Gulf states oil windfall may not fund environmental projects

Published 12:25 am Sunday, February 18, 2007

The Gulf Coast oil drilling expansion President Bush signed into law last year contained a strong environmental sweetener that helped push it through Congress.

Louisiana, Alabama, Mississippi and Texas were slated to get billions in potential royalties, and lawmakers said the money would help reverse damage from offshore industry, paying for projects such as wetlands restoration and the purchase of sensitive coastal property for conservation.

As budget planning gets under way, the states are beginning to realize that Congress gave them far more leeway than the political rhetoric in Washington suggested.

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Particularly, one little-noticed sentence in the bill allows the states to spend their windfalls on “onshore infrastructure projects” to mitigate outer continental shelf activities. Translation: They can use it to pave roads, erect bridges, lay water lines or finish just about any other public works projects they can link to the coast.

“It is very tempting,” said Bill Walker, executive director of the Mississippi Department of Marine Resources. “I would not be surprised as these funds begin to come in and get larger and larger that there will be people at the state level saying we need to do this or that or the other thing. We’ll try to keep them focused on doing environmental and conservation things, but they make the rules.”

Facing critical damage to its coastline, lawmakers in Louisiana moved last year to bar the state from using the drilling revenues for anything but wetlands and coastal preservation. Voters passed a referendum cementing the arrangement.

Alabama, Mississippi and Texas have no such restrictions.

While state officials now say they plan to stick with conservation projects, they acknowledge that pressure will increase to divert the money elsewhere, particularly as drilling takes off in future years and the trickle of early funding becomes a gusher.

“As of now, the governor’s committed to using the revenues to better care for our beaches and coastal counties,” said Ted Royer, a spokesman for Texas Gov. Rick Perry. He added, “this is an issue that future legislatures will most likely be debating in earnest.”

The stakes in that debate will be large.

The drilling bill, which the Republican-led Congress passed in its final hours last year, opened 8.3 million acres of federal waters in the eastern Gulf of Mexico to oil and natural gas rigs.

It also for the first time provided the states a significant share of federal royalty revenues, giving them 37.5 percent to be divided up based on each state’s proximity to production.

For the first 10 years, the royalties could be relatively modest as drilling gets under way. The revenues could explode in 2017, when the new revenue formula would begin applying to all oil and gas produced in the Gulf, not just the newly opened territory.

Projections for the revenues are difficult, but as Mississippi’s Walker said, the state take is “going to have a lot of zeros in it.”

The Democratic staff of the Senate Energy and Natural Resources Committee projected that the states would share some $1.2 billion per year by 2022 and a total of $170 billion over 60 years. Lawmakers in Louisiana, which is expected to benefit the most, say Louisiana alone could eventually get more than $600 million a year.

“Any time you have new revenue, you have a great deal of new ideas on how to spend it,” said Alabama state Sen. Roger Bedford, D-Russellville, who chairs the chamber’s general fund finance committee. “I don’t see it as a zero sum game. There may be enough money to do several types of projects.”

Bedford said lawmakers have begun discussing various ideas for using the windfall and that he would like to see it invested in economic development projects involving alternative energy.

Alabama’s constitution requires oil and gas revenues to go into a trust fund, the interest from which has grown into a major funding source for the state. Bedford said there has been some discussion among lawmakers about diverting at least some of the new money from the trust fund so it can be used more quickly.

For environmentalists, whose criticism of the drilling expansion was somewhat muted, in part because of the new money for goals they support, the uncertainty surrounding the revenues is a bitter pill.

“Call me cynical, but I think if you give these states the opportunity to spend this money on building roads, they’ll spend it on building roads,” said Aaron Viles, campaign director for the New Orleans-based Gulf Restoration Network.

Casi Callaway, executive director of Mobile Baykeeper in Alabama, is pushing to devote a chunk of the money to modify a causeway that now blocks fresh water and seawater from flowing in and out of Mobile Bay, suffocating an estuary that is critical to the region’s fish habitat and that helps control flooding.

“We could put this money into restoring something that we broke a long time ago,” she said. “This money won’t be there forever. That’s the whole point.”