The Conservation and Reinvestment Act of 1999: Outer Continental Shelf Revenue Sharing

Edward A. Fitzgerald

The author is Associate Professor of Political Science at Wright State University. He received a J.D. from Boston College Law School and a Ph.D. in Political Science from Boston University.

[30 ELR 10165]

There has been a great deal of federal-state conflict, termed the "Seaweed Rebellion," regarding the development of outer continental shelf (OCS) oil and gas resources.¹ The crux of the conflict is that the benefits of OCS energy development are national, while the impacts are regional. One of the main issues of contention is the distribution and control of the revenues derived from OCS energy development. Presently, most of the revenues are deposited into the U.S. Treasury and utilized to pay for federal programs and deficit reduction. OCS revenues fund the Land and Water Conservation Fund Act,² which provides grants to state governments for the planning, acquisition, and development of public outdoor recreation areas and activities, and the National Historic Preservation Act,³ which provides grants for historic preservation. The coastal states share only in the revenues derived from OCS energy development in the § 8(g) zone, which extends three to six miles offshore.⁴

There have been numerous unsuccessful efforts to share OCS revenues with the coastal states. In November 1999, the House Resources Committee approved the Conservation and Reinvestment Act of 1999 (CARA),⁵ which utilizes OCS revenues to fund numerous natural resource programs, including $ 1 billion for coastal state impact assistance and coastal conservation. CARA is likely to be passed in the second session of the 106th Congress. The sharing of OCS revenues will rectify the U.S. Supreme Court's tidelands decisions, provide funds to deal with the impacts of OCS energy development, address the inequity between coastal and inland states regarding the revenues derived from mineral development on federal lands, and strengthen the federal-state offshore partnership.

John Kingdon's model in Agendas, Alternatives, and Public Policies is employed in this Article to analyze the coastal state impact assistance component of CARA. Kingdon envisions three independent "streams." The "problem stream" brings issues to the attention of governmental decisionmakers. Solutions to the problems are generated in the "policy stream." The "political stream" determines whether the solutions are matched to the problems. When the three streams intersect, a policy window opens, issues are addressed, and legislation is enacted.⁶

Problem Stream: The Seaweed Rebellion

In the problem stream controversies are recognized and brought to the attention of government decisionmakers by systematic indicators, focusing events, feedback from existing programs, and litigation.⁷ The first battle of the Seaweed Rebellion involved the struggle over federal-state offshore jurisdiction, which is known as the Tidelands Controversy. This conflict began when the federal government asserted federal jurisdiction over offshore submerged lands as an aspect of sovereignty. The Supreme Court supported the federal government's claims, declaring that the federal government possessed paramount rights over offshore submerged lands beyond the low watermark. During the Eisenhower Administration, the Republican Congress enacted several statutes which reversed the Court's decisions and established federal offshore jurisdiction. The Submerged Lands Act (SLA)⁸ granted the coastal states jurisdiction over submerged offshore lands within their historic boundaries and the Outer Continental Shelf Lands Act (OCSLA)⁹ established federal jurisdiction beyond that point and a regime for OCS energy development. During the congressional debates on both acts, there were unsuccessful attempts to establish an OCS revenue sharing program. In subsequent tidelands cases, the Court interpreted the SLA to narrow the coastal states offshore claims to three miles and three marine leagues in the Gulf of Mexico off the Texas and Florida coasts.¹⁰

OCS energy development became a controversial issue in the 1970s when the demand for environmental protection [30 ELR 10166] clashed with the need to develop energy. The Santa Barbara oil spill in 1969 elevated environmental protection on the political agenda. Numerous statutes were enacted which required the federal government to consider environmental factors in the OCS decisionmaking process, namely the National Environmental Policy Act (NEPA),¹¹ the Coastal Zone Management Act (CZMA),¹² the Marine Protection, Research, and Sanctuaries Act (MPRSA),¹³ and the Endangered Species Act (ESA).¹⁴ At the same time there was a growing awareness of a domestic energy shortage, which was highlighted by the OPEC oil embargo in 1973. The Democratic Congress began to consider amendments to the OCSLA. Proposals for OCS revenue sharing were offered, but not included in the OCSLA Amendments of 1978.¹⁵

In 1976, the CZMA Amendments established the Coastal Energy Impact Program (CEIP),¹⁶ which provided grants, loans, and loan guarantees to the coastal states to deal with impacts of OCS energy development. The CEIP created OCS formula grants to retire state indebtedness, provide public services, prevent loss of environmental and recreational resources; energy facility siting planning grants to deal with costs associated with the siting and construction of energy facilities in the coastal zone; OCS participation grants to help the coastal states participate in the OCS program; loans to state and local governments to provide public service related to new offshore development; and guarantees for bonds dealing with public services. The coastal states allocation was based on one-half of the OCS acreage leased adjacent to the state, one-fourth of the volume of oil and gas produced adjacent to the state, and one-fourth of the volume of oil/gas landed in the state. The CEIP funds were appropriated by Congress, but generally at low levels.¹⁷

