An unexpected shortfall in Louisiana’s share of offshore oil and gas royalties could force the state to delay or cancel coastal restoration projects scheduled to start as soon as 2019, according to the state’s Coastal Protection and Restoration Authority.
Officials said Wednesday that the state’s share of revenue next year from the federal Gulf of Mexico Energy Security Act, or GOMESA, will be about half of what they expected.
Until recently, Louisiana anticipated a yearly payout of about $175 million, the maximum under the royalty-sharing agreement. The first major payment was to come next spring.
Of that, $140 million would have gone to the coastal restoration authority. Now, the agency expects to receive just $60 million to $70 million.
GOMESA is one of the largest sources of recurring funds dedicated to combating land loss in Louisiana.
It dedicates 37.5 percent of federal royalties from oil and gas production in specific areas of the Gulf of Mexico to Louisiana, Mississippi, Alabama and Texas, as well as coastal parishes and counties.
The money is allocated based on a complicated formula involving factors such as the distance of the state to the drilling areas and the coastal populations in each state.
Much of Louisiana’s money will go toward the Coastal Master Plan, a 50-year blueprint for coastal restoration that is expected to cost anywhere from $50 billion to $100 billion.
Chip Kline, chairman of the coastal authority, said at a meeting Wednesday that the U.S. Department of Interior gave his staff the revised royalty figure last week. He said the news was “not good.”
Amount the coastal agency expected next spring
Amount officials now expect
Kline said he won’t know until November or December exactly how much Louisiana will get. At that point, he said, his agency will take a “hard look” at its proposed projects and figure out which ones have to be postponed or possibly cut.
GOMESA is a “funding stream we have anticipated for very long time,” he told the authority’s board at the meeting in Belle Chasse. “And it’s a funding stream we had largely planned our efforts around.”
The agency is planning for the 2019 fiscal year, which starts in July. A draft of its budget for that year will be presented to the board in December.
One of the initiatives that may have to be re-examined, Kline said, is the GOMESA Infrastructure Funding Program. It allows the state to allocate up to 10 percent of GOMESA royalties to infrastructure, such as road and bridge projects, in areas directly affected by wetlands loss.
Johnny Bradberry, the governor’s executive assistant for coastal activities, said the revenue in coming years, especially 2019 and 2020, could also be lower than expected.
The Gulf of Mexico Energy Security Act was designed to help Gulf Coast states repair damage caused by offshore oil and gas production.
Before GOMESA was passed, Gulf Coast states got the same share of federal offshore oil and gas royalties as inland states.
Most oil and gas production off the coast of Louisiana has occurred in federal waters, which start three miles offshore. Those rigs use pipelines that run through the state’s wetlands and have been blamed for speeding coastal erosion.
As of 2015, canals and pipelines for the oil and gas industry were responsible for at least 36 percent of the 1,880 square miles of coastal wetlands lost in the past 70 years, according to researchers.
So far, Louisiana’s GOMESA payments have been small. In 2016, for instance, it got just $102,700.
That’s supposed to change next year, when the payments include new areas of the Gulf.
As recently as 2015, the state estimated it would receive as much as $178 million a year, depending on the rate of production and the price of leases and oil.
Louisiana’s income was projected to jump after 2055, when a cap on the states’ share is lifted.
Until then, Gulf Coast states will share a maximum of $500 million annually, said Charles Sutcliff, the director of policy and programs for Governor John Bel Edwards’ Office of Coastal Activities.
Of that, 12.5 percent is allocated to the federal Land and Water Conservation Fund, which shares the money with other states by supporting public parks and refuges.
In Louisiana, 80 percent of GOMESA funds are set to go to the coastal authority. Coastal parishes get the rest.
Although the formula for splitting up the money is set, the dollar amount has always been subject to change because it’s tied to the health of the oil industry.
In the past year, officials said, federal officials have steadily dropped their estimate of Louisiana’s share.
Officials with the coastal authority said Wednesday they are working on getting rationale from the federal government for the extreme discrepancy between what had been estimated in 2015 and now.
As of May, Louisiana expected to collect $420 million over three years through GOMESA, about 17 percent of the $2.5 billion it planned to spend on coastal projects in that time.
This isn’t the first time Louisiana has faced cuts to its GOMESA funding.
In 2015, President Barack Obama wanted to reduce Gulf Coast states’ funding under GOMESA, but that effort was thwarted by Congress.
Kyle Graham, head of the state coastal agency at the time, said that would be a “tremendous blow” to the state’s efforts to rebuild the coast.
President Donald Trump’s proposed budget for fiscal year 2018 called for ending the royalty sharing entirely.
More than 280 people representing government, business and outdoors groups wrote a letter to Trump opposing that move.
“Louisiana is confronting the largest land loss crisis in North America,” they wrote. “This accelerated land loss has far-reaching economic implications and poses real threats to the Mississippi River navigation system, our nation’s largest port system, seafood industries, as well as oil and gas production and petrochemical manufacturing.”