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When businesses remove oil and gas from public lands, they are required to pay royalties to the federal government. A number of legislative and regulatory proposals would change the way that the government manages the collection of those royalties. This Congressional Budget Office (CBO) paper--prepared at the request of the House Committee on Resources--reviews the federal royalty program, describes the major proposals for changing it, and examines some of the potential economic and budgetary impacts of those changes. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations.

Richard D. Farmer of CBO's Microeconomic and Financial Studies Division prepared the paper under the supervision of Roger Hitchner and David Moore. Kim Cawley and Victoria Heid Hall of CBO's Budget Analysis Division contributed to the section on the federal costs of reform legislation, and Dennis Zimmerman of CBO's Tax Analysis Division provided internal review. The paper also benefited from comments by Ronald Belak and Sue Naiberk of the General Accounting Office; Marc Humphries of the Congressional Research Service; and Megan Carroll, Lisa Driskill, Pete Fontaine, Arlene Holen, Debbie Lucas, and Tom Woodward of CBO.

Chris Spoor edited the manuscript, and Leah Mazade proofread it. Rae Wiseman prepared the paper for publication, and Annette Kalicki prepared the electronic versions for CBO's Web site.
 

Dan L. Crippen
Director
November 2000
 
 

SUMMARY

I - INTRODUCTION

• The Current Royalty Program
• The Costs of Getting Royalty Oil and Gas to Market
• Basic Proposals for Reform and the Arguments For and Against Change

II - ECONOMIC AND BUDGETARY IMPACTS OF ROYALTY REFORM

• Collecting Federal Royalties in Kind
• Shifting the Liability for Certain Costs from Lessees to the Government
• Restricting MMS Audits of Royalty Payments
• Indexing Oil Valuations to Spot Prices

III - ISSUES IN ESTIMATING THE FEDERAL COST OF ROYALTY REFORM

• The Budget Baseline and the Oil Valuation Rule
• Mandatory and Discretionary Accounts
• The Budget Window
• Legislative Costs Versus Economic Efficiency

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