Royalties withheld by the U.S. Department of Interior for fiscal year (FY) 2013, estimated at $109 million to date, will be returned to the states in FY 2014, but when that happens remains a question, according to a spokesman for Interior's Office of Natural Resources Revenue (ONRR).

The Interior Department has reversed its decision to withhold FY 2013 royalty payments from states under budget sequestration, but if sequestration remains in effect next year, states that allow production on federal lands would go through the same cycle, with royalties withheld, only to be returned in FY 2015, ONRR spokesman Patrick Etchart said.

The ONRR has withheld about $109 million year-to-date from all states that have oil and natural gas production on public lands, he noted. ONRR will continue to withhold 5.1% of state Mineral Leasing Act (MLA) payments through the remainder of the current fiscal year, which ends September 30. "Assuming no further legislative changes affecting these payments are enacted in the interim, ONRR will disburse the sequestered FY 2013 payments in FY 2014," he said.

The practice will be repeated in FY 2014 under budget sequestration. On Oct. 1, when the FY 2014 begins, ONRR will be required to withhold mineral royalties from states if sequestration remains law, only to have to return them in FY 2015. "If someone were to ask if this was a good use of our resources, the answer would have to be, 'No," Etchart said.

He said he didn't know when in FY 2014 the withheld FY 2013 royalty payments would be returned to states.

"We don't have a time frame on when we will return funds to the states." According to Etchart, "we will need written direction" from Interior. Thirty-four states (mostly in the West) receive mineral royalty payments, which are collected from companies extracting oil, natural gas and minerals from federal lands.

The ONRR informed affected states in March that it would withhold payments from March through July, and possibly through September, explaining that this was required by the 5.1% across-the-board cuts under the federal budget sequester. ONRR then notified state treasurers and other state officials in late August that -- based on a legal review of the underlying MLA statutory authority -- Interior had determined the amounts sequestered during FY 2013 would be returned to states in FY 2014.

"While states may question why ONRR withheld MLA funds in FY 2013 just to return those funds in FY 2014, the law [Balanced Budget and Emergency Deficit Control Act] required sequestration [to] take place in 2013 in order to achieve spending reductions," Etchart said.

According to ONRR, the law, which Congress passed in the mid-1980s and amended in 2011, states: "Budgetary resources sequestered in revolving, trust and special fund accounts and offsetting collections sequestered in appropriations accounts shall not be available for obligations during the FY in which the sequestration occurs, but shall be available in subsequent years to the extent otherwise provided in law."