTRIBUTION OF NATIONAL REVENUE SHARES
BY STATES (OPTION III)
1975
Amount by
Share by
General
Amount by
General
Revenue
Share by
Population
Revenue
Sharing
Population
(millions of
Sharing
(millions of
State
(percent)
dollars)
(percent)
dollars)
Alabama
1.686
39.058
1.601
37.084
Alaska
0.157
3.642
0.144
3.332
Arizona
0.981
22.713
1.020
23.634
Arkansas
0.971
22.481
1.039
24.063
California
9.817
227.361
10.355
239.833
Colorado
1.161
26.896
1.084
25.099
Connecticut
1.466
33.948
1.346
31.176
Delaware
0.274
6.357
0.302
6.997
D.C.
0.355
8.233
0.422
9.772
Florida
3.659
84.738
3.134
72.587
Georgia
2.281
52.820
2.087
48.336
Hawaii
0.396
9.182
0.437
10.115
Idaho
0.367
8.498
0.395
9.157
Illinois
5.354
124.005
5.079
117.632
Indiana
2.533
58.670
2.033
47.090
Iowa
1.384
32.050
1.324
30.666
Kansas
1.086
25.152
0.922
21.350
Kentucky
1.593
36.884
1.627
37.680
Louisiana
1.794
41.541
2.166
50.157
Maine
0.490
11.345
0.634
14.685
Maryland
1.939
44.918
1.987
46.013
Massachusetts
2.772
64.210
3.256
75.420
Michigan
4.310
99.813
4.203
97.337
Minnesota
1.857
43.009
2.096
48.535
Mississippi
1.087
25.174
1.470
34.045
Missouri
2.267
52.500
1.923
44.538
GERRALD FORD LIBRARY
Table 6
(continued)
DISTRIBUTION OF NATIONAL REVENUE SHARES
BY STATES (OPTION III)
1975
Amount by
Share by
General
Amount by
General
Revenue
Share by
Population
Revenue
Sharing
Population
(millions of
Sharing
(millions of
State
(percent)
dollars)
(percent)
dollars)
Montana
0.344
7.957
0.369
8.535
Nebraska
0.735
17.018
0.668
15.464
Nevada
0.261
6.048
0.231
5.353
New Hampshire
0.377
8.730
0.315
7.291
New Jersey
3.508
81.239
3.133
72.549
New Mexico
0.527
12.206
0.628
14.537
New York
8.704
201.580
11.340
262.641
North Carolina
2.513
58.195
2.432
56.318
North Dakota
0.305
7.063
0.306
7.083
Ohio
5.114
118.432
4.082
94.542
Oklahoma
1.269
29.390
1.106
25.609
Oregon
1.060
24.556
1.052
24.357
Pennsylvania
5.672
131.355
5.321
123.233
Rhode Island
0.464
10.738
0.433
10.032
South Carolina
1.299
30.085
1.407
32.587
South Dakota
0.326
7.560
0.400
9.255
Tennessee
1.966
45.536
1.861
43.093
Texas
5.620
130.164
4.853
112.403
Utah
0.551
12.769
0.590
13.664
Vermont
0.221
5.121
0.309
7.145
Virginia
2.293
53.096
2.015
46.663
Washington
1.634
37.844
1.458
33.764
West Virginia
0.855
19.799
0.905
20.966
Wisconsin
2.177
50.425
2.545
58.934
Wyoming
0.168
3.896
0.158
3.656
FORD LIBRARY & 9ERALD
STATEM OF THE TERIOR
United States Department of the Interior
OFFICE OF THE SECRETARY
Duval
WASHINGTON, D.C. 20240
March 3, 1849
MAR 10 1975
Memorandum
To:
Executive Director, Domestic Council
From:
Assistant Secretary- Program Development and Budget
Subject: Option Paper on Sharing Outer Continental Shelf Revenues
with States
I attach the option paper your staff requested we prepare on sharing
Outer Continental Shelf revenues with States. A draft was circulated
to Treasury, FEA, Commerce (NOAA) and OMB, and the final version
incorporates modifications responsive to their comments.
Secretary Morton favors Option III as outlined in the paper; FEA
also favors Option III (applied to new oil only) and would consider
adding Option I as well, but only if actual impacts could be
accurately measured; Treasury favors a modified version of Option II
(5 percent production shares applied to both new and old oil, but
no impact aid) ; and NOAA supports Coastal State impact aid (a feature
of Options I, II and IV).
Royston Royston C. Hughes C. Hughes
Attachment
FORD LIBRARY
sha
THE INTERIOR 'S
United States Department of the Interior
OFFICE OF THE SECRETARY
WASHINGTON, D.C. 20240
March
1849
MAR 10 1975
Memorandum
To:
Executive Director, Domestic Council
From:
Assistant Secretary--Program Development and Budget
Subject: Option Paper on Sharing Outer Continental Shelf Revenues
with States
I attach the option paper your staff requested we prepare on sharing
Outer Continental Shelf revenues with States. A draft was circulated
to Treasury, FEA, Commerce (NOAA) and OMB, and the final version
incorporates modifications responsive to their comments.
Secretary Morton favors Option III as outlined in the paper; FEA
also favors Option III (applied to new oil only) and would consider
adding Option I as well, but only if actual impacts could be
accurately measured; Treasury favors a modified version of Option II
(5 percent production shares applied to both new and old oil, but
no impact aid) ; and NOAA supports Coastal State impact aid (a feature
of Options I, II and IV).