President Reagan came to office in 1981 seeking to reduce the federal deficit by curbing domestic spending. He proposed the termination or repeal of the CZMA, the CEIP, the National Sea Grant,¹⁸ the Anadromous Fish Conservation Act,¹⁹ and the State Commercial Fisheries and Redevelopment Act.²⁰ At the same time, the Reagan Administration decided to accelerate and expand OCS energy development. This aggravated the strained relations between the federal and coastal state governments that were involved in litigation regarding the five-year OCS leasing program and consistency review of OCS lease sales. In Congress, OCS revenue sharing was considered as a means to maintain the funding for the vital ocean and coastal programs scheduled for termination. The Ocean and Coastal Resources and Development Block Grant Act was passed by the Democratic House in 1982 and 1983, included in the 1984 House-Senate conference report on the National Marine Fisheries Service's appropriation bill, but defeated by Republican opposition in the Senate. OCS revenue sharing appeared again in the Omnibus Budget Reconciliation Act of 1985, but was removed.²¹ The coastal states also pursued an alternative strategy to curb the Reagan Administration's OCS policy. Congress enacted moratoria on OCS energy development in certain environmentally sensitive areas which varied annually.²²

President Bush came to office in 1989 seeking to distance himself from environmental policies of the Reagan Administration. President Bush achieved a peace settlement in the Seaweed Rebellion by establishing moratoria on OCS development in certain environmentally sensitive areas until 2000, promising to address air quality control issues from OCS platforms, considering the cancellation and buyback of OCS leases, declaring Monterey Bay a marine sanctuary, and advancing an OCS revenue sharing program. The Bush Administration proposed sharing 12.5 percent of the new OCS revenues with the coastal states that were 200 miles from the center of an OCS tract. The Democratic Congress devised two other plans. The Senate recommended the creation of two funds. One of the funds was similar to the Bush Administration plan; the other considered coastal population, coastal mileage, and the number of energy facilities in the coastal zone. The House considered sharing 4 percent of the OCS revenues with the coastal states according to a fixed percentage. The conferees on the Omnibus Budget Reconciliation Act of 1992 were split. The House members wanted OCS revenue sharing, but the Senate members were more concerned with lease buybacks. When a compromise could not be reached, the OCS provisions were dropped from the bill.²³

Policy Stream

In the policy stream ideas float around in the "policy primeval soup." Specialists try out their ideas in a variety of ways, including the introduction of bills, speeches, and testimonies. Some ideas are given serious consideration depending on their technical feasibility, how well they fit with the dominant values and national mood, their budget workability, and political support or opposition they might encounter.²⁴

At the beginning of the Clinton Administration, efforts to establish an OCS revenue sharing program began in the policy stream. The OCS Policy Committee issued a report which advocated the sharing of 4 to 15 percent of the OCS bonuses, rents, and royalties generated after enactment averaged over the past three years. The annual revenues would be allocated to two funds: the Coastal Resources Enhancement Fund (CREF), which would receive 50 to 66 percent of the revenues, and the Coastal Impact Assistance Fund [30 ELR 10167] (CIAF), which would receive 34 to 50 percent of the revenues. The amounts would be divided equally between the state and local governments. The governor would determine the localities' shares, but all localities within 200 miles of an OCS tract would receive some revenues.

The CREF would provide payments to all the coastal states and territories like the CZMA. A state which did not have a coastal zone management program would receive one-half of smallest amount received by any state. The states would have discretion regarding the spending of funds. If there was an OCS moratorium, the states could only spend their funds on ocean and coastal resources research, assessment, and management related to the OCSLA, the MPRSA, the Oil Pollution Act (OPA), and the Marine Pollution Research and Control Act. Local government spending was not restricted.

The CIAF would provide funds to all coastal states according to a fixed formula which considered the percentage of the Exclusive Economic Zone offshore, shoreline mileage, population, cumulative oil and gas landed, the number of producing wells, total acreage under lease, proven reserves, the number of acres planned or offered for lease, and the percentage of historic volume produced oil and gas. There were no restrictions on use of funds. An alternative was also suggested. The two funds would remain the same, but would be funded differently. A trust fund consisting of OCS revenues would be established from which appropriations would be made. No funds would be paid directly to state or local governments, which would receive the interest from the funds. Annually, 12.5 percent of the average receipts over the past three years would be deposited into the fund. No distributions would occur during the first three years, but would thereafter be authorized annually either by an entitlement or appropriation. No restrictions were placed on the use of the funds.²⁵

In 1995, Sens. Ted Stevens (R-Alaska), Frank Murkowski (R-Alaska), J. Bennett Johnston (D-La.), and John Breaux (D-La.) introduced the OCS Impact Assistance Act which reflected the OCS Policy Committee, the Bush Administration, and the 1992 Senate proposals. The bill would establish a fund consisting of 27 percent of the new OCS revenues derived from tracts 200 miles from state coastlines, excluding activities in the § 8(g) zone. The states would receive a percentage of the fund depending on their distance from the tract. One-half of the state's share would be passed through to local governments. The funds could be utilized to improve air and water quality; to protect fish, wildlife, wetlands and coastal resources; for activities consistent with the CZMA, OPA, and the Federal Water Pollution Control Act (FWPCA)²⁶; administrative costs; and local projects approved by the governor. The bill did not proceed beyond committee.²⁷

