States Lose Millions in Mineral Revenue Under Sequestration

The sequester will cost energy states tens of millions of dollars in mineral revenues, a move that has sparked anger — and surprise — among some state officials who say they should have been informed sooner.
by | March 29, 2013

By Jim Malewitz

The sequester will cost energy states tens of millions of dollars in mineral revenues, a move that has sparked anger — and surprise — among some state officials who say they should have been informed sooner.

The U.S. Department of the Interior will shave about $110 million from monthly payments for oil, gas and coal production on federal lands, the department told 36 state treasurers in letters sent last Friday. Those cuts, amounting to about 5 percent of funds that totaled about $2.1 billion last year, will begin immediately and last at least through July.

Western states will be hit hardest. Wyoming, dominated by large swaths of federal land, bears the biggest burden.

Next hardest hit are New Mexico, Utah and Colorado.

Wyoming received almost $1 billion in federal royalty payments in 2012, close to one-third the size of its total state budget. Under federal law, the state is guaranteed about half of mineral lease payments on federal lands inside its borders. The federal government will withhold about $53 million from Wyoming this year — more than $10 million each month.

That news hit Cheyenne like a ton of coal, fueling more distrust of the federal government in the overtly libertarian state.

Gov. Matt Mead, a Republican who just sliced the budget amid lagging mineral revenues, likened the federal government's decision to stealing.

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

Mead’s office said the state should have been notified sooner. Officials had plugged all expected mineral revenue into its latest budget.

“This is no way to achieve adequate notice or give our state an opportunity to respond before the action is underway,” the governor said.

Renny MacKay, Mead’s spokesperson, said Interior’s Friday letter was the state’s first news of the cuts.

Interior officials, however, said there had been some warning signs, including a letter the department sent to states earlier in the month, saying the cuts would be coming, but not specifying how much.

Interior pointed towards warnings in a February House Appropriations Committee report, and a March 1 report by the Office of Management and Budget. The mineral revenue’s vulnerability has been public information since September 2012, the department said.

In an emailed statement, Interior’s Office of Natural Resources Revenue said it “recognizes the hardships this may impose on states, but it is obliged to fulfill its mission in compliance with the law.”

The governor is consulting with Wyoming’s Congressional delegation and officials in other states about whether there are options to restore the revenue.

“We are using every means necessary to make sure our state is made whole,” said Mark Gordon, the state’s treasurer.

On Wednesday, members of the Western Congressional Caucus condemned the cuts. “The administration has decided to stop paying for services it is receiving, at the expense of Western states,” said Rep. Steve Pierce, a Republican from New Mexico, which stands to lose more than $26 million in the coming months.

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