(sgd) Royston C. Hughes
Royston C. Hughes
GERALD, FORD LIBRARY
Attachment
OPTION PAPER
Sharing Outer Continental Shelf Revenues with States
An accelerated leasing program has been initiated on the Outer Continental
Shelf (OCS) to open up frontier oil and gas prospects and provide a badly
needed supplement to domestic onshore production. Coastal States are
troubled by the prospect of accelerated leasing off their shores because
they would have to bear the brunt of certain costs of development while
the entire Nation receives the benefit of increased domestic supplies of
oil and gas.
Coastal State concerns about OCS development involve:
- environmental damages, including possible oil spills
GERALD FORD LIBRARA
- esthetic impacts
- economic effects, including possible disorderly development,
injury to existing industry, and the burden of providing new
public services.
To meet these concerns, the Federal Government has already proposed
increased planning money for the Coastal Zone Management Act, and is
developing a Comprehensive Oil Spill Liability bill.
It has, however, up to now opposed providing Coastal States with a share
of OCS revenues on the grounds that -
- OCS revenues belong to all the Nation, and their revenues should
benefit all citizens
- a number of Federal programs already exist which provide assistance
to States in ameliorating impacts of development
- sharing OCS revenues with Coastal States would reduce the amount
of revenues available to support other Federal expenditures and
require compensating adjustment elsewhere in the Federal budget
- onshore development induced by offshore activities will eventually
provide State and local governments with an increased tax base
to finance necessary public facilities, so that there may be no
need for a long-term sharing program for impact aid
- States' rights to revenues from offshore minerals leasing were
legislatively determined in the Submerged Lands Act of 1953
which gave States complete jurisdiction over the first three
miles of seabed, but nothing beyond
- sources of opposition to OCS leasing are varied, and not all
might be eliminated by sharing of revenues
However, there are reasons for reconsidering this position.
- failure to respond to State concerns could solidify opposition
which would postpone leasing in frontier OCS areas and delay
receipt of the National benefits of accelerated development.
In Federal revenues alone, the loss in discounted-value terms
of even a one-year delay would be about $2.9 billion.
- there may be a valid need for Federal assistance now that frontier
OCS areas will be opened. For example, "front-end" money would
help State and local governments begin building public facilities
before OCS developments provide an increased tax base on which to
finance such expenditures
- the three-mile state jurisdiction is of little revenue value to
States in frontier areas such as the Atlantic Coast, where oil and
gas reserves are all located farther offshore
- shared revenues could give Coastal States a financial stake in
prompt OCS development
- sharing OCS revenues would be consistent with various onshore
sharing precedents, notably the Minerals Leasing Act which gives
affected States 37 1/2 percent of Federal leasing revenues
R.
GERALD
FORD
- Congressional action on shared revenues is possible regardless
of the Administration position
LIBRARY
There are three general approaches to providing funds to States:
- provide money for impact-amelioration projects--tie use of funds
to specific purposes which underwrite costs faced by States as
a result of OCS activity
- provide formula-based, no strings money to States affected by
OCS activity--make funds available which are sufficient to keep
Coastal States from being worse off on balance as a result of OCS
activity, and distribute these revenues generally in accordance
with expected impacts, but leave to the States the decision as to
how to use the money
- provide an "ownership" stake in OCS development through a share
of Federal revenues--distribute a proportion of revenues without
direct regard to expected impacts, perhaps to both inland and
Coastal States
2
Option I: Coastal State Impact Aid
Description
This option is similar in some respects to proposals introduced recently
in the Congress:
- 10 percent of Federal OCS revenues, perhaps with an annual upper
limit, would fund grants to Coastal States to ameliorate negative
impacts of OCS development
- alternatively, the total amount of funds in any year could be
based on demonstrated impacts rather than on a percentage of OCS
revenues, again possibly up to some limit
- funds would be made available soon enough for "front-end" costs,
not delayed until actual offshore production starts
- States could apply for grants for only a five (perhaps ten) year
period, so that the program would phase out after front-end
impact aid was no longer needed
- grants could be distributed either by formula based on general
indices of impacts, or by project after a showing of specific
impacts, or both
- grants could either require State matching or provide full Federal
funding, and could be limited to needs not met by existing Federal
grant programs
R.
FORD
Program Effects
GERALD
Favorable:
- the option would focus specifically on ameliorating onshore impacts
of OCS development, and reduce them as a barrier to accelerated
leasing in frontier areas
- the use of grant funds would be tied directly to impacts
- budget outlays would be modest by comparison with the other options
considered
Unfavorable:
- mere amelioration of impacts might be insufficient to lead Coastal
States to accept OCS development
- the grants might be opposed on grounds that OCS revenues are a
National asset and should not be disbursed only to Coastal States
3
- clear identification and measurement of impacts for purposes
of awarding grants would be administratively difficult
- the impact rationale focuses assistance efficiently on future
impacts but makes no allowance for past impacts, which may seem
inequitable to States where OCS leasing has already occurred
- the option would not address the energy impact concerns of inland
States, and might appear to single out Coastal States for special
treatment, although inland States already receive 37 1/2 percent
of Federal revenues from minerals leasing within their boundaries
Budget Outlays
Impact aid for Coastal States equal to 10 percent of Federal revenues
would range between $141 million and $724 million per year between 1975
and 1985, based on current production estimates. An annual limit such as
$200 million would reduce these outlays. Revenue distribution by State
would depend on the project eligibility rules or the distribution formula
adopted, but if properly administered would closely approximate the
distribution of actual impacts. More detailed projections of the budget
outlays under this option and those that follow are provided in the
attached tables.
