The FAIR Act Is Bad Fiscal Policy

We need Congress to take its fiduciary responsibility to taxpayers seriously.

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FILE - In this file photo taken Aug. 19, 2008, the Chevron Genesis Oil Rig Platform is seen in the Gulf of Mexico near New Orleans, La. Reversing a ban on oil drilling off most U.S. shores, President Barack Obama on Wednesday, March 31, 2010, announced an expansive new policy that could put new oil and natural gas platforms in waters along the southern Atlantic coastline, the eastern Gulf of Mexico and part of Alaska.

Today I am in the Senate testifying before the Energy and Natural Resources Committee on proposed legislation to shift some of the federal revenues collected from offshore energy development to a handful of the "closest" coastal states for energy produced in federal waters (more than six miles off the coast) – usually in the form of oil and gas drilling, and, more recently, from wind and other renewable energy sources. The bipartisan bill I am testifying about has the somewhat Orwellian name of the FAIR Act (S. 1273) and is not surprisingly led by Sens. Mary Landrieu, D-La., and Lisa Murkowski R-Alaska, whose states stand to gain mightily from the bill's passage. This isn't the first – or I suspect the last – ill-conceived proposal to shift these revenues from the federal treasury to the states. Why is this a bad deal for taxpayers? The short answer is that revenue-sharing provisions like the ones in S. 1273 un-FAIR-ly divert billions of dollars from the U.S. Treasury to states. Not only is this bad policy, in today's fiscal climate it is downright foolish.

[See a collection of political cartoons on the budget and deficit.]

In 2006, under a bill called the Gulf of Mexico Energy Security Act or GOMESA, the Gulf States first succeeded in the fight for revenues from new leases in the Gulf in federal waters – securing themselves a 37.5 percent share. This diverted revenue to the states from the new leases in federal waters was capped at $500 million annually. Today's bill removes the cap, causing taxpayer losses to skyrocket. The Congressional Budget Office estimates the bill, which violates Pay-As-You-Go rules requiring offsets,would  cost taxpayers $6 billion over the next nine years and add at least another $5 billion to the federal deficit after 2023. 

These revenue-sharing policies to shift money from the feds to the states are dangerously shortsighted.

First: Providing an increased share of the revenue to the states for development in federal waters does nothing to encourage energy development. Offshore developers will owe the same royalties, rents and fees at the end of the day, either to the states or to the federal government. So, the FAIR Act reduces federal revenues without adding any new incentive toward energy development. Is Congress seriously looking for ways to decrease revenue?

Second: Federal taxpayers are due the royalties from leases in federal waters. Full stop. Federal waters, as the name suggests, are administered, protected, and managed by the federal – not state – government, at a cost to federal taxpayers. All federal taxpayers pay for the work of agencies charged with royalty collection and lease regulation. The U.S. Coast Guard, not the states, inspects and regulates the offshore drilling rigs; it also performs vessel regulation, search and rescue, security, and pollution response. The impacts and risks of drilling in federal waters extend far beyond the shoreline of the closest state – think Deepwater Horizon.

[Read the U.S. News debate: Should Balancing The Balancing the Federal Budget Be a Top Policy Priority?]

States do get money from energy development in waters dedicated to the states under federal law, and this should continue for any new drilling in state waters. States also get economic development benefits from energy operations in federal waters near their coasts. But all Americans should get the revenue from royalties, rents, and bonus bids in federal waters.

We need Congress to take its fiduciary responsibility to taxpayers seriously and reject this and all similar efforts to simply give away federal-owned resources. The last thing we can afford to do in these fiscally challenging times is simply give our taxpayer assets away.

Ryan Alexander is the president of Taxpayers for Common Sense.

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