In 1997, the OCS Policy Committee again recommended OCS revenue sharing through the Land and Water Conservation Fund, which would be expanded accordingly. Twenty-seven percent of the new bonus, rents, and royalties—excluding the § 8(g) zone—would be allocated to the coastal states as an entitlement rather than an authorization. All coastal states and territories would be eligible because they faced similar problems. The allocation to each coastal state would be based on a formula: 50 percent on production that was within 200 miles from the center of the OCS tract; 25 percent on coastal population; and 25 percent on coastal mileage. The closer the state was to production activity, the greater the amount of money provided to deal with the impacts. Each coastal state would receive a minimum of .5 percent or .25 percent of the fund, depending on whether it had an approved coastal zone management plan. Local governments 200 miles or less from the OCS tract would receive 50 percent of the state's share according to the same formula. Local governments not within 200 miles could negotiate for 33 percent of the state's share. The funds could be used to mitigate the impacts of OCS development and projects related to onshore impacts including infrastructure and public services. State and local governments would have to develop plans and account for the spending of money. The Secretary of the U.S. Department of the Interior (DOI) would administer the program.²⁸

The major problem with OCS revenue sharing was the identification of budget offsets to pay for the expenditures. This was required by the Congressional Budget Enforcement Act to avoid any net loss to the U.S. Treasury.²⁹ New programs had to be offset by a corresponding increase in revenues or a decrease in expenditures within a five- to seven-year window. Furthermore, budget caps were established on domestic spending which included ceilings on the DOI expenditures. OCS revenue sharing would have to compete with other DOI programs.³⁰

In 1998 and 1999, the federal government experienced budget surpluses. OCS revenue sharing bills were introduced which followed two basic approaches. CARA was introduced into the House by Rep. Don Young (R-Alaska), the chair of the House Resources Committee. CARA set aside 60 percent of the OCS revenues which would be utilized for OCS impact assistance (27 percent); state, local, and urban conservation and recreation (23 percent); and wildlife conservation and recreation (10 percent). The Secretary would establish a fund consisting of 27 percent of all of the OCS revenues beyond the § 8(g) zone, including bonuses, rents, royalties, net profit shares, and late payments. No revenues derived from leasing or production in an area under moratoria would be eligible, unless the leases were issued prior to and were in production on January 1, 1999. The state's allocable share would be determined by a formula based on 50 percent of the production occurring on tracts 200 miles from the state coastlines, 25 percent on coastal population, and 25 percent on the coastal mileage. No further appropriation was necessary. Each state would receive a minimum of .5 percent or .25 percent of the revenues depending on whether the state had a coastal zone management program. The local governments that were 200 miles from an OCS tract would share 50 percent of the state allocation in relation to their distance from the OCS tracts. The funds could be utilized for (1) activities regarding air quality, water quality, fish and wildlife, wetlands or other coastal and estuarine resources; [30 ELR 10168] (2) activities authorized by the CZMA, the OPA, and the FWPCA; (3) administrative and planning costs; (4) uses related to the OCSLA; and (5) the mitigation of the impacts from OCS development. The states would have to develop plans for the expenditure of the funds. Projects would be submitted to the governor for approval. The governor would submit an annual report to the Secretary and Congress certifying that the funds had been spent in accordance with the Act.³¹ Sen. Mary Landrieu (D-La.) introduced a similar bill in the Senate.³²

The Resources 2000 Act, which was introduced by Rep. George Miller (D-Cal.), was designed "to expand on the promises of the Land and Water Conservation Fund and the National Historic Preservation Act by providing permanent funding for the protection and enhancement of the Nation's natural, historic, and cultural resources."³³ The revenues derived from OCS development in the western and central Gulf of Mexico from leases issued and in production on January 1, 1999, excluding those in the 8(g) zone, would be eligible for disbursement without any further appropriation. The revenues included royalties, net profit share payments, and late-payment interest. The funds would be utilized for Land and Water Conservation Fund Revitalization; Urban Park and Recreation Recovery Program Amendments; Historic Preservation Fund; Farmland, Ranchland, Open Space, and Forestland Protection; Federal and Indian Lands Restoration Fund; Living Marine Resources Conservation, Restoration, and Management Assistance; Funding for State Native Fish and Wildlife Conservation and Restoration; and Endangered and Threatened Species Recovery. Coastal states could develop and implement Living Marine Resources Conservation Plans which would be approved by the Secretary of the U.S. Department of Commerce (DOC). The federal government would provide most of the funding for the plans. The Secretary of Commerce could also provide grants for the conservation, restoration, or management of living marine resources. The annual amounts allocated for the plans and grants began at $ 100 million in 2000 and grew to $ 300 million after 2005. Two-thirds of the annual amounts would be utilized for the development and implementation of the marine conservation plans and one-third for the specific grants. No coastal state impact aid was provided.³⁴ Sen. Barbara Boxer (D-Cal.) introduced a similar bill in the Senate.³⁵

There were several major issues raised in the hearings regarding the proposals. First, environmental groups feared that CARA would serve as an incentive for OCS development by including the revenues derived from new leasing and development on existing leases in areas under moratoria. They maintained that CARA would disrupt the consensus regarding OCS moratoria which are subject to the annual appropriations process. They instead supported the Resources 2000 Act, which does not provide any financial incentives for OCS energy development.³⁶

Second, environmental groups claimed that considering OCS production as a factor determining the state and local government's share in CARA would act as an incentive to promote OCS development. This could be corrected, they submitted, by relying only on coastal population and mileage. Alternatively, if OCS production is considered, it should be based on a fixed, flat percentage based on historic OCS activity. They supported the Resources 2000 Act approach, which likewise does not consider OCS production.³⁷ Supporters of CARA countered that OCS production must be considered. Otherwise, the coastal states with no OCS activities off their shores will receive more money than the coastal states experiencing the impacts of OCS development.³⁸