Option II: Coastal State Impact Aid and Production Shares
FORD & GERALD LIBRARY
Description
In addition to the impact grants of Option I, this option includes
payment to Coastal States of 5 percent of the value of OCS oil and gas
which is brought onshore within their boundaries.
- the 5 percent share of the value of oil and gas would be
approximately equal to 37 1/2 percent of the minimum allowable
OCS royalty; thus setting production shares at 5 percent would
assure that those shares never constituted a higher proportion
of Federal OCS revenues than the proportion of leasing revenues
currently paid to States for onshore minerals
- basing the payment on the value of oil and gas rather than on
the Federal royalty income itself is intended to prevent the
level of royalties from becoming a political issue, and retain
needed flexibility in financial terms for leases
- the base for figuring the 5 percent payments could be limited,
if desired, to "new oil" only, or to production above the level
of a base period, say 1974
4
Program Effects
Favorable:
- the 5 percent production share adds to the front-end program of
Option I a continuing source of funds for the effects of bringing
OCS oil ashore
- making payments dependent on taking oil ashore would give the
States an increased stake in OCS development off their shores,
while it still targets payments on the areas which would feel
impacts
Unfavorable:
- like Option I, this Option is subject to the objection that
revenues from a National resource would be distributed only to
selected States
- outlays under this Option would be substantially greater than
under Option I
Budget Outlays
This Option would add to the costs of Option I an amount equal to 5
percent of the value of oil produced, or between $240 million and
FORD & LIBRARY GERALD
$834 million per year over the years 1975 to 1985. The total amount
shared would reach $1112 million per year by the end of the period
Option III: Coastal State Production Shares plus Nationally Shared
Revenues
Description
This Option would combine the 5 percent Coastal State production shares
of Option II with an additional sharing of Federal OCS revenues with all
States.
- the additional National sharing would be 37 1/2 percent of all
Federal OCS revenues minus the 5 percent Coastal State production
share. Thus, total revenues shared in the two parts of the
program would amount to 37 1/2 percent of all Federal OCS
revenues, the same proportion that is now shared with States in
onshore leasing programs
5
- the National shares could be distributed among States on a per
capita basis, or by the General Revenue Sharing formula. The
per capita basis emphasizes the idea that OCS reserves belong to
all citizens, while the General Revenue Sharing formula makes use
of an existing method for distributing Federal funds to States,
although that method could itself become a source of controversy
in the future
Program Effects
Favorable:
- this Option would extend a direct financial stake in OCS leasing
and production to inland as well as Coastal States
- it would provide some front-end money to Coastal States through
their National share, which would become available to them well
before the 5 percent payments started as oil was brought onshore
- shared revenues would be of maximum value to States since they
would not be tied to any particular use and could be applied as
States saw fit
- the Option would feature a set of sharing formulas which, once
established, would be relatively easy to administer
Unfavorable:
FORD & LIBRARY GERALD
- it would use a substantial amount of Federal funds, perhaps
more than strictly necessary to encourage prompt OCS development
- it would not recognize any special front-end money needs of
OCS-affected Coastal States, but would give them only the same
National share as other States until their 5 percent production
share became available
- it would not require that money shared with Coastal States be
used by them to ameliorate impacts, which could work against
the Federal interest in smooth development both on and offshore
and might not satisfy the impact concerns of some particular
groups who could still delay leasing
- it would result in a variable, and to a degree, unpredictable
flow of funds to States, since OCS bonus revenues fluctuate
considerably from sale to sale, though by averaging over more
than one year this problem can be eliminated
6
Budget Outlays
This Option would distribute 37 1/2 percent of all Federal OCS revenues
to States, or between $530 million and $2717 million per year over the
period 1975 to 1985. The 5 percent Coastal production share of this
total would be $240 million to $834 million per year. The remainder to
be distributed among all States would amount to between $106 million and
$2344 million per year.
Option IV: Coastal State Production Shares, Nationally Shared Revenues,
and Nationwide Energy Impact Aid
Description
This Option combines the 5 percent production shares and the 37 1/2 percent
nationally shared revenues of Option III with a program of impact aid like
that in Option I but available to all States to meet the front-end costs
of energy development, both off and onshore.
- the total amount paid out would equal 37 1/2 percent of OCS
revenues, as in Option III, but this sum would be divided three
ways: 5 percent of the value of the oil to Coastal States, up
to $500 million (or a like amount) for a nationwide impact grant
fund, and the remainder of the 37 1/2 percent for National per
capita or General Revenue Sharing distribution
GERALD R.FORD LIBRARY
- front-end grants would be available to all States on a project
or formula basis for all types of energy-related impacts
- grants could be limited to needs not met by existing Federal
grant programs
Program Effects
Favorable:
- this Option has the advantages of Option III, plus the beneficial
effects of impact-related front-end money for all States
- it would treat all energy-related impacts consistently, without
singling out OCS impacts for special consideration
- it would use OCS revenues, which are substantial, to ameliorate
energy impacts inland where needs may also be significant
7
- it permits taking advantage of the good features of both project
assistance and no-strings-attached revenue sharing
- it addresses expressed concerns of Western States about front-end
energy development costs, and encourages them to undertake energy
developments of National interest
Unfavorable:
- the timing of the flow of OCS revenues into the nationwide impact
aid fund would bear no necessary relationship to the demands on
that fund from inland energy development activities
- the impact aid fund would have the same administrative problems
as the fund in Option I, but on a larger, nationwide scale
- combining all three elements in one proposal may make it too
complex to be appealing
Budget Outlays
FORD & LIBRARY GERALD
The total amount to be shared with States would be identical to
Option III. The only difference would be that some percent of Federal
revenues, perhaps up to a ceiling such as $500 million per year, would
be earmarked for States experiencing energy development impacts. An
impact fund of 10 percent of Federal revenue up to $500 million per year
would leave between $0 and $1844 million per year for nationally shared
revenues.
