The Bush administration's proposal to cut states' share of revenues from oil and natural gas production in fiscal year (FY) 2009 drew sharp objections from U.S. senators representing western states last Wednesday.

The Interior Department's proposed FY 2009 budget calls for states to receive a 49% share of royalties, 1% less than what they currently get, from production on lands within their borders, while the federal government would receive 51%. The agency said it requires 2% more of the revenues than states to cover the administrative costs associated with auditing and collecting royalties from producers.

Sen. John Barrasso (R-WY), a member of the Senate Energy and Natural Resources Committee, estimated that the 20 states affected by Interior's proposal would receive a total of $45 million less in FY 2009.

"Right now the impact on the people of Wyoming is about $21 million," he told Interior Secretary Dirk Kempthorne, who appeared before the committee to discuss the department's proposed $10.7 billion budget for FY 2009.

"It is difficult for us to believe that's truly what it costs the administration to do the kind of administrative work that we're talking about," Barrasso said. He noted that it cost Wyoming only about $5 million to collect information and audit minerals severance taxes from all lands within his state, including those designated as federal lands. He suggested that Wyoming collect oil and gas revenues and send the federal government its share.

"We'd be happy to have discussions" on this, and "I believe that we are going to," responded Kempthorne.

Barrasso and Sen. Ken Salazar (D-CO) said they and other western senators are seeking a return to the traditional 50-50 split between the states and the federal government. The bipartisan effort is supported by Sen. Jeff Bingaman (D-NM), chairman of the Senate energy panel, and Sens. Jon Tester (D-MT), Michael Enzi (R-WY), Barrasso, Salazar and others.

Bingaman estimated that his home state, New Mexico, would lose about $16 million in revenues in FY 2009 if the administration's proposal is enacted.

In other areas, Bingaman said he supported the Bush administration's proposal for repeal of mandatory deepwater and deep gas royalty relief, saying it "[was] not necessary in this price climate." He noted he also liked the fact that Interior's budget includes increased funding to conduct leasing activities in newly opened areas of the Gulf of Mexico.

However, Bingaman advocated greater funding for the oil and gas inspection and enforcement program at Interior's Bureau of Land Management.

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