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NPR-A oil and its benefits to Alaska
The state obtains 50 percent of the royalties and other fees but the revenue has to be used for specific purposes defined by law Alan Bailey Petroleum News
With much heightened interest in the development of significant new oil resources in the National Petroleum Reserve-Alaska, the question arises of how much financial benefit the state of Alaska will actually gain from the new oil production that ensues. Unlike in the oil fields of the central North Slope, most of the subsurface land in the NPR-A belongs to the federal government, albeit with some land belonging to Alaska Native corporations. The federal government collects revenues from lease sale bids, lease rentals and oil production royalties. So, setting aside the benefits to the state arising from factors such as increased oil volumes through the trans-Alaska pipeline system, how much money actually goes into state coffers from NPR-A production?
The state does collect oil and gas production taxes from production anywhere within the state, including from private and federal land. That would apply to production in NPR-A. And, under federal statutes mandating how the NPR-A is managed, 50 percent of NPR-A royalties and other fees relating to federal NPR-A oil and gas leasing must also go to the state. But, by law, those monies form restricted funds, that must be used for designated purposes. They are not paid into the state’s general fund.
Designated uses Under the federal statute the royalty funds going to the state must be used for planning; for the construction, maintenance and operation of essential public facilities; and for other necessary provisions of public service. The statute also requires that, when allocating the use of the funds, the state must give priority to state subdivisions most impacted by NPR-A oil and gas development.
The state has a parallel statute that requires the funds to be paid into the state’s National Petroleum Reserve Alaska Special Revenue Fund. The state then uses this fund to issue grants to certain North Slope communities under what is termed the NPR-A Impact Mitigation Program. If any funds remain after the allocation of grants, 25 percent of these remaining funds go into the state’s Permanent Fund, with half a percent of any further funds going into the Public School Trust Fund to support education. The state may then appropriate any or all of the remaining funds to reduce the cost of rural electricity through the Power Cost Equalization program and the Rural Electric Capitalization Fund.
NPR-A Impact Mitigation Program During a joint meeting of the House and Senate Resources committees on Sept. 10, Commissioner Mike Navarre of the Department of Commerce, Community and Economic Development reviewed the operation of the NPR-A Impact Mitigation Program.
Under the terms of that program, grants can only be awarded to six Arctic Alaska entities: the North Slope Borough and the communities of Nuiqsut, Wainwright, Atqasuk, Anaktuvuk Pass and Utqiagvik, Navarre said. And grants must be used to mitigate impacts that can reasonably be attributed to NPR-A oil and gas development. Impacts can relate to a wide range of factors of demonstrable importance to community residents, including employment; finance; cultural and social values; environmental quality; essential public services; public safety; education and transportation.
Requires approval by Legislature Each year a review committee considers grant applications from the communities and submits a list of recommended grants to the state Legislature for approval. Grant applications have to be submitted by Nov. 15, and the selected list of projects is made public in January. The Legislature then appropriates the necessary money from the special revenue fund and makes grant awards as part of the annual state budget process, Navarre said.
The amount of grant funding available each year obviously depends on the amount of federal funding deposited into the state’s special revenue fund. And there is a complication relating to the timing of the federal deposits relative to the state’s fiscal year - this can lead to some uncertainty over how much money is actually available for grants in a current year, Navarre explained.
Amount of money highly variable The amount of money available from year to year has varied considerably since payments began in fiscal year 1987 - total annual grant funding has ranged from $18,941 in fiscal year 1994 to $15.9 million in fiscal year 2010. Virtually all of the money has come from lease sales that the Bureau of Land Management has conducted in the NPR-A, rather than from production royalties, with high revenue years reflecting income from successful sales.
The state has awarded $11.6 million across 16 community projects for fiscal year 2019, Navarre said. Those projects include the monitoring of waterfowl in the NPR-A, the monitoring of nearshore fish and their habitats, areawide air quality studies, and support for local government operations and youth programs. As a consequence of the timing issue for the arrival of the federal funds, the state has an additional $13.5 million available. It will be necessary to determine whether to use any of this money to supplement this year’s grant program, or whether to make the money available for next year’s grants, Navarre said.
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