8
Table 1
PROJECTIONS OF OCS PRODUCTION, VALUE AND FEDERAL REVENUES
Value of Oil
Federal Revenues
Oil Production
Production
(millions of dollars)
(millions of
(millions of
Year
barrels)
dollars)
Bonus
Royalty (16-2/3%)
Total
1975
447
$ 4,792
$6,000
799
$6,799
1976
476
5,103
6,000
851
6,851
1977
506
5,424
6,000
904
6,904
1978
601
6,443
6,000
1,074
7,074
1979
696
7,461
6,000
1,244
7,244
1980
791
8,480
-
1,413
1,413
1981
944
10,120
-
1,687
1,687
1982
1,097
11,760
-
1,960
1,960
1983
1,250
13,400
-
2,234
2,234
1984
1,403
15,040
-
2,507
2,507
1985
1,557
16,691
-
2,782
2,782
Assumptions:
GERALD FORD LIBRARY
1. Production at levels corresponding to Project Independence Report.
2.
Oil priced at $8 per barrel and gas priced at $0.70 per thousand
cubic feet, giving a total value 1.34 times the value of oil
production.
3. 16-2/3 percent royalty collected on all production from Federal
OCS lands.
Table 2
SUMMARY OF PAYMENTS TO STATES UNDER FOUR OPTIONS
(millions of dollars)
Option I
Option II
Option III
Option IV
Coastal
Coastal
Pro-
Pro-
Pro-
Nationwide
State
State
duction
duction
National
duction
Energy
National
Year
Impact Aid
Impact Aid
Shares
Total
Shares
Shares
Total
Shares
Impact Aid
Shares
Total
1975
680
680
240
920
240
2310
2550
240
500
1810
2550
1976
685
685
255
940
255
2314
2569
255
500
1814
2569
1977
690
690
271
961
271
2318
2589
271
500
1818
2589
1978
707
707
322
1029
322
2331
2653
322
500
1831
2653
1979
724
724
373
1097
373
2344
2717
373
500
1844
2717
1980
141
141
424
565
424
106
530
424
106
--
530
1981
169
169
506
675
506
127
633
506
127
--
633
1982
196
196
588
784
588
147
735
588
147
--
735
1983
223
223
670
893
670
168
838
670
168
--
838
1984
251
251
752
1003
752
188
940
752
188
--
940
1985
278
278
834
1112
834
209
1043
834
209
--
1043
Definition of options:
Option I
-- Coastal State Impact Aid at 10 percent of Federal OCS revenues.
Option II
-- Coastal State Impact Aid at 10 percent of Federal OCS revenues.
-- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
Option III
-- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
-- National Shares to all States equal to 37.5 percent of OCS revenues less 5 percent of the value
of oil landed.
Option IV
--- Coastal State Production Shares equal to 5 percent of the value of oil landed in each State.
-- Nationwide Energy Impact Aid equal to 10% of OCS revenues not to exceed $500 million per year.
-- National Shares to all States equal to 37.5 percent of OCS revenues less 5 percent of the value
of oil landed and less 10% of OCS revenues not to exceed $500 million per year (no negative
payments to States)
GERALD
FORD
LIBRARY
Table 3
SUMMARY OF STATES' AND FEDERAL
SHARES UNDER FOUR OPTIONS
(millions of dollars)
OPTION I
OPTION II
OPTIONS III & IV
Total
Federal OCS
States'
Federal
States'
Federal
States'
Federal
Year
Revenues
Share
Share
Share
Share
Share
Share
1975
6799
680
6119
920
5879
2550
4249
1976
6851
685
6166
940
5911
2569
4282
1977
6904
690
6214
961
5943
2589
4315
1978
7074
707
6367
1029
6045
2653
4421
1979
7244
724
6520
1097
6147
2717
4527
1980
1413
141
1272
565
848
530
883
1981
1687
169
1518
675
1012
633
1054
1982
1960
196
1764
784
1176
735
1225
1983
2234
223
2011
893
1341
838
1396
1984
2507
251
2256
1003
1504
940
1567
1985
2782
278
2504
1112
1607
1043
1739
GERALD FORD LIBRARY
Table 4
REGIONAL DISTRIBUTION OF
PRODUCTION SHARE
(millions of dollars)
Total OCS Production
Year
Total
Gulf of Mexico
Pacific
Alaska
Atlantic
1974
224
215
9
0
0
1975
240
226
14
0
0
1976
255
235
20
0
0
1977
271
247
24
0
0
1978
325
267
48
0
10
1979
373
287
67
0
19
1980
419
305
89
0
25
1981
505
334
116
15
40
1982
589
359
147
24
59
1983
670
382
174
40
74
1984
752
406
203
53
90
1985
844
434
234
67
109
OCS Production Above 1974 Levels Only
Year
Total
Gulf of Mexico
Pacific
Alaska
Atlantic
1974
0
0
0
0
0
1975
16
11
5
0
1976
31
20
11
0
1977
47
32
15
0
0 0 0 GERALD FORD LIBRARY
1978
101
52
39
0
10
1979
149
72
58
0
19
1980
195
90
80
0
25
1981
281
119
107
15
40
1982
365
144
138
24
59
1983
446
167
165
40
74
1984
528
191
194
53
90
1985
620
219
225
67
109
Table 5
DISTRIBUTION OF NATIONAL REVENUE SHARES
BY STATES (OPTION III)
1975
Amount by
Share by
General
Amount by
General
Revenue
Share by
Population
Revenue
Sharing
Population
(millions of
Sharing
(millions of
State
(percent)
dollars)
(percent)
dollars)
Alabama
1.686
39.058
1.601
37.084
Alaska
0.157
3.642
0.144
3.332
Arizona
0.981
22.713
1.020
23.634
Arkansas
0.971
22.481
1.039
24.063
California
9.817
227.361
10.355
239.833
Colorado
1.161
26.896
1.084
25.099
Connecticut
1.466
33.948
1.346
31.176
Delaware
0.274
6.357
0.302
6.997
D.C.
