States Battle to Recover Royalties for Energy Production on Public Lands

Western governors won a rare — though potentially short-lived — victory last month when the Interior Department reversed plans to withhold roughly $100 million in fiscal 2013 royalty payments to states for oil, gas and coal produced on federal lands within their borders.

To the dismay of state governments, the Interior Department had said it would withhold roughly 5 percent of the royalties owed under the Mineral Leasing Act of 1920 (PL 66-146) to comply with across-the-board spending reductions under the sequester. They were relieved when the department relented, after concluding as part of a legal review urged by the states that mineral payments qualified under a 1985 budget law that allows certain sequestered funds to be withheld initially, then disbursed in subsequent fiscal years.

But the decision doesn’t mean the states will see the cash anytime soon. The funds will not be restored until after the new fiscal year begins next month. And even then, fiscal 2014 royalty payments will be subject to the sequester — meaning the Interior Department will withhold 5 percent in fiscal 2014 only to return the funds after the next fiscal year starts.

Further complicating matters is how those funds will be disbursed. While Interior’s Office of Natural Resources Revenue told states it would “work expeditiously” to disburse the sequestered payments in the new fiscal year, spokesman Patrick Etchart said last week that such payments may require congressional approval.

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