Today, the White House and the agencies of its Administration released their proposed budget for fiscal year 2016. The proposal rounds out at about $4 trillion, and its core goal is to bring middle-class economics into the 21st century, by strengthening the middle class. Of that $4 trillion budget, the Department of the Interior is hoping for a $13.2 billion share. But looking past the headlines, what does the budget mean for westerners—especially those whose livelihoods depend on energy development and our American public lands?
It’s time to reform royalties to make sure taxpayers get their fair share.
Energy development is big business on public lands out West—so big, in fact, that the US is now one of the world’s top producers. But for too long, the onshore royalty rate for industry has been a measly 12.5%, meaning Big Oil wins and westerners lose. And 12.5% is pocket change next to some states, such as Texas, who boast royalty rates as high as 18% for their state-owned lands. With such a low federal royalty rate, western taxpayers lose out on their fair share of the profits from the development of publicly-owned resources.
Finally, the FY16 budget released today aims to change that by calling for widespread royalty reform. The Bureau of Land Management FY16 proposes to evaluate these minimum royalty rates for energy on public lands through an economic lens, and even suggests the possibility of a price-based tiered royalty rate. Such reforms would improve the return to taxpayers, ensuring that companies benefiting from our resources are paying back their fair share. What’s more, the BLM estimates that over 10 years, these reforms will generate roughly $2.5 billion in revenue.
For almost six years now, BLM has proposed to charge higher fees for drilling permits, some of which would then be put towards inspecting the over 100,000 oil and gas wells BLM oversees on its lands. Under the defense package passed at the end of the last Congress, the BLM now charges $9,500 per drilling permit (previously set at $6,500), which would raise $48 million in new oil and gas inspection fees. These fees would then go towards inspecting the nearly 40% of identified high-risk wells that the BLM was unable to inspect in 2014—wells often located near long-established western communities, who bore the brunt of any safety mishaps that followed.
BLM is also proposing a switch from a paper permitting system over to electronic—something that seems minor, but which would free up critical staff time currently bogged down in the permitting process, again allowing for increased well inspections that safeguard western taxpayers.
We need to increase efficiency in the oil and gas management process by requiring “diligent development.”
As part of its proposed royalty reform, BLM also aims to incentivize timely, “diligent” development of leases by industry. In other words, this means industry will no longer be able to just sit on thousands of acres of public lands, locking up the land from other uses while still not developing the resources. That’s important, since in October 2014, BLM Director Neil Kornze estimated that there were about 7,000 drilling permits that had been issued, but were idle. That’s consistent with an analysis of BLM data from 2004 to present, which indicates that in 2013, only about 35% of leased acres were actually producing.
That’s not fair to westerners, who rely on access to these same public lands to sustain their economies and their way of life. That’s why the BLM has proposed in this budget reforms that would ensure diligent development of leased acres—through measures like shorter primary lease terms, stricter enforcement of these leases, and monetary incentives to get leases into production. These monetary incentives might even include a per-acre fee for acres that are under lease but not producing after a certain point in time—ensuring, again, that westerners are getting some return on a public resource.
Budgeting for better planning now means less future red tape.
With its 2016 budget, the BLM has taken a leap forward in the kind of smart, balanced, landscape-level planning that’s necessary both to protect places too special develop and to develop those places that it makes sense. By proposing $5.8 million specifically to develop and complete master leasing plans, the BLM will be able to accomplish the dual goals of streamlining energy development and ensuring smart conservation. This “smart from the start” approach means that all stakeholders get a voice in development, and red tape is decreased down the line.
What’s more, this funding for landscape-level planning would be going to a tool that’s supported by sportsmen and industry alike. Just last week, leaders from both groups spoke to the importance of the MLPs for westerners. Wrote Duane Zavadil of the Bill Barrett Corp. and David Nickum of Colorado Trout Unlimited, “The BLM, with Director Neil Kornze’s leadership, has the management tools, including its new Master Leasing Plan program, to achieve balanced solutions for the West. It is imperative for all parties to engage, up front, in BLM’s process with respect both for the importance of America’s public lands for fish, wildlife, and recreation, and for the benefits of domestic energy development.”
Finally, the BLM proposed an unprecedented $78 million for restoration of the sage-steppe ecosystem, a habitat that covers 11 western states and supports numerous facets of western economies. That’s a $45 million increase from last year, and the timing couldn’t be better—this habitat is in essential to over 350 other species dependent on sagebrush habitat. What’s more, BLM-managed sage-steppe lands are responsible for over $1 billion worth of economic output in western economies annually. That’s a huge resource, and one that’s worth an investment now so that these economies can continue to thrive in the future.
What’s next for the budget?
While the above budget proposals are all timely to ensure that taxpayers are protected and western economies continue to thrive, next this version of the budget heads off to Congress, who holds the real purse strings. Support the BLM in their version of the budget—your support means a better return for you, the taxpayer, and strong economies long into the future.