0.355
8.233
0.422
9.772
Florida
3.659
84.738
3.134
72.587
Georgia
2.281
52.820
2.087
48.336
Hawaii
0.396
9.182
0.437
10.115
Idaho
0.367
8.498
0.395
9.157
Illinois
5.354
124.005
5.079
117.632
Indiana
2.533
58.670
2.033
47.090
Iowa
1.384
32.050
1.324
30.666
Kansas
1.086
25.152
0.922
21.350
Kentucky
1.593
36.884
1.627
37.680
Louisiana
1.794
41.541
2.166
50.157
Maine
0.490
11.345
0.634
14.685
Maryland
1.939
44.918
1.987
46.013
Massachusetts
2.772
64.210
3.256
75.420
Michigan
4.310
99.813
4.203
97.337
Minnesota
1.857
43.009
2.096
48.535
GERALD FORD LIBRARY
Mississippi
1.087
25.174
1.470
34.045
Missouri
2.267
52.500
1.923
44.538
Table 5
(continued)
DISTRIBUTION OF NATIONAL REVENUE SHARES
BY STATES (OPTION III)
1975
Amount by
Share by
General
Amount by
General
Revenue
Share by
Population
Revenue
Sharing
Population
(millions of
Sharing
(millions of
State
(percent)
dollars)
(percent)
dollars)
Montana
0.344
7.957
0.369
8.535
Nebraska
0.735
17.018
0.668
15.464
Nevada
0.261
6.048
0.231
5.353
New Hampshire
0.377
8.730
0.315
7.291
New Jersey
3.508
81.239
3.133
72.549
New Mexico
0.527
12.206
0.628
14.537
New York
8.704
201.580
11.340
262.641
North Carolina
2.513
58.195
2.432
56.318
North Dakota
0.305
7.063
0.306
7.083
Ohio
5.114
118.432
4.082
94.542
Oklahoma
1.269
29.390
1.106
25.609
Oregon
1.060
24.556
1.052
24.357
Pennsylvania
5.672
131.355
5.321
123.233
Rhode Island
0.464
10.738
0.433
10.032
South Carolina
1.299
30.085
1.407
32.587
South Dakota
0.326
7.560
0.400
9.255
Tennessee
1.966
45.536
1.861
43.093
Texas
5.620
130.164
4.853
112.403
Utah
0.551
12.769
0.590
13.664
Vermont
0.221
5.121
0.309
7.145
Virginia
2.293
53.096
2.015
46.663
Washington
1.634
37.844
1.458
33.764
West Virginia
0.855
19.799
0.905
20.966
Wisconsin
2.177
50.425
2.545
58.934
Wyoming
0.168
3.896
0.158
3.656
GERRALO FORD LIBRARY
Ois Review Shing
my W.T Reduce
DRAFT OPTION PAPER
lety the / F and to - name
Sharing Outer Continental Shelf Revenues with States Cony.
Developing oil and gas reserves on the Outer Continental Shelf (OCS) will
provide benefits to the United States which substantially exceed the costs
of development, including social and environmental costs. Just as accelerated
development was an appropriate response to the greatly increased world price
of oil, SO delay in development will be very costly to a U.S. continuing to rely
on high-priced, uncertain imports.
However, coastal state concerns about OCS development could become a source of
delay. States are concerned about:
- environmental damages, including possible oil spills
FORD & GERALD LIBRARY
- esthetic impacts
- economic effects, including possible disorderly development,
injury to existing industry, and the burden of providing new
public services.
Alonning
To meet these concerns, the Federal Government has already proposed increased
united to whit
planning money for the Coastal Zone Management Act and is considering a
Comprehensive Oil Spill Liability bill.
It has, however, up to now opposed providing coastal states with a share of
OCS revenues on the grounds that -
- OCS resources belong to all the Nation, and their revenues should
benefit all citizens
- sharing OCS revenues with coastal states would reduce federal
revenues and require compensating adjustment elsewhere in the
federal budget
- onshore development induced by offshore activities will eventually
provide state and local governments with an increased tax base to
finance necessary public facilities
- states rights to revenues from offshore minerals leasing were
settled by the Submerged Lands Act which gave states complete
jurisdiction over the first three miles of seabed, but nothing
beyond
GERALD FORD LIBRARY
However, there are reasons for reconsidering this position.
- there may be a valid need for federal assistance now that frontier
OCS areas will be opened; for example, "front-end" money to help
state and local governments begin developing public facilities before
OCS developments provide an increased tax base on which to finance
such expenditures
officits
- shared revenues could give coastal states a financial stake in prompt
OCS development and would be consistent with onshore precedent where
the Mineral Leasing Act gives affected states 37 1/2 percent of
federal leasing revenues.