Third, there was concern about how the state and local governments would spend the OCS revenues. Environmental groups asserted that the use of the funds should be specifically defined to insure no environmental harm. They also suggested vigorous federal oversight of state and local spending. State officials wanted the maximum discretion to use the funds to meet their unique problems.³⁹

Fourth, there was contention regarding the funding of the program. Some wanted the program to be subject to the annual appropriations process. While others argued that funding through an entitlement would provide greater certainty, pointing to the CEIP which failed in part because of the vagaries of the appropriations process.⁴⁰

Political Stream

The political stream is compromised of swings in national moods, administration and legislative turnovers, and interest group campaigns. Issues which are in harmony with the national mood, enjoy group support or lack organized opposition, and those that fit the orientations of the administration or legislative coalitions are likely to rise to agenda prominence.⁴¹

There is a great deal of support in the political stream for OCS revenue sharing. Key congressional leaders are from states which will benefit from OCS revenue sharing, making passage more likely. OCS development is occurring off the coasts of 6 states, which will derive the most benefits: Louisiana, $ 285 million; Texas, $ 132 million; Alaska, $ 87 million; California, $ 67 million, Mississippi, $ 61 million; and Alabama, $ 32 million.⁴² Sen. Trent Lott (R-Miss.), the majority leader, and Senator Murkowski, the chair of Natural [30 ELR 10169] Resources and Energy Committee, are among the 19 cosponsors (7D, 12R) of CARA. Five (3R, 2D) of the 20 members of the Senate Energy Committee are cosponsors of CARA. The Resources 2000 Act has 10 Democratic cosponsors, none of whom are on the Senate Energy and Natural Resources Committee.

The House majority leader is Rep. Dick Armey (R-Tex.) and the majority whip is Rep. Tom Delay (R-Tex.). Representative Young, the chair of the House Resources Committee, introduced CARA, which had 127 cosponsors (63D, 64R). Eight (4R, 4D) of the cosponsors were members of the House Resources Committee. Representative Miller, the ranking Democrat on the committee, introduced the Resources 2000 Act, which had 108 cosponsors (106D, 1R). Seventeen of the 25 Democrats on the committee, but none of the 28 Republicans, were cosponsors. CARA was endorsed by governmental associations including the National Governors Association, the Southern Governors Association, the Western Governors Association, the National Association of Counties, and the U.S. Conference of Mayors. Various groups supported the bill, including the International Association of Fish and Wildlife Agencies, the U.S. Chamber of Commerce, the National Association of Realtors, the Audubon Society, and the Izaak Walton League.⁴³

Kingdon points out that at certain times the three streams come together, opening a policy window. Solutions are joined to problems and receive a favorable political reception. Political entrepreneurs willing to risk their political capital couple solutions to problems and advance legislation when the window is opened.⁴⁴

Negotiations occurred in Congress through 1998 and 1999. In October 1999, the Congressional Budget Office (CBO) announced that CARA, which is an entitlement program, will not affect appropriation budget caps, stating that "the CBO does not believe that enacting H.R. 701 would warrant a cap adjustment because creating new direct spending authority does not constitute a change in budgetary concepts or definitions."⁴⁵

In November 1999, a bipartisan compromise was negotiated in the House Resources Committee by Representative Young, Representative Miller, Rep. Billy Tauzin (R-La.), Rep. Chris John (D-La.), Rep. Bruce Vento (D-Minn.), Rep. Richard Pombo (R-Cal.), and Rep. Tom Udall (D-N.M.) and passed by a vote of 37 to 12.⁴⁶ The CARA compromise establishes a fund of $ 2.825 billion from qualified OCS revenues which include bonus, rents, royalties, net profit shares and related late payments derived from OCS tracts which are 200 miles from state coastlines, excluding the § 8(g) zone. The revenues derived from tracts under OCS moratoria will not be included, unless the tracts were leased prior to the moratorium and brought into production by January 1, 1999. The funds will not be counted as new budget authority, outlays, receipts, or deficit or surplus and are exempt from any general budget limitation imposed by statute on federal expenditures and net lending (budget outlays).

The CARA compromise establishes annual funding of $ 1 billion dollars for coastal state impact assistance and coastal conservation. The Secretary will distribute the funds to coastal states who have approved Coastal State Conservation and Impact Assistance Plans. Each state's share will be determined by weighted formula. Fifty percent will be based on revenues derived from OCS tracts within 200 miles of the state's coastline. Each state's share will be inversely proportional to the distance between the nearest point on the coastline and the geographic center of each leased tract or portion of the leased tract that is within 200 miles of the coastline. Twenty-five percent of the state's allocation will be based on the ratio of the state's shoreline mileage to the shoreline mileage of all coastal states. A further 25 percent of the state's allocation will be based on the ratio of state's coastal population to the coastal population of all coastal states. Each state will receive a minimum of .5 percent or .25 percent of the fund depending on whether it has a coastal zone management program. One-half of the state's share will be passed through to local governments that are 200 miles from OCS tract, except in the case of California. There, local governments will also share in the revenues derived from OCS tracts 50 miles from onshore oil refineries.

