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Document 37 of 92.

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APRIL 27, 1999, TUESDAY

SECTION: IN THE NEWS

LENGTH: 3883 words

HEADLINE: PREPARED STATEMENT OF
PAUL L. KELLY
SENIOR VICE PRESIDENT
ROWAN COMPANIES, INC.
BEFORE THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
SUBJECT - S,25, THE CONSERVATION AND REINVESTMENT ACT OF 1999;
S.446, THE RESOURCES 2000 ACT;
S.532, THE PUBLIC LAND AND RECREATION INVESTMENT ACT OF 1999;
S.819, THE NATIONAL PARK PRESERVATION ACT;
AND THE CLINTON ADMINISTRATION'S LAND LEGACY INITIATIVE

BODY:

Introduction
Mr. Chairman and members of the Committee, I am Paul L. Kelly, senior vice president of Rowan Companies, Inc. Rowan is a major provider of international and domestic offshore contract drilling and helicopter services. Through its subsidiary, LeTourneau, Inc., Rowan also operates a mini-steel mill, a manufacturing facility that produces heavy equipment for the mining and timber industries, and a marine division that has built over one-third of the worldwide fleet of mobile offshore jack-up drilling rigs.
I was invited to testify before the Committee because I also happen to serve on the Department of Interior's Outer Continental Shelf (OCS) Policy Committee. The OCS Policy Committee was established to provide advice to the Secretary of the Interior through the Minerals Management Service (MMS) on policy issues related to oil and natural gas activities on the OCS. Members represent the coastal States and constituencies impacted by the OCS program. I represent the support industry constituency and served as chairman of the Committee, 1994- 1996.
The OCS Policy Committee frequently establishes subcommittees and working groups to look at issues in-depth and report back to the full committee. In 1993 I chaired a subcommittee that wrote the report Moving Beyond Conflict to Consensus which recommended coastal impact assistance, along with a number of other recommendations intended to revitalize the OCS program, and then again in 1997 I served on a working group of the OCS Policy Committee which wrote a report for the Secretary of the Interior specifically recommending coastal impact assistance legislation.
Background of OCS Policy Committee Involvement.
Throughout the history of the OCS 0il and natural gas program, States and local communities have sought a greater share of the economic benefits of OCS development. In 1993, after the 102nd Congress chose not to enact any OCS initiatives, the OCS Policy Committee, in its report Moving Beyond Conflict to Consensus, recommended:A portion of the revenues derived from OCS program activities should be shared with coastal States, Great Lakes States, and U.S. Territories.
The Policy Committee saw two fundamental justifications for a revenue sharing or impact assistance program. The first was to mitigate the various impacts of OCS activities, and the second was to support sustainable development of non-renewable resources.
Identifying Impacts
In Moving Beyond Conflict to Consensus, the OCS Policy Committee addressed specific impacts associated with OCS activities. The report stated that, despite strict environmental standards and the program's exemplary environmental record, "OCS development still can affect community infrastructure, social services and the environment in ways that cause concerns among residents of coastal States and communities." These effects cannot be entirely eliminated and they underscore the fact that, while the benefits of the OCS program are national, a disproportionate share of the infrastructure, environmental and social costs are local.
Impacts include:
- The need for infrastructure, such as ports, roads, water and sewer facilities, to support expanded economic activity accompanying OCS development; - The need for public services, such as schools, recreation facilities, and other social services, to support the population growth accompanying OCS development;
- The need to mitigate the effects of occasional accidents (e.g., oil spills) or cumulative air, water and solid waste discharges on coastal and marine resources and on the economic activities (e.g., tourism and fisheries) that depend on those resources;
- The need to mitigate the physical impact of OCS activities (e.g., pipelines, wakewash, road traffic, canal digging and dredging) on sensitive coastal environments;- The visual impact on residents and tourists from production platforms and facilities, waste disposal sites, pipeline rights of way, canals, etc.; and
- The costs to State and local governments of effective participation in OCS planning and decisionmaking processes and of permitting, licensing, and monitoring onshore activities that support offshore development.
For almost the entire decade of the nineties the OCS Policy Committee has believed that addressing these needs would help to strengthen the Federal-State-local partnership that must underlie a reasoned approach to national energy and coastal resource issues, resulting in a more productive OCS program. While we have a diverse group of States and constituencies represented on the Committee, one point we have consensus on is that addressing impacts on States and local communities is a matter of common sense and fairness, whatever level of support a particular State may have for oil or natural gas activities off its coastline. Mr. Chairman, I believe it is important that the members of your Committee bear in mind the national benefits of the OCS program vs. the disproportionate local costs of the program with the same sense of fairness that the OCS Policy Committee did as you consider each of the bills before you.
Support for Renewable Natural Resources
The OCS Policy Committee's second justification lies in the concept of sustainable development. In short, the Committee believes that a modest portion of the revenues derived from development of non- renewable resources, such as oil and natural gas, should be used to conserve, restore, enhance, and protect renewable natural resources, such as fisheries, wetlands, and water resources. This concept also underlies the Land and Water Conservation Fund (LWCF), which uses OCS revenues to acquire and develop park and recreational lands nationwide.
OCS Program Benefits Inland States as well as Coastal States
This might be an appropriate time to mention how widespread the benefits of OCS oil and natural gas development are, not only in terms of energy supplies but also in terms ofjobs, taxes and other direct economic benefits for inland states and communities as well as coastal states and communities. As an example, Rowan Companies now has underway a $600 million capital expansion program that includes the construction of three new state-of-the-art mobile offshore drilling rigs and several offshore service vessels.