- the three-mile state jurisdiction is of little revenue value to states
in frontier areas such as the Atlantic Coast, where oil and gas reserves
are all located farther offshore
- congressional action on shared revenues is possible regardless of the
Administration position.
2
There are three general approaches to establishing shared revenues:
- ameliorate impact with project grants -- tie revenues to specific
uses which will minimize or underwrite costs faced by states as a
result of OCS activity.
- compensate for impacts with no-strings money -- provide revenues which
are sufficient to keep coastal states from being worse off on balance
as a result of OCS activity, and distribute these revenues
among states in a manner approximating expected impacts, but leave
to the states the decision as to how to use the money.
- provide a stake in development through shared revenues -- distribute
revenues which exceed the expected impacts coastal states face.
Possibly extend shared revenues to inland states so that they also
have a direct stake in OCS development.
These three approaches can be grouped into four distinct options, as follows:
FORD & LIBRARY GERALD
3
Option I: Coastal State Impact Aid
Description
This option is similar to a proposal introduced recently by Senator Jackson
(S. 521) :
- 10 percent of Federal OCS revenues, perhaps with an annual upper
limit, would fund grants to coastal states to ameliorate negative
impacts of OCS development.
- funds would be made available soon enough for "front-end" costs,
not delayed until actual offshore production starts
- states could apply for grants for only a five (perhaps 10) year
period, so that the program would phase out after genuine impact
aid was no longer needed
- grants could be distributed either by formula based on general indices
of impacts, or by project after a showing of specific impacts, or
both
- grants could either require state matching or, as in S. 521, provide
full funding.
Program Effects
GERALD FORD LIBRARY
Favorable:
- the option would focus on ameliorating impacts of OCS development,
and reduce them as a barrier to accelerated leasing in frontier areas
- the amount and use of grant funds would be tied directly to impacts
4
may h.
- budget outlays would be modest by comparison with the other options
considered.
Unfavorable:
- mere amelioration of impacts might be insufficient to lead coastal
states to accept OCS development
- the grants might be opposed on grounds that OCS revenues are a National
asset and should not be dispersed only to coastal states
- clear identification and measurment of impacts for purposes of
awarding grants would be administratively difficult
- the impact rationale focuses assistance efficiently on future
impacts but makes no allowance for past impacts which may seem
inequitable to states where OCS leasing has already occurred.
FORD i LIBRARY GERALD
Budget Effects
Impact aid for coastal states equal to 10 percent of federal revenues would
range between $144 million and $727 million per year between 1975 and 1985,
based on current: production estimates. An annual ceiling lower than these
amounts, for example the $200 million ceiling for 1975 and 1976 proposed by
Senator Jackson in S. 521, is an option. Revenue distribution by state would
depend on the project eligibility rules or the distribution formula adopted,
but would closely approximate the distribution of actual impacts. More
detailed projections of the budget effects under this option are provided in
the attachment.
5
Option II: Coastal impact aid and production shares
7
Description
In addition to the impact grants of option I, this option includes payment
to coastal States of 5 percent of the value of OCS oil and gas which is
brought on shore within their boundaries.
- The 5 percent share of the value of oil and gas would be
approximately equal to 37-1/2 percent of the minimum allowable
OCS royalty; setting 5 percent as the share would therefore
prevent the payment to the State from exceeding the share of
royalty income normally paid to States for onshore minerals.
- Basing the payment on the value of oil and gas rather than on
the Federal royalty income itself will help prevent the level of
royalties from becoming a political issue.
- If desired, the 5 percent payment could be split between the
State bringing the oil on shore and the State refining the oil,
either by a Federal allocation formula or by permitting States to
reach agreements on a split among themselves.
- The base for figuring the 5 percent payments could be limited,
if desired, to "new oil" only, or to production above the level
of a base period, say 1974.
FORD LIBRARY & GERALD
-6-
Program Effects
Favorable:
- The production share 5 percent payment adds to the front-end
program of Option I a continuing source of funds for longer-
term effects.
- Making payments dependent on taking oil ashore would give the
States an increased stake in OCS development off their shores,
while it still targets payments on the areas which would feel
impacts.
Unfavorable:
- Like Option I, this option is subject to the objection that
revenues from a National resource would be distributed to only
selected States.
- Outlays under this option would be substantially greater than
under Option I.
FORD if LIBRARY GERALD
Budget Effects
This option would add to the costs of Option I an amount equal to 5 percent:
of the value of oil produced, or between $224 million and $844 million per
year over the years 1975 to 1985. The total amount shared during this
period would reach about $1,128 million per year at the highest. More detailed
projections of the budget effects under this option are provided in the
attachment.
-7-
Option III: Coastal Production Shares plus Nationally Shared Revenues
Description
This option would combine the 5 percent coastal production shares of
Option II with an additional sharing of federal OCS revenues with all
states.
- the additional national sharing would be 37 1/2 percent of all
federal OCS revenues minus the 5 percent coastal production share.
Thus, total revenues shared in the two parts of the program together
would amount to 37 1/2 percent of all federal OCS revenues, the same
proportion that is now shared with states in onshore leasing programs.
- the national shares could be distributed among states on a per capita
basis, or by the General Revenue Sharing formula. The per capita
basis emphasizes the idea that OCS reserves are owned by all citizens,
while the General Revenue Sharing formula makes use of an existing
method for distributing federal funds to states. which also
and
Program Effects
GERALD FORD LIBRARY
Favorable:
- this option would extend a direct financial stake in OCS leasing
and production to inland as well as coastal states
- it would provide some front-end money to coastal states through
their national share which would become available to them well
before the 5 percent payments would start as oil was brought onshore
8
- it would feature a set of sharing formulae which, once established,
would be relatively easy to administer.