Each coastal state must develop a Coastal State Conservation and Impact Assistance Plan. The governor coordinates the local plans which are submitted as a single plan. The Secretary must approve the plan if it is consistent with the specified uses, which include data collection regarding fisheries and mammals; conservation, restoration, enhancement or creation of coastal habitats; cooperative federal-state enforcement of marine resources management statutes; fishery observer programs; nonindigenous species identification and control; coordination and preparation of fishery conservation and management plans; coastal and ocean observations necessary for real-time tide and current measurement systems; implementation of federally approved marine, coastal, or comprehensive conservation and management plans; mitigating marine and coastal impacts of OCS activities including onshore marine infrastructure; and projects that promote research, education, training, and advisory services related to ocean, coastal, and Great Lakes resources. The Secretary will review all expenditures annually.⁴⁷

The compromise bill addresses many of the objections raised during the "policy stream." Environmental groups feared that CARA would be an incentive to OCS energy development and undermine support for annual OCS moratoria. The "qualified OCS revenues" utilized to fund CARA are restricted to the OCS revenues derived from leases issued prior to and in production on January 1, 1999. This precludes any revenues derived from new leasing in areas subject to the 1999 OCS moratorium, which includes President Bush's 1990 moratorium in northern, central, and southern California; the North Atlantic; Washington and Oregon; the Eastern Gulf region south of 26 degrees north latitude and east of 86 west longitude; the North Aleutian planning basin; [30 ELR 10170] the Eastern Gulf region outside of the Lease Sale 181 area; and the Mid- and South Atlantic planning areas.⁴⁸

The environmental groups argued that CARA would be an incentive for leasing and development in environmentally sensitive areas off North Carolina, the Florida Panhandle, and central California that are not subject to the moratorium or have leases that were issued prior to the moratorium. This observation may be true, but a 1999 Congressional Research Service study concluded that "no state has given any indication that it would seek new production in environmentally sensitive areas just to get a fractional interest in royalty revenue."⁴⁹ Furthermore, if development does occur on such tracts and no OCS revenue sharing bill is enacted, the coastal states will not share in any of the revenues derived therefrom.

President Bush's 1990 moratorium allowed OCS leasing on 87 tracts off the coast of California, which are close to energy producing areas, after designated studies were performed. There have been no lease sales in any of the California planning areas during the Bush and Clinton Administrations. None are scheduled in the 1997-2002 five-year OCS leasing program approved by the Clinton Administration. The three California planning areas were included in President Bush's 1990 moratorium, so only those revenues derived from producing leases off the coast of California will contribute to CARA.⁵⁰

There are currently 79 leases in the Pacific region off-shore southern California. Forty-three of these leases are producing 125,000 barrels/day of oil and over 215 million cubic feet of gas/day. There are 36 "nonproducing" leases that have been explored, but are not currently in production. According to the Minerals Management Service "the future of these leases . . . depends on a cooperative relationship among the stakeholders,"⁵¹ which includes the state, counties near the tracts, federal agencies, interest groups, leaseholders, and the public. These leases also demonstrate the importance of the definition of "in production on January 1, 1999." If the definition means actually producing oil and gas, then there is little incentive for development. If the definition means producible wells, this may provide an incentive for the development of wells that have been suspended or shut in for various reasons.

The Florida Panhandle is in the Eastern Gulf region, which is subject to OCS moratorium except the area designated for Lease 181. CARA may therefore serve as an incentive for the state and local governments to support the lease sale.⁵² However, Florida has not generally supported OCS development in the area. Florida objected to the issuance of exploration plans on leases in the region, alleging the plans were not consistent with the state's coastal zone management program. The Secretary of Commerce overturned the state's objection in 1995.⁵³ Recently, Florida registered another consistency objection to the development plan offered in the region, which has been appealed to the Secretary of Commerce. U.S. senators and representatives from Florida have submitted legislation restricting OCS activities off the Florida coast.⁵⁴

OCS leasing and exploration off North Carolina has been very controversial. Three lease sales in the 1980s resulted in the leasing of 53 OCS tracts off North Carolina. Prior to exploration, negotiations occurred between the lessees and federal and state officials which resulted in a plan for environmental safeguards. Nevertheless, the state opposed exploration. In 1990, Rep. Walter Jones (D-N.C.) attached the Outer Banks Protection Act (OBPA)⁵⁵ to the OPA, which precluded the issuance of exploration permits on the North Carolina leases until the Secretary certified that sufficient information was available to proceed without causing environmental harm. The lessees brought suit. In April 1996, the U.S. Court of Federal Claims, in Conoco v. United States,⁵⁶ held that the OBPA constituted a breach of contract. The court determined that the lessees had not contemplated the enactment of the OBPA which indefinitely postponed the issuance of exploration permits. The U.S. Court of Appeals for the Federal Circuit reversed and found that the OBPA did not constitute a material breach.⁵⁷ The case has been accepted by the Supreme Court, which may determine the extent of permissible federal restrictions on OCS leaseholders contractual rights. There are currently 19 active leases off North Carolina in the Manteo Unit in the Mid-Atlantic region, which are not subject to the current moratoria. Chevron is contemplating the drilling of an exploration well in 2000.⁵⁸ These leases are not currently producing, so any future revenues derived therefrom will not be included in CARA.⁵⁹

The environmental groups did not want proximity to OCS energy development to be considered in determining the allocation of revenues to the state and local governments. This is a questionable position because one of the central rationales for OCS revenue sharing is to address the impacts of OCS energy development. Furthermore, if production is not considered, coastal states experiencing the major impacts of OCS energy development will not receive their commensurate share. For example, in 1998, the federal government received [30 ELR 10171] $ 2.5 billion in revenues from OCS energy development off Louisiana and $ 64 million off California. If OCS production is not considered, California will receive more funding than Louisiana.⁶⁰

Environmental groups were concerned that the funds would be utilized for environmentally harmful projects and specifically want marine conservation to be considered. CARA, which reflects many of the uses in the Resources 2000 Act, specifies that the funds will be used for environmental purposes, including marine conservation, and the mitigation of the impacts of OCS energy development.