Recently we completed the construction of the first drilling rig, the Rowan Gorilla V, the largest jack-up drilling rig in the world, built under U.S. flag in Vicksburg, Mississippi to operate in harsh environments throughout the world. An analysis of purchase orders for Gorilla V shows various components supplied by manufacturers in 32 different American States. The top seven supplier States include Texas, Louisiana and Mississippi, which might not be a surprise to you, but it also includes Indiana (#2), California (#5), Pennsylvania (#6) and Oklahoma (#7) which might be more surprising to you in terms of the stake they have in OCS development. This "high-tech" marvel will not only help explorers find oil and natural gas at greater depths and at higher latitudes than previously possible, but it will also help them find and produce oil and gas more safely from the standpoint of environmental protection. We are quite proud of having had the participation of engineers, steelworkers, welders, pipefitters, electricians, computer and software experts, marine technologists and thousands of other talented American men and women who are helping Rowan move forward into the next millennium using the best technology industry has to offer. It is people like this from all across the country who make U.S. offshore drilling technology pre- eminent throughout the world.
Most Recent OCS Policy Committee Recommendations
Let me now summarize the most recent recommendations of the OCS Policy Committee concerning OCS impact assistance and ocean/coastal resources protection.
Source and Amount of Revenue
First, the Committee recommended that an OCS impact assistance and ocean/coastal protection program be added to, and a concomitant increase in OCS revenues be transferred to, a revived and enhanced Land and Water Conservation Fund (LWCF). As you are aware, the LWCF is an existing program funded primarily by OCS receipts and is available to all States and Territories of the United States, subject to appropriations, to apply to the acquisition and management of land and water areas for parks and recreation uses. The OCS Policy Committee proposed that the LWCF, which currently is authorized at a level of $900 million per fiscal year, be used to distribute annually payments equaling 27 percent of new OCS bonuses, rents, and royalties to States and Territories that have an approved coastal management plan or that are making satisfactory progress toward such a plan, pursuant to the Coastal Zone Management Act. The LCWF authorization would increase by the amount of the impact assistance funds. The $900 million authorization for Federal land acquisition and State grants, and the formula for allocating LCWF moneys between those two programs in accordance with the Land and Water Conservation Fund Act of 1965, would not be affected.
Second, the amount of additional money to be available from the LWCF each year for distribution to coastal States and Territories and localities would be 27 percent of new OCS revenues. The source of revenue would be OCS receipts that include bonus payments for leases issued after the proposed impact assistance program is enacted, rentals on all new leases, and royalties and related payments on production resulting from well completions taking place after enactment (i.e., new production on both existing and future leases). The concept of targeting new OCS revenues would be consistent with some previous legislative proposals, but the OCS Policy Committee's definition of new revenues is more expansive in that it would include royalties paid on new well completions on existing leases with production predating enactment. This reflects the Committee's view that since each new well completion is a source of impacts as well as revenues-- particularly in the case of production from step-outs or new horizons-- a portion of the revenues gained from each new completion should be made available to affected States and localities to deal with those accompanying impacts.
The amount of money that in 1997 we proposed to be added to the LWCF for distribution to coastal States and Territories and localities-- 27 percent of new revenues-- was based on the percentage considered in some previous legislative proposals such as S.575, as well as the percentage specified in section 8(g) of the OCS Lands Act, which applies to the distribution of revenues derived from the Federal OCS tracts located along State-Federal marine boundaries. The impact assistance program would apply only to those leases that are not subject to section 8(g).
