WASHINGTON – The U.S. Department of the Interior reversed itself Monday and said it will not withhold millions in mineral royalty payments from oil- and gas-producing Western states as part of the federal budget sequester.
The move, made after a departmental legal review, means New Mexico stands to gain an extra $26 million in royalties for the current fiscal year.
The announcement came late Monday in a letter from Gregory J. Gould, director of the Interior Department’s Office of Natural Resources Revenue, to New Mexico Treasurer James Lewis.
Sen. Tom Udall, a New Mexico Democrat who had offered legislation to block Interior from withholding the revenue, 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 and the rest of the New Mexico delegation asked the administration in a May letter to reverse its decision, saying the money is critical to cash-strapped New Mexico and other Western states. Udall and Heinrich had argued that the states’ full share of the money is protected under the Mineral Leasing Act.
“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 legislation aimed at protecting the key revenue stream for Western states. Wyoming was 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 the Interior said in March that it would withhold 5.1 percent 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.
Gould, in his letter to Lewis, said the royalty money will continue to be sequestered through the end of the fiscal year on Sept. 30. The money will be returned to the state “expeditiously” sometime after Sept. 30, Gould’s letter said. The letter, which essentially validated the New Mexico congressional delegation’s position, said Interior’s decision to release the money was based in part on changes to the Balanced Budget Act of 1985.
“Because the act was amended since the last time a sequester of funds occurred, a legal review regarding the availability of sequestered funds in subsequent years required careful consideration of the relevant provisions in light of the current statutory framework,” Gould wrote. “The Department of Interior understands the importance of these payments … and prioritized this account for review.”
At a Senate budget hearing in May, Interior Secretary Sally Jewell and Pam Haze, the department’s deputy director for budget, said 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 Monday 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.