Environmental groups were concerned about the lack of federal oversight. CARA requires the Secretary to review the expenditure of funds annually to ensure state and local compliance with the certified uses.

The Benefits of OCS Revenue Sharing

OCS revenue sharing is a wise policy for several reasons. First, OCS revenue sharing will help to rectify the Court's tidelands decisions, which consistently limited the coastal states offshore claims. OCS revenue sharing will allow the coastal states to share in the benefits derived from off-shore energy development on offshore lands within their historic boundaries.

Second, OCS revenue sharing will provide coastal state and local governments with funds to deal with the impacts of OCS energy development, which depend on the degree of primary and secondary activities occurring in the region. Primary activities which occur during exploration involve the transportation of supplies to drilling rigs, the assembly of production platforms, the laying of pipelines, and the construction of onshore treatment facilities and pumping stations. Secondary activities which occur during production include the construction of refineries, petrochemical plants and platform construction yards. The influx of population resulting from OCS development can require state and local governments to provide additional schools, hospitals, police, roads, housing, and recreational opportunities. OCS facilities present visual impediments on residents and tourists. Land use and socioeconomic impacts vary by area.

OCS energy development also poses environmental risks. Oil spills are the most serious threat. Other environmental concerns include damage to fisheries, marine mammal and wildlife habitats, and wetlands; the deterioration of air quality; and the diminishment of water quality resulting from the discharge of drill muds and cuttings.⁶¹

Third, OCS revenue sharing addresses the inequity regarding the distribution of federal revenues derived from other federal natural resource programs, such as the Mineral Leasing Act (MLA),⁶² the Payments in Lieu of Taxes Act,⁶³ the Taylor Grazing Act,⁶⁴ and the National Forest Revenue Act.⁶⁵ OCS energy development is the only federal program that does not provide for the sharing of revenues to compensate the states for the federal retention of land and help the states deal with the impacts of development. For example, the MLA grants states 50 percent of federal revenues derived from onshore mineral development. In 1998, five states received more federal money from federal leasing than Louisiana, but the revenues derived from OCS leasing off Louisiana were five times greater. Federal mineral development within New Mexico raised $ 341 million; but $ 167 million was returned to the state. Within Wyoming federal mineral development generated $ 489 million; but $ 237 million was given back to the state. These funds went directly to the states, bypassing the appropriations process, and could be utilized without restrictions. Energy development offshore Louisiana generated $ 2.7 billion; but only $ 21.1 million was returned to the state. Cumulatively since 1920, federal mineral development in New Mexico raised $ 5.4 billion and $ 2.6 billion was returned to the state. Federal mineral development in Wyoming produced $ 7.8 billion of which $ 3.9 billion came back to the state. Yet while federal mineral development onshore and offshore Louisiana generated $ 50 billion, only $ 900 million was returned to the state. New Mexico and Wyoming received 50 percent of what they contributed, while Louisiana received less than 2 percent.⁶⁶ In addition, under MLA the states can tax the severance of natural resources. Severance taxes do not extend to the OCS.⁶⁷

Finally, sharing OCS revenues will help to strengthen the federal-state partnership to pursue national energy goals and protect coastal state interests.⁶⁸ CARA provides the incentives and funding for coastal state ocean management efforts, which are crucial because the U.S. has declared jurisdiction over the 200 miles Exclusive Economic Zone and extended the territorial sea to 12 miles.⁶⁹ However, CARA may pose a danger to other ocean and coastal programs in the event of budgetary constraints. If money is being granted to the coastal states through CARA, this may threaten the reauthorization and funding of other vital ocean and coastal programs. If these programs become threatened, CARA can provide an alternative funding mechanism.

Conclusion

The control of the revenues derived from OCS energy development has been a continual source of conflict in the Seaweed Rebellion. The problem, policy, and political streams intersected in 1999, opening a policy window for the enactment of an OCS revenue sharing program. CARA utilizes the revenues derived from nonrenewable OCS resources to support renewable resource programs, which present several contentious issues.⁷⁰ The CARA compromise regarding coastal state impact assistance and coastal conservation is adequate and should not prevent enactment. Federal OCS energy development over the past 46 years has served many national interests, such as improving [30 ELR 10172] U.S. energy security,⁷¹ decreasing the balance of payment deficits,⁷² generating federal revenues,⁷³ and creating jobs.⁷⁴ The federal government is finally on the verge of compensating the coastal states that have had to deal with the threats and impacts of OCS energy development without sharing in the economic benefits.

1. Edward A. Fitzgerald, The Seaweed Rebellion: Federal-State/Provincial Conflicts Over Offshore Energy Development in the U.S., Canada, and Australia, 7 CONN. J. INT. L. 255 (1992).

2. 16 U.S.C. §§ 4601-4605.