Unfavorable:
- it would take a substantial amount of federal revenues, perhaps
more than necessary to encourage prompt OCS development
- it would not recognize any special front-end money needs of OCS-
affected coastal states, but would give them only the same national
share as other states until their 5 percent production share became
available
- it would not require that money shared with coastal states be used
by them to ameliorate impacts which would allow states flexibility
in deciding how to use funds but might not satisfy the impact concerns
of some particular groups
- it would result in a variable, and to a degree, unpredictable flow
of funds to states, since OCS bonus revenues fluctuate considerably
from sale to sale
- distributing national shares by the General Revenue Sharing formula
might reduce the debate over an appropriate distribution formula by
using an existing mechanism, but could embroil the OCS sharing program
in an unrelated controversy over the merits of General Revenue
Sharing.
full
FORD i LIBRAR, CERALD
Budget Effects
This option would distribute 37 1/2 percent of all federal OCS revenues to
states, or between $890 million and $2,707 million per year over the period
9
1975 to 1985. The 5 percent coastal production share of this total would be
$224 million to $ 844 million per year. The remainder to be distributed
among all states would amount to between $117 million and $2,353 million per
year. More detailed projections of the budget effects under this option are
provided in the attachment.
FORD & LIBRARY GERALD
10
Option IV: Coastal Production Shares, Nationally Shared Revenues, and
Nationwide Energy Impact Aid
Description
This option combines the 5 percent production shares and the 37 1/2 percent
nationally shared revenues of Option III with a program of impact aid like
that in Option I but available to all states to meet the front-end costs of
energy development, both off and onshore.
- the total amount paid out would equal 37 1/2 percent of OCS revenues,
as in Option III, but this sum would be divided three ways: 5 percent
of the value of the oil to coastal states, $500 million (or a like
amount) for a nationwide impact grant fund, and the remainder of the
a
37 1/2 percent for national per capita distribution
- front-end grants would be available to all states on a project or
formula basis for all types of energy-related impacts
Program Effects
GERALD FORD LIBRARY
Favorable:
- this option has the advantages of Option III, plus the beneficial
effects of impact-related front-end money for all states
- it would treat all energy-related impacts consistently, without
singling out OCS impacts for special consideration
- it would use OCS revenues, which are substantial, to ameliorate
energy impacts inland where needs may also be significant but
11
state revenues from federal leasing are either smaller or
non-existent
- it permits taking advantage of the good features of both project
assistance and no-strings-attached revenue sharing
- it addresses expressed concerns of Western States about front-end
energy development costs.
Unfavorable:
- the timing of the flow of OCS revenues into the nationwide impact
aid fund would bear no necessary relationship to the demands on
that fund from inland energy development activities
- the impact aid fund would have the same administrative problems
as the fund in Option I, but on a larger, nationwide scale
- combining all three elements in one proposal may make it too complex
to be appealing.
GERALD R.FORD LIBRARY
Budget Effects
The total amount to be shared with states would be identical to Option III.
The only difference would be that some percent: of federal revenues, perhaps
up to a ceiling such as $500 million per year, would be earmarked for states
experiencing energy development impacts. An impact fund of 10 percent of
federal revenue up to $500 million per year would leave between $ 0
and $1,853 million per year for nationally shared revenues. More detailed
projections of the budget effects under this option are provided in the
attachment.
12
Attachment
The following tables present estimated revenue payments to states for each of
the options discussed in the text. For each option, four alternative revenue
streams are projected based on the following assumptions regarding royalties
and revenue computation:
1. 16 2/3 percent royalty on both pre-1975 and post-1975 leases;
revenue sharing applies to new and old production; new production
is defined as production in excess of 1974 levels. This case is
labelled "16 2/3/16 2/3; N + 0."
2. 16 2/3 percent royalty on both pre-1975 and post-1975 leases;
revenue sharing applies to new oil only. Labelled "16 2/3/16 2/3;
N."
3. 16 2/3 percent royalty on pre-1975 leases, 40 percent royalty on
post-1975 leases; revenue sharing applies to new and old oil.
Labelled "16 2/3/40; 2/3/40 N + 0."
GERALD FORD LIBRARY
4. 16 2/3 percent royalty on pre-1975 leases, 40 percent royalty on
post-1975 leases; revenue sharing applies to new oil only. Labelled
16 2/3/40; N."
The dollar amounts reported in the text pertain to the "16 2/3/16 2/3; N + 0"
alternative. Each of the revenue streams also includes the state share of bonus
payments. Bonus payments are estimated at $6 billion per year, 1975-1979,
with 16 2/3 percent royalty; and $2.7 billion per year, 1975-1979, with
40 percent royalty. Oil and gas prices of $8/bbl and 70¢/MCF are used to
estimate royalty revenues, except in Alaska where gas is assumed to have
no value at the wellhead due to high transportation costs.
FORD is LIBRARY GERALD
Table 1 shows projections of the payments into the Coastal State Impact
Aid (Option I) Fund computed at 10 percent of OCS lease revenues under each
of the four alternative assumptions described above. Payments into the Fund
could be limited by a ceiling such as $200 million per year.
Table 1
Option I
Coastal State Impact Aid
Payments in Millions of Dollars
Year
16 2/3/16 2/3; N +0 16 2/3/16 2/3; N 16 2/3/40; N+O 16 2/3/40; N
1975
682
605
685
609
1979
727
651
779
702
1980
144
68
216
140
1985
284
208
580
504
GERALD FORD LIBRARY
Table 2 shows the funds to be shared with coastal states under Option II
which includes both coastal state impact aid and production shares.
