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Feds reverse decision to withhold mineral royalties from states

The U.S. Department of Interior announced Monday that it will not withhold mineral royalty payments from oil and gas producing western states as part of the federal budget sequester, allowing New Mexico and other states to reap millions in additional mineral royalties this year.

The Obama administration announced the decision in a letter from Gregory J. Gould, director of Interior’s office of natural resources revenue, to New Mexico state Treasurer James Lewis. The decision means New Mexico is expected to collect an additional $26 million this year.

Sen. Tom Udall, a New Mexico Democrat who had moved to block the revenue withholding through legislation, cheered the decision.

“This is extremely good news for New Mexico,” Udall said in a statement provided to the Journal. “I’m very pleased that the administration has seen reason and will return the revenue owed to states from energy production on federal lands. These funds are the result of an existing agreement for mineral development.”

Sen. Martin Heinrich, who had also asked the administration to reverse its decision in May letter, said the money is critical to cash-strapped New Mexico and other states.

“Our federal lands and natural resources provide significant revenue that fund infrastructure, education, and flood protection projects, which are especially critical for rural communities across New Mexico,” Heinrich said. “I will work to ensure every dollar is returned and continue to protect these much-needed funds that belong to our state.”

Udall had teamed with Sen. Mike Enzi, a Wyoming Republican, to craft the legislation aimed at protecting a key revenue stream for Western states. Wyoming is the only state facing a royalty loss larger than that of New Mexico, one of the nation’s largest onshore oil and gas producers. Wyoming stood to lose $53 million, compared with a projected $26 million loss for New Mexico.

The Department of Interior announced in March that it would withhold a portion of the energy and minerals royalties it collects from companies extracting oil, gas and minerals from federal lands as part of the federal budget sequester. About half of that money normally is paid to the states where the extraction occurs. Udall’s bill would restore that money and do away with an additional 2 percent fee that the Interior Department charges the states.

Udall has argued that the states’ full share of the money is protected under the Mineral Leasing Act.

At a Senate budget hearing in May, Interior Secretary Sally Jewell and Pam Haze, the department’s deputy director for budget, told Udall that the federal government was authorized to take the money under the Budget Control Act of 2011, which launched the sequester on March 1. The sequester calls for automatic across-the-board 5.1 percent federal cuts for most federal programs.

“We actually made determinations based on the Budget Control Act and evaluation of the law and what was exempt or not,” Haze told Udall at the time. “It is unfortunately consistent for revenues and payments … the sequester does impact those.”

Haze likened the mineral royalties to other federal programs that disburse money to the states, such as payment in lieu of taxes and federal money for rural schools.

Udall argued that the royalty agreements are different because the states are producing the revenue.

“They provide a vital source of funding for public education and other functions New Mexicans rely on, and the federal government shouldn’t be using them to balance its books,” Udall said.

Sen. Martin Heinrich, D-N.M., on Thursday asked the director of the federal Office of Management and Budget to return to New Mexico energy and mineral revenues that will be withheld from the state this year because of the budget sequester.

Sen. Tom Udall took a different approach this week when he introduced bipartisan legislationthat would bar federal withholding of the money under law. Heinrich made his request to OMB Director Sylvia Burwell as part of joint letter from 10 senators from western states, including Republicans and Democrats. Udall, Rep. Steve Pearce, R-N.M., Rep. Ben Ray Lujan, D-N.M. and Michelle Lujan Grisham, D-N.M., also signed the letter to Burwell.

The lawmakers’s letter said when a similar sequestration procedure was in place in the mid-1980’s, law required that the money be returned to the states. The letter asks that the money withheld from the states this year be returned to the states in 2014.

New Mexico is slated to lose $25 million in the mineral revenues this fiscal year under the Department of Interior’s plan to implement the sequester.

“If MLA revenue sequestered in FY 2013 is not returned to the states, local communities across the West will experience severe hardships,” the letter said.

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