3. Id. § 470-470mm.

4. 43 U.S.C. § 1337; Edward A. Fitzgerald, The Seaweed Rebellion: The Battle Over Section 8(g) Revenues, 8 J. ENERGY L. & POL'Y 253 (1988); Roger J. Marzulla, Federalism Implications and OCSLA Section 8(g), NAT. RESOURCES & ENV'T, Fall 1986, at 26.

5. H.R. 701, 106th Cong.

6. JOHN KINGDON, AGENDAS, ALTERNATIVES, AND PUBLIC POLICIES 19-20 (2d ed. 1995).

7. Id.

8. 43 U.S.C. §§ 1301-1315.

9. Id. §§ 1331-1356; Warren M. Christopher, The Outer Continental Shelf Lands Act: Key to a New Frontier, 6 STAN. L. REV. 23 (1953).

10. The decisions are discussed in Edward A. Fitzgerald, The Tidelands Controversy Revisited, 19 ENVTL. L. 209 (1988).

11. 42 U.S.C. §§ 4321-4370d, ELR STAT. NEPA §§ 2-209.

12. 16 U.S.C. §§ 1451-1465, ELR STAT. CZMA §§ 302-319.

13. Id. §§ 1431-1447(f).

14. Id. §§ 1531-1544, ELR STAT. ESA §§ 2-18.

15. John M. Murphy & Martin H. Belsky, OCS Development: A New Law and New Beginning, 7 COASTAL ZONE MGMT. J. 297 (1980).

16. 16 U.S.C. § 1456a, Pub. L. No. 94-370 (1976).

17. Dan Derheimer & Jack D. Salmon, Coastal Energy Impact Mitigation in the Gulf, 10 COASTAL ZONE MGMT. J. 161 (1982); U.S. GAO, MITIGATING SOCIOECONOMIC IMPACTS OF ENERGY DEVELOPMENT 60 (1982).

18. 33 U.S.C. §§ 1121-1131.

19. 16 U.S.C. § 757(a).

20. 16 U.S.C. § 779, repealed by Pub. L. No. 99-659, tit. III, § 309 (1986).

21. Edward A. Fitzgerald, OCS Revenue Sharing:A Proposal to End the Seaweed Rebellion, 5 UCLA J. ENVTL. L. & POL'Y 1 (1985).

22. U.S. DEP'T OF THE INTERIOR, MINERALS MANAGEMENT SERVICE, OCS POLICY COMMITTEE, MOVING BEYOND CONFLICT TO CONSENSUS, REPORT OF THE OCS POLICY COMMITTEE'S SUBCOMMITTEE ON OCS LEGISLATION 9 (1993) [hereinafter MOVING BEYOND CONFLICT].

23. MOVING BEYOND CONFLICT, supra note 22, at 57-58; Joan Bondareff, Congress, Reform, and Oceans Policy, 17 COASTAL ZONE MGMT. J. 147, 156 (1994); Edward A. Fitzgerald, NRDC v. Hodel: The Evolution of Interior's Five-Year OCS Leasing Program, 12 TEMP. ENVTL. L. & TECH. J. 1, 42-46 (1993).

24. KINGDON, supra note 6, at 19-20.

25. MOVING BEYOND CONFLICT, supra note 22, at 57-62.

26. 33 U.S.C. §§ 1251-1387, ELR STAT. FWPCA §§ 101-607.

27. OCS Impact Assistance and Deepwater Royalty Relief Act: Hearings on S.575 Before the Senate Comm. on Energy and Natural Resources, 104th Cong. (1995).

28. U.S. DOI, MINERALS MANAGEMENT SERVICE, COASTAL IMPACT ASSISTANCE, A REPORT FROM THE COASTAL IMPACT ASSISTANCE WORKING GROUP TO THE OCS POLICY COMMITTEE 8-15 (1997) [hereinafter COASTAL IMPACT ASSISTANCE].

29. Pub. L. No. 101-508, tit. XIII, 104 Stat. 1388-533 (1990).

30. COASTAL IMPACT ASSISTANCE, supra note 28, at 8.

31. H.R. 701, 106th Cong. (1999).

32. S. 25, 106th Cong. (1999).

33. Id.

34. H.R. 798, 106th Cong. (1999); Hearings on H.R. 701 and H.R. 798 Before the House Comm. on Resources (1999) [hereinafter House Hearings].

35. S. 446, 106th Cong. (1999); Hearings on Bills and Administrative Proposal to Invest OCS Revenues in Conservation Programs: Hearings on S. 25, S. 446, S. 532, S. 819 Before the Senate Comm. on Energy and Natural Resources (1999) [hereinafter Senate Hearings].

36. House Hearings, supra note 34, at 88-96 (statement of Sarah Chasis, NRDC); id. at 273-83 (statement of the National OCS Coalition); id. at 398-99 (statement of Mark Van Putten, NWF); Senate Hearings, supra note 35, at 134-38 (statement of Leon Panetta, former White House Chief of Staff).

37. Id.

38. Senate Hearings, supra note 35, at 301-02 (statement by Sen. Landrieu).

39. House Hearings, supra note 34. See also Senate Hearings, supra note 35, at 128-30 (statement of Gov. Whitman of New Jersey).

40. Id. See also Senate Hearings, supra note 35, at 143 (statement of Robin Taylor, Senator, Alaska Legislature); id. at 152 (statement of Paul Kelly, Vice President, Rowan Co.).

