A shortfall in Louisiana’s share of federal offshore oil and gas royalties is forcing the state to delay critical coastal restoration projects and a program that helps fund infrastructure improvements.
State coastal authority officials and U.S. Rep. Garret Graves (R-Baton Rouge) want to know why projections from a royalty-sharing agreement are now half of what they had expected.
The federal Gulf of Mexico Energy Security Act, or GOMESA, is the only source of recurring federal funds dedicated to combating land loss in Louisiana. It allocates a portion of federal oil and gas royalties to states along the Gulf of Mexico, based on a complicated formula.
For several years, Louisiana officials anticipated an annual payout of about $175 million, the maximum allowed under the agreement. The first big payment is expected next spring.
Of that, $140 million would have gone to the Louisiana Coastal Protection and Restoration Authority. Agency officials now expect half of that: $70 million annually.
Over five years, that’s $350 million in lost revenue for flood protection and infrastructure projects in Louisiana.
Chip Kline, deputy director of the Governor’s Office for Coastal Activities, called the shortfall “disappointing” and “substantial.”
“It’s a revenue stream we’ve anticipated since 2005, 2006,” Kline said. “We largely planned our efforts around it.”
Among those questioning the projections — and the complex calculations behind them — is Graves, who served as chairman of the Coastal Protection and Restoration Authority before he was elected to Congress.
Graves said the federal government has tried to reduce or eliminate royalty-sharing under GOMESA, pointing to proposals presented to Congress in recent years under President Barack Obama and President Donald Trump. Lawmakers rejected those proposals.
Now, Graves said he wonders if one or more federal agencies have figured out how to artificially reduce GOMESA revenue to the state.
He said the news Louisiana officials got this year about GOMESA funding isn’t in line with recent projections from the federal government. In the last two or three years, he said, the White House projected higher production from new wells, even as tougher regulations were implemented. That should have translated to higher royalty payments.
“My guess is there are career-level people at the Office of Management and Budget or the Department of the Interior, or both, who don’t like this thing,” Graves said about GOMESA.
“I’ve posed questions to the Department of the Interior to help clarify whether or not there’s funny business going on,” he said.
Kline said members of the coastal authority have gone to Washington, D.C., to question federal officials about the projections. They’re still waiting on answers.
“We want clarity on the calculations,” Kline said.
The U.S. Department of the Interior did not immediately respond to a request for comment.
Projects on hold
The decreased funding affects the state coastal authority’s budget for the 2019 fiscal year, which starts in July, in two ways: Some coastal protection projects are on hold, and the coastal authority will not help with the cost of several road and bridge projects.
Board members presented the authority’s spending plan to the public at a meeting Wednesday.
Kline said the state will have to delay construction of levees, floodgates, pump stations and surge barriers throughout coastal Louisiana.
“We had to take a hard look internally at our coastal restoration projects,” he said. “There are many projects that we would not be able to move forward with.”
Some segments of the Morganza to the Gulf of Mexico Project, a 98-mile levee to protect people, property and marsh around Houma from hurricane storm surge, are on hold.*
Several other projects will be delayed in St. Bernard and Plaquemines parishes, as well as other parts of the coast, Kline said.*
Coastal authority staff also plan to put on hold the GOMESA Infrastructure Funding Program, which allocates up to 10 percent of GOMESA royalties to infrastructure projects such as roads and bridges in areas directly affected by wetlands loss.
That means the state’s coastal restoration authority will not contribute to seven projects in four parishes, Kline said. It doesn’t necessarily mean the projects won’t go forward.
Among them are a project to shore up a portion of state Route 300 along Bayou Terre aux Boeufs in St. Bernard Parish and another to elevate a portion of state Route 1 between Golden Meadow and Leeville in Lafourche Parish. That road is often inundated by tidal flooding. It leads to Port Fourchon, Louisiana’s southernmost port and a base for offshore oil and gas companies.
Other projects include:
- Elevating a separate portion of state Route 1 from Port Fourchon to the Grand Isle Bridge, which is vulnerable to sea level rise, subsidence, and storm surge
- Building a bridge to connect Monkey Island and Cameron in Cameron Parish
- Elevating two roads along Bayou Barataria near Jean Lafitte in Jefferson Parish
- Converting a floodgate to a lock structure at Boudreaux Canal at Bayou Petite Caillou in Terrebonne Parish
“These are important projects, but our focus has always been hurricane protection and restoration projects,” Kline said.
He said the infrastructure program will be on hold for at least five years, or until Louisiana gets more revenue under GOMESA.
The state does plan to implement 14 coastal restoration projects using GOMESA funds in 2018 and 2019.
They include canal closures, levees and other stabilization projects slated for levee districts in and around Lafourche Parish, Lafitte, Grand Isle and St. Charles Parish.
The state also plans to relocate drainage canals, raise levees, and conduct studies to determine how to best mitigate flooding in Plaquemines, St. Charles, St. James, St. Tammany and Vermilion parishes.
The coastal authority’s 2019 fiscal year plan projects $649.5 million in revenue, which is less than the $763.8 million in revenue in the current fiscal year.
Revenue-sharing tied to offshore oil and gas production
GOMESA was passed to help states along the Gulf of Mexico repair damage related to offshore oil and gas production.
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. Before GOMESA was passed, Gulf Coast states got the same share of federal offshore royalties as inland states.
The program now dedicates 37.5 percent of royalties in specific areas of the Gulf of Mexico to Louisiana, Mississippi, Alabama and Texas, as well as coastal parishes and counties.
Of the revenue, 12.5 percent is allocated to a federal program that distributes the money to other states for public parks and wildlife refuges.
The rest goes to the four states along the Gulf. In Louisiana, 80 percent of GOMESA funds will go to the state coastal authority. The other 20 percent will go to coastal parishes; they too will get about half of earlier projections.
States were to get money in stages. So far, Louisiana’s GOMESA payments have been small. Next year, the payments will include new areas of the Gulf, and the four states will share a maximum of $500 million annually.
In 2055 that cap will be lifted.
Although the formula for splitting up the money has been set, the dollar amount has always been subject to change because it’s tied to the health of the industry. In recent years, the price of oil has dropped and energy production in the Gulf of Mexico has declined.
Those trends are not new, so Graves said it shouldn’t be a surprise that GOMESA funds are lower than once thought. He said these factors should have been included in federal projections for energy-related revenue and allocations to states.
As of May, the state coastal authority expected to collect $420 million through GOMESA over three years, about 17 percent of the $2.5 billion it planned to spend on coastal projects in that time.
In October, officials with Coastal Protection and Restoration Authority publicly said they expected to get about half of what they had planned.
Kline said Wednesday he’s waiting for more detailed explanations from the Department of the Interior, including which leases are eligible and proof of the distance between the leases and the Louisiana border. That distance factors into the government’s calculations.
Kline said he and Graves have met with Interior Secretary Ryan Zinke and demanded the federal government provide projections at least five years in advance so Louisiana can plan ahead.
In the meantime, U.S. Rep. Steve Scalise and U.S. Sen. Bill Cassidy are working to raise the $500 million annual cap for the four states. That proposal, inserted last month into the Senate’s version of the GOP tax plan, would open the door for more money once offshore production increases.
The state is planning to hire a financial analyst so Louisiana officials can make their own forecasts, Kline said. “We’re not just sitting on our hands.”
*Correction: This story originally said a project in St. Mary Parish would be delayed, which is incorrect. It also said the Morganza to the Gulf Project is on hold. Portions will be delayed, but locally-funded construction continues on other parts.