DENVER–The Obama administration’s decision to withhold mineral royalties from the states has been described as devious and underhanded, but now Attorney General John Suthers says it may even be illegal.
In a letter released Thursday, Suthers said that the federal government has yet to explain why it has the legal authority to withhold a percentage of the royalties from the states in response to the sequester.
“Given the lack of articulated authority to sequester funds, I believe the sequester is unlawful, especially as it relates to royalty payments due to states under the federal Mineral Leasing Act,” said Suthers in a letter dated June 24 to Americans for Prosperity-Colorado.
Western lawmakers are waging a bipartisan assault on the administration’s decision in March to cut royalty payments by 5.1 percent, the same amount of the across-the-board reductions mandated under sequestration.
The result is a loss of $110 million that has hit energy-producing Western states especially hard. The biggest loser may be Wyoming, which stands to lose $53 million, followed by New Mexico at $25 million, while Colorado is expected to take an $8.4 million hit.
The Western Governors Association urged Agriculture Secretary Tom Vilsack to restore the revenue in a May letter signed by Utah Gov. Gary Herbert and Colorado Gov. John Hickenlooper, who was recently elected president of the WGA.
Under the Mineral Leasing Act, states receive 50 percent of revenues from the leasing of mineral resources within their borders on federal public domain lands. The federal government acts as the middle-man on the payment process, collecting the revenue and then passing it along to the states.
In other words, say critics, the royalties don’t represent a government expense and therefore shouldn’t be subject to the sequestration cuts.
“Any comparison between a mineral receipt transfer and an appropriated expenditure is fundamentally flawed,” said the May 14 letter from the WGA. “The federal government has no option except to transfer these pass-through funds to qualifying states. The federal government may not make payment of these funds to any other program or entity. Thus, DOI’s action raises a number of legal and policy questions for Western Governors.”
So far the Obama administration isn’t budging. The Interior Department’s Office of Natural Resources Revenue said in its March letter that the 5.1 percent cuts would apply to royalty payments issued from March through July and could even stretch until September.
Meanwhile, the uproar in the West is intensifying. In a Wednesday editorial, the Denver Post accused the Obama administration of cutting royalties in a “devious” effort to make the sequester “painful to ordinary Americans.”
The Energy Producing States Coalition, whose members include several Colorado state legislators, called the administration’s move “a purely political decision” in a statement released by its executive committee.
“The mineral royalties will still be paid to the federal government, but withheld to the states,” said the statement. “That’s not sequestration. It’s called theft.”
No lawsuit has been filed yet by state officials, but Congress is considering legislation, the States Mineral Revenue Protection Act, which would allow states to bypass the federal government and receive royalty payments directly from energy companies.
The bill has bipartisan support: Its sponsors include Democratic Sen. Tom Udall and Rep. Ben Ray Lujan of New Mexico, as well as Republican Sen. Mike Enzi and Rep. Cynthia Lummis of Wyoming. In Colorado, Republican Reps. Cory Gardner and Scott Tipton have signed on as cosponsors.
“When the Administration decided this year to target these royalties with sequester cuts in order to inflict maximum pain, it was with no small consequence to the people of Colorado and many Western states,” said Tipton in a statement. “This common sense legislation will prevent this from ever happening again by empowering states with the ability to gain legal interest of the full amount they are owed.”
Sean Paige, deputy director of AFP-Colorado, said he was hopeful that state officials would soon pursue legal action.
“Now, our attorney general is on record denouncing the administration’s royalty ripoff,” said Mr. Paige in a Thursday statement. “It’s time for action. We have to slap the cuffs on these guys and return the funding to its rightful owners.”