How the House Almost Cheated Taxpayers Out of Billions

The House passed an amendment to the Department of the Interior appropriations bill on Wednesday that would have allowed companies to continue not paying their fair share of onshore oil and gas royalties. In this case, the royalty is a payment made to the government for the use of public resources. The amendment would have cost taxpayers “$1.25 billion over the next 10 years.” Luckily, the whole appropriations bill was pulled due to controversy over a series of amendments about the Confederate flag.

Representative Steve Pearce (R-NM) authored the amendment, which would prevent funds being used to increase the onshore royalty rate. Throughout his time in Congress, Representative Pearce has received $1.7 million from oil and gas companies in campaign contributions, which exceeds the amount any other industry gave him. Half of the top 10 PACs that donated to Representative Pearce received revenue from oil drilling as well.

The amendment passed by a vote of 231 to 198. However, the public overwhelmingly supports increasing royalties. Interior Secretary Sally Jewell opened a period for public comment on raising onshore royalties and only 13 of the more than 45,000 people who responded opposed the measure. 38,000 more individuals signed various petitions in favor of Interior’s proposed rule change.

The federal onshore royalty rate has been 12.5 percent since 1920. It has not kept up with state onshore and federal offshore rates, and is long overdue for reassessment: state onshore royalty rates range from 16 to 25 percent, and offshore oil and gas royalty rates—which have been increased twice since 2007—are 18.75 percent. Moreover, compared to international royalties, a 12.5 percent rate is even lower. The Government Accountability Office ranks the United States 93 out of 104 countries in royalty rates.

It’s not just oil and gas companies that are not paying a fair rate for using public resources. Mining companies have also avoided paying their fair share in royalties. POGO reported on problems with coal royalty rates in April. Mining companies continue to sell coal to subsidiaries at a rate lower than market value in order to pay lower royalties. The subsidiary then sells the coal at the market price.

It’s clear that the federal government needs to establish new rules for how companies compensate the American taxpayer for extracting resources from federal land. Federal lands belong to all Americans and are only temporarily leased to these companies. Federal regulations should ensure that oil and mining companies pay a fair amount of royalties. Next time the an Interior appropriations bill is proposed, we urge Congress to raise royalties for onshore drilling to the same amount as offshore drilling—the public deserves its fair share.