Entitlement vs. Authorization
The Policy Committee believes that authorization of the proposed impact assistance program as an entitlement would be preferable to authorization subject to appropriations. Funding the proposed program as an entitlement would provide certainty to the recipients that they will have access to this source of revenues in the future. The Policy Committee does, however, recognize that in light of current attention to the budget deficit, it might be extremely difficult to obtain funding for an OCS impact assistance program as an entitlement. I believe that it is fair to say that the Committee knew it had to defer to Capitol Hill on this matter.
Eligible States
Our report recommended that all coastal States (including those bordering the Great Lakes) and Territories would be eligible to receive revenues. Inclusion of all coastal States and Territories as eligible recipients would recognize that they form a unified coalition of entities with similar interests relating to their coastlines and, therefore, should not be subdivided when it comes to receiving coastal impact assistance. This proposal also is consistent with the OCS Policy Committee's 1993 recommendation and with the policy of some past OCS bills, that a portion of the revenues received from the extraction of non-renewable resources should be used for the protection of renewable ocean and coastal resources.
Eligible Governments
The OCS Policy Committee report also includes a recommendation that coastal counties, as well as local governments that State governors identify as affected by OCS activity, would be eligible and would receive payments directly (rather than passed through the State). Local government eligibility for impact assistance is consistent with several previous legislative proposals and with the OCS Policy Committee's 1993 recommendation. Coastal counties (parishes, boroughs, etc.) would be automatically eligible for payments. The governors of coastal States would have the discretion to identify which inland local governments should receive impact assistance, as long as the governor certifies that there are impacts. This is a departure from past legislative proposals that stipulated that inland counties must be within 60 miles of the coast in order to be considered for eligibility. The Policy Committee has consciously eschewed such a requirement so that the governors will have maximum discretion to assure that impact assistance funds are properly directed to the affected communities. The Committee also would provide an appropriate check on the discretion of the governors by providing localities the right to appeal the governors' decisions concerning eligibility.
The recommendation that payments go directly to localities is intended to avoid placing bureaucratic burdens on the State as well as to prevent any associated delays in payments to local governments and problems that could result. The Policy Committee recommends that consideration be given to using the existing Department of the Interior Payment in Lieu of Taxes program to distribute revenues to eligible localities in order to avoid creating new systems. The proposed connection between the minimum amount and participation in the Coastal Zone Management program has been included in most previous legislative proposals and in the previous Policy Committee recommendation.
The OCS Policy Committee recommended that eligible local governments of States within 200 miles of OCS production would be able to receive 50% of the funds allocated to the State, and local governments in States not within 200 miles of OCS production would be eligible to negotiate with the State for a share of up to 33 percent of the funds paid to the State. Provision of a sizable percentage of the available revenue to localities has been a part of all the legislative proposals developed during this decade and is included in the OCS Policy Committee's 1993 recommendation. The amount distributed to each eligible locality in a State within 200 miles of OCS production would be determined according to the same weighted formula used for eligible States, which would be applied to 50% of the State's funds. States not proximate to OCS production would share 33% of their funds with local governments that submit applications to and receive approval from the State for projects consistent with the purposes of this recommendation.
The Committee considered it logical and equitable to stipulate that a higher share (50%) be available to the affected localities of a State adjacent to OCS production and associated impacts.