Part A repeats the payment schedules from Table 1 for 10 percent of the
revenues of OCS leases. Part B shows the projected additional payments
to states corresponding to 5 percent of the value of oil brought onshore
in each region. These additional payments have been computed for New and
Old Oil together and for New Oil. Part C shows the total payments to the
coastal states that would result from adding the 16 2/3/16 2/3; N + O
share at 10 percent to the 5 percent share of the value of New and Old
Oil.
Table 2
Option II
Coastal Impact Aid and Production Shares
Part A:
10 Percent of OCS Lease Revenues
GEBALD FORD VIBRARY
Payments in Millions of Dollars
Year 16 2/3/16 2/3; N + O 16 2/3/16 2/3; N 16 2/3/40; N+O 16 2/3/40; N
1975
682
605
685
609
1979
727
651
779
702
1980
144
68
216
140
1985
284
208
580
504
(Table 2 continued)
Part B:
5 Percent of the Value of Oil Landed
Payments in Millions of Dollars
New and Old Oil
Year
Gulf of Mexico
Pacific
Alaska
Atlantic
Total
1975
215
9
0
0
224
1979
287
67
0
19
354
1980
305
89
0
25
773
1985
434
234
67
109
844
New Oil Only
1975
15
1
0
0
16
1979
72
60
0
19
151
1980
92
80
0
28
200
1985
214
226
67
104
611
Part C:
Total Payments to Coastal States
16 2/3/16 2/3; N + O
Year
Payments in Millions of Dollars
1975
906
1979
1,081
1980
917
1985
1,128
FORD LIBRARY j GERALD
Table 3 shows the projected payments to all states that would result under
Option III, Coastal Production Shares plus Nationally Shared Revenues.
Part A provides the estimated payments to coastal states at 5 percent of the
value of oil landed. Part B shows the estimated revenues to be shared by all
states computed at 37 1/2 percent of the OCS lease revenues less the 5 percent
shown in Part A. Part C shows the total payments to all states equal to
37 1/2 percent of OCS revenues from New and Old Oil.
Part D and Part E show the distribution by state of the shared revenues (from
the 16 2/3/16 2/3; N + O alternative) The distribution in Part D follows
the current General Revenue Sharing formula whereas the distribution in Part E
is proportional to current population.
FORD
Table 3
Option III
GERALD
LIBRARY
Coastal Production Shares plus Nationally Shared Revenues
Payments to Coastal States in Millions of Dollars
Part A:
5 Percent of the Value of Oil Landed
Year
Gulf of Mexico
Pacific
Alaska
Atlantic
Total
New and Old Oil
1975
215
9
0
0
224
1979
287
67
0
19
354
1980
305
89
0
25
773
1985
434
234
67
109
844
New Oil Only
1975
15
1
0
0
16
1979
72
60
0
19
151
1980
92
80
0
28
200
1985
214
226
67
104
611
(Table 3 continued)
Part B:
Payments Shared by all States in Millions of Dollars
37.5 Percent of OCS Revenues less 5 Percent of the Value of Oil Landed
Year
16 2/3/16 2/3; N + O 16 2/3/16 2/3; N 16 2/3/40; N+O 16 2/3/40; N
1975
2,316
2,254
1,080
1,019
1979
2,353
2,291
1,296
1,235
1980
117
55
386
324
1985
229
167
1,340
1,221
Part C:
Total Payments to States in Million of Dollars
37.5 Percent of OCS Revenues
Year
16 2/3/16 2/3; N + 0
1975
2,540
1979
2,707
1980
890
1985
1,073
Part D:
Distribution of Revenue Shared by all States, 1975
General Revenue Sharing Formula
(under development)
FORD is LIBRARY
Part E:
Distribution of Revenue Shared by all States, 1975
Population
(under development:)
Table 4 presents projections of payments to states that would result under
Option IV, Coastal Production Shares, Nationally Shared Revenues, and Nationwide
Energy Impact Aid.
Part A displays the payments to coastal states of 5 percent of the value of oil
landed. Part B shows the funds to be shared among all states. These are
computed as 37 1/2 percent of OCS revenues less 5 percent of the value of oil
landed and less 10 percent of OCS revenues (not to exceed $500 million). The
10 percent of OCS revenues is the fund to be available to all states impacted
by energy development. The total payments to all states equal 37 1/2 percent
of OCS revenues as shown in Table 3, Part C.
Table 4
GERALD FORD LIBRAPT
Option IV
Coastal Production Shares, Nationally Shared Revenues, and Nationwide
Energy Impact Aid
(in millions of dollars)
Part A:
Year
Gulf of Mexico
Pacific
Alaska
Atlantic
Total
New and Old Oil
1975
215
9
0
0
224
1979
287
67
0
19
354
1980
305
89
0
25
773
1985
434
234
67
109
844
New Oil Only
1975
15
1
0
0
16
1979
72
60
0
19
151
1980
92
80
0
28
200
1985
214
226
67
104
611
(Table 4 continued)
Part B:
Nationally Shared Revenues
(in millions of dollars)
Year
16 2/3/16 2/3;N + O 16 2/3/16 2/3; N 16 2/3/40: N + 0 16 2/3/40; N
1975
1,816
1,754
580
519
1979
1,853
1,791
796
735
1980
0
0
170
184
1985
0
0
840
721
GERALD FORD VIGRABIA