41. KINGDON, supra note 6, at 19-20.

42. House Committee on Resources, Funding Estimates by Title in the Conservation and Reinvestment Act of 1999 (CARA) (Mar. 9-10, 1999), available at http://www.house.gov/resources/106cong/print106.htm.

43. House Committee on Resources, Press Release, Landmark Conservation, Wildlife & Recreation Legislation Approved by U.S. House Committee on Resources (Nov. 10, 1999), available at http://www.house.gov/resources/press/1999/991110post-markupcara.htm.

44. KINGDON, supra note 6, at 19-20.

45. See House Committee on Resources, Press Release, Land-mark Conservation Bill Would Not Affect Appropriations Budget Caps (Oct. 14, 1999), available at http://www.house.gov/resources/press/1999/991014carabudgetcaps.htm.

46. Supra note 43.

47. House Committee on Resources, Amendment in the Nature of a Substitute to H.R. 701 Offered by Mr. Young of Alaska. November 8, 1999.

48. Pub. L. No. 105-277, § 110, 112 Stat. 2681, 2681-254.

49. See House Hearings, supra note 34, at 413.

50. Vice-President Gore has stated that, if elected president, he will ban any new OCS drilling on the 36 leases off California and the 146 leases off Florida. Gore Vows to Ban New Oil Drilling Along Two Coasts, N.Y. TIMES, Oct. 22, 1999, at Al.

51. U.S. DOI, MINERALS MANAGEMENT SERVICE, PACIFIC OCS REGION, ABOUT THE PACIFIC OCS REGION (last modified Oct. 14, 1999), available at http://www.mms.gov/omm/pacific/region/general%20message.htm.

52. Florida will receive $ 69 million for coastal state impact assistance under CARA. Supra note 42.

53. 16 U.S.C. § 1456(c)(3)(b). See U.S. Dep't of Commerce, Office of the Secretary, In the Consistency Appeal of Mobil Exploration & Producing U.S. Inc. From an Objection by the State of Florida (June 20, 1995).

54. Bills have been submitted which restrict leasing and development off the Florida coast (H.R. 33, H.R. 338, S. 1654, 106th Cong. 1999).

55. Pub. L. No. 101-380, tit. VI, § 6003, 104 Stat. 486, 555 (1990) (codified at 33 U.S.C. § 2753). Soon after the decision, the OBPA was repealed, Pub. L. No. 104-134, § 109, 110 Stat. 1321, 1321-177 (1996).

56. 35 Fed. Cl. 309 (1996). See Edward A. Fitzgerald, Conoco v. U.S.: Sovereign Authority Undermined by Contractual Obligations on the OCS, 27 PUB. CONTRACT. L.J. 755 (1998).

57. Marathon Oil Co. v. United States, 158 F.3d 1253, 29 ELR 20332 (Fed. Cir. 1998), amended 177 F.3d 1331 (Fed. Cir. 1999).

58. U.S. DOI, MINERALS MANAGEMENT SERVICE, GULF OF MEXICO REGION, ATLANTIC OCS AREA ACTIVITIES (last modified Jan. 11, 2000), available at http://www.gomr.mms.gov/homepg/offshore/atlocs/atlocs.html.

59. North Carolina will receive $ 10 million under CARA. See Senate Hearings, note 35, at 143 (statement of Robin Taylor, Senator, Alaska Legislature); id. at 152 (statement of Paul Kelly, Vice President, Rowan Co.).

60. See Senate Hearings, supra note 35, at 301-02 (statement by Sen. Landrieu).

61. COASTAL IMPACT ASSISTANCE, supra note 28, at 1-2; H.R. 628, 97th Cong. at 19 (1982).

62. 30 U.S.C. §§ 181-287.

63. 31 U.S.C. §§ 6901-6907.

64. 43 U.S.C. §§ 315-316.

65. 16 U.S.C. §§ 500-539.

66. House Hearings, supra note 34, at 217-21 (statement of Gov. Foster of Louisiana).

67. Maryland v. Louisiana, 451 U.S. 725 (1981).

68. Edward A. Fitzgerald, OCS Oil and Gas Revenues: Coastal States Should Be Entitled to a Share, 16 COASTAL ZONE MGMT. J. 319 (1988).

69. BILIANA CICIN-SAIN & ROBERT KNECHT, INTEGRATED COASTAL AND OCEAN MANAGEMENT 273-303 (1998); ROBERT WILDER, THE LIVING SEA 210-12 (1998).

70. A Year of Grudging Compromises & Unfinished Business, 57 CONG. Q. WKLY. 2846, 2870-71 (Nov. 27, 1999).

71. The OCS provided 17 percent of the natural gas and 24 percent of the oil consumed in the United States in 1995. U.S. DOI, MINERALS MANAGEMENT SERVICE, FEDERAL OFFSHORE STATISTICS 27 (1995).

72. In 1995, net imports cost the United States $ 48 billion, which comprised 30 percent of the $ 159 billion merchandise trade deficit. ENERGY INFORMATION ADMINISTRATION, MONTHLY ENERGY REVIEW, Jan. 1997, at 11.

73. The total revenue derived from OCS energy development from 1954 through 1995 was $ 109 billion. FEDERAL OFFSHORE STATISTICS, supra note 70, at 85.

74. OCS energy development provides many direct jobs and approximately 2.5 jobs for every person directly employed by the industry. MOVING BEYOND CONFLICT, supra note 22, at 37-38.