Similarly, it is appropriate to provide that a lower share (up to 33 percent) would be available to localities in those States that are not adjacent to production, since impacts related to the OCS program other than those resulting from production (e.g., responsibilities relating to OCS lease sales and operations plans) are borne primarily at the State government level. Further, any portion of the 33 percent share that a State's localities do not request and receive would revert to that State's use.
Uses of Funds
Following the Policy Committee's recommendations, acceptable uses of funds include mitigating the impacts of OCS activities and projects relating to onshore infrastructure and public services. Provisions specifying the use of funds have been a part of the majority of the legislative proposals that have been considered in the past, and were included in the OCS Policy Committee's 1993 recommendation. At the time we wrote our report S.575 was the most recent bill we had seen, and the Committee decided we would incorporate and expand on the eligible use provisions of S.575, which specified:
Projects and activities related to all impacts of Outer Continental Shelf-related including but not limited to---- (1) air quality, water quality, fish and wildlife, wetlands, or other coastal resources; (2) other activities of such State or county, authorized by the Coastal Zone Management Act of 1972 (16 U.S.C. 1451 et seq.); the provisions of subtitle B of title IV of the Oil Pollution Act of 1990 (104 Stat. 523), or the Federal Water Pollution Control Act of (33 U.S.C. 1251 et seq.); and (3) administrative costs of complying with the provisions of this subtitle.
The OCS Policy Committee proposed expanding the S.575 criteria to include uses related to the OCS Lands Act and to onshore infrastructure and public service requirements resulting from OCS activity. Citing activities under the OCS Lands Act is intended to emphasize that consultation, information review, and other planning activities preceding OCS development and production entail significant expenses, especially for frontier area states and communities. Citing infrastructure and public service requirements is intended to recognize that intensive offshore activity results in onshore demands relating to port facilities, roads and railways, and public service needs such as schools and sewer and water facilities. The Committee's proposed provisions concerning eligible uses of impact assistance funds were designed to carry forward the general reference of S.575 to OCS-related uses while highlighting some of the specific monetary needs that are facing coastal States and communities as a result of the OCS program.
Reporting and Accountability
States and counties eligible to receive funds would be required to submit plans and reports pertaining to use of the money. The OCS Policy Committee, again inspired by S.575, supported an approach to reporting that would incorporate and expand on some of the provisions of S.575, which called for an eligible locality to submit a project plan to the governor for approval before receiving funds and to certify annually the total amount of money spent, the amount spent on each project, and the status of each project. The Policy Committee also proposed requiring annual State certification of spending localities and an accounting of all revenues received by the State. In addition, the Committee recommended including a provision to give localities a right of appeal to the Federal administrator of the impact assistance program if a governor is perceived as failing to act promptly or as making unreasonable decisions with respect to a project plan. The proposed approach to reporting is intended to ensure responsiveness and accountability in a way that would not duplicate or complicate existing auditing requirements and thus, would not be overly burdensome at the local, State or Federal levels.
Administration by Secretary of the Interior
Finally, the OCS Policy Committee recommended that the program be administered by the Secretary of the Interior. It was the Policy Committee's belief that since the LWCF and the OCS program are managed by the Department of the Interior, the Secretary of the Interior would be the appropriate official to administer the proposed OCS impact assistance program.
Comparison with Currently Proposed Bills
Of the various initiatives before your Committee, Mr. Chairman, I would say that only S.25 comes anywhere close to reflecting both the specifics and the spirit of the OCS Policy Committee recommendations. Most importantly, none of the other bills, nor the Administration's Lands Legacy Initiative, allow for OCS impact assistance. As ! indicated near the beginning of my testimony, the fundamental fairness of providing impact assistance to those States bordering on active areas of OCS oil and natural gas development was one thing that the diverse representatives on the Policy Committee representing all the coastal states and the various OCS constituencies, including petroleum, fishing and environmental interests, could agree upon. How can the proponents of these other initiatives think up all kinds of well-intended uses for the revenues provided by OCS oil and gas development and then totally ignore the impacts felt in those States and local communities which help this important federal program happen. This is just not fair. The OCS Policy Committee recommendations are politically practical in the sense that in our latest effort we reviewed a decade of legislative attempts made in the House of Representatives and the Senate and tried to find features of coastal impact assistance bills that were often repeated over the years and were contained in legislation that evidenced some consensus by coming the closest to enactment. To put it simply, we were looking for what might work. I think you would agree that the primary obstacle to enacting impact assistance legislation during the 1990s has been identifying budget offsets required by the Congressional Budget Enforcement Act to avoid any net loss to the Federal Treasury. This is why the source of funds in the OCS Policy Committee's proposal is from new OCS receipts. You are far more experienced in dealing with this obstacle than we are, however.
S.25 is broader than the OCS Policy Committee recommendation that after coastal impact assistance and the revitalization of the LWCF additional funds from the marine realm be used for uses primarily in coastal and marine areas. Directionally, however, the two approaches are consistent to the extent that they both would provide funds derived fore non-renewable natural resources that would be reinvested in renewable natural resources.
Conclusion
The OCS Policy Committee's intention was to try to "jump start" reconsideration of coastal impact assistance in the Administration and the Congress after a decade of failed efforts. I do not believe that anyone on the Policy Committee would expect to see final legislation that reflected all of our proposals and recommendations. S.25 does appear to be moving in the right direction and I wish you well in your endeavors to reach agreement on a final bill in the Committee. In 1993, when the Policy Committee made its first recommendation for sharing a portion of the revenues derived from OCS program activities with the coastal States and Territories we justified it on the basis of (1) mitigating the various impacts of OCS activities and (2) supporting sustainable development of non-renewable resources. Both should be ingredients in the final bill you approve.
I am submitting for the record a copy of the Coastal Impact Assistance report approved by the OCS Policy Committee on October 27, 1997.
END

LOAD-DATE: April 29, 1999

Document 37 of 92.


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