SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

Office of Surface Mining Reclamation and Enforcement

The Office of Surface Mining Reclamation and Enforcement (OSM) is responsible for the implementation of the Surface Mining Control and Reclamation Act of 1977 (SMCRA) enacted to ensure adequate regulation of active surface coal mining operations and the reclamation of pre-1977 abandoned sites. The OSM appropriation is two-fold: Regulation and Technology budget for oversight of active coal mining operations and Abandoned Mine Reclamation Fund for restoration of pre-1977 abandoned sites.

Regulation and Technology: The Subcommittee believes OSM has made major strides toward ensuring the "Shared Commitment" between the Federal and State governments in the coal-producing States which have primacy under SMCRA (all except Tennessee and Washington). OSM needs to provide Federal oversight of State programs rather than Federal enforcement of State programs, particularly with respect to regulation of active mining operations under Title V of SMCRA. Since FY '96, OSM has significantly reduced staff in this side of the program and has shown more willingness to work with State regulators rather than usurp their primacy.

The Administration requests an increase of $1.266 million in this appropriation over the FY '98 enacted level, after making an adjustment of $306,000 between AML and Regulation and Technology accounts. Because these programs stem from different appropriations accounts, a supplemental appropriation request for FY '98 is necessary rather than a simple reprogramming of funds. The Subcommittee agrees this reallocation will more accurately reflect expenditures under the "Business Line" budget structure first proposed in FY '97, particularly as a result of analyzing the monies spent on the Applicant Violator System (AVS) ownership and control issues still pending a regulatory rewrite by OSM.

Furthermore, the Subcommittee agrees the increase in uncontrollable costs (e.g., pay and rental increases) cannot be fully offset by reductions in travel, estimates of Federally-collected civil penalties, and reduction of FTE through the Commonwealth of Kentucky assuming Title V workloads associated with Federal lands within the State. Further, the Subcommittee recognizes the nearly half million dollars currently appropriated to BIA for Tribal grants is better managed as an "OSM pass-through." Thus, after correcting for cost-of-living pay and rental increases, the Regulation and Technology account of OSM is proposed for level funding. The Subcommittee supports the Administration's request. (-$0 million)

Abandoned Mine Reclamation Fund (AML): Title IV of SMCRA established the Abandoned Mine Reclamation program, funded by a tax on each ton of coal mined nationwide. To date, the AML fund is projected to have a cumulative unappropriated balance of nearly $1.3 billion. The Subcommittee believes these funds ought to be put to use for the purposes for which the fund was originally established, i.e., reclamation of coal mining sites abandoned prior to SMCRA's 1977 enactment. The AML fee (35 cents/ton of surface-mined coal, 15 cents/ton of

underground-mined coal, and 8 cents/ton of lignite) expires at the close of FY '04. As with other trust funds established to provide funding sources to pay for long-term projected costs, the AML fund collects more each year than is appropriated by Congress for the environmental restoration program the fund is intended to finance. The difference masks the true size of the Federal government's operating budget deficit.

The Administration is seeking a net increase of $2.629 million from the FY '98 enacted level after adjustment as noted above for a “reallocation of AML expenditures to the Regulation and Technology account. The State and Tribal reclamation program grants are what fuels the on-the-ground work to restore the Nation's coalfields from unreclaimed pre-SMCRA disturbances. The National Governor's Association in 1997 passed a resolution to support greater payout to the States of AML funds than has been made historically. The Subcommittee agrees that primacy States and Tribes are ready, willing and able to efficiently allocate a significant increase in AML funds for the purposes for which the AML tax has been collected. Therefore, the Subcommittee recommends a 20 percent increase in the AML appropriation (+$26 million) dedicated to increased reclamation grants, with a return to the minimum program level of $2 million per State that existed prior to FY '95.

In summary, the Subcommittee recommends a total FY ‘99 appropriation for OSM (excluding the "permanent" appropriation for UMWA Retiree Health Benefits authorized in the Energy Policy Act of 1992 to fund shortfalls in that trust fund from unobligated balances in the AML fund, not to exceed $70 million/year) of $302.96 million, an increase of $26 million from the adjusted FY '98 enacted level.

Bureau of Land Management

Energy and Minerals program: The Bureau of Land Management's energy and minerals program, funded within the Management of Lands and Resources appropriation account, provides for the lease management of onshore Federal oil, gas, coal, phosphate, sodium, potash, geothermal energy, and certain other mineral deposits on or beneath public lands. The leasing and subsequent production of these mineral deposits are the source of more than one billion dollars of revenue annually, shared between the U.S. Treasury and the producing States, generally for the benefit of schools and/or local government.

For FY '99, the Administration requests a decrease for this activity of $799,000, including an addition of $1.3 million for uncontrollable and related charges offset by a decrease of $2.1 million in program changes in the oil and gas subactivity within the Energy and Minerals Management activity. The program changes decrease results from a projected conclusion of the EIS process regarding possible leasing in the National Petroleum Reserve-Alaska (NPR-A) for which an increase was appropriated by Congress in FY '98.

The Subcommittee is aware of ongoing discussions between the States (as represented by the Interstate Oil and Gas Compact Commission [IOGCC]) and the BLM to achieve streamlining in

post-lease functions now often duplicated by State governments, such as regulatory approvals of applications for permits to drill (APDs) where “downhole" considerations for protection of aquifers and conservation of the petroleum resource, as well as verification of production volumes reported by operators for royalty and severance tax purposes.

The Subcommittee has patiently allowed these discussions to proceed for nearly three years, but is becoming exasperated that the BLM has no intention of yielding any authority to willing States despite the conception of this idea in Vice President Gore's own re-invent government "laboratory." A proposal from the State of Colorado, prepared in conjunction with the Colorado BLM, estimated a cost savings of more than one million dollars per year once the transfer is in place. The Subcommittee expects BLM and IOGCC to come to closure on these discussions in the near future. Since FY '91 the States have had to bear a substantial portion of the BLM's cost for which this appropriation is sought, by reduction in the Mineral Leasing Act receipts returned to each State with Federal production. Therefore, the Subcommittee will continue to seek ways to achieve more cost-efficient protection of the environment and enforcement of lease terms for the benefit of the taxpayers. Legislative changes to transfer functions to States will likely require a phase-in beyond FY '99; however, and would not affect this budget request.

For the coal and other minerals subactivities the Administration is seeking an increase to cover uncontrollable costs with no program changes proposed.

In sum, the Subcommittee agrees with the Administration's energy and minerals management budget request and recommends a decrease (-$799,000) from the FY '98 enacted level.

Alaska Minerals program: The Subcommittee disagrees with the Administration's FY '99 request for the BLM's Alaska Minerals activity for reduced funding of mineral resource assessment programs and minerals data analysis functions transferred from the dismantled U.S. Bureau of Mines in the FY '96 appropriations conference report. The budget justification states only that the diminished funding is because of "higher operational priorities requested elsewhere." This decline in the Administration's commitment to funding programs required under the terms of the Alaska National Interest Lands and Conservation Act (ANILCA) is disturbing to the Subcommittee, albeit not unexpected. The Subcommittee recommends funding of uncontrollable cost increases and no program changes, resulting in an increase of $39,000 from the FY '98 enacted level (+$739,000).

Mining Law administration: With respect to the administration of the Mining Law of 1872, the Act governing disposition of locatable (i.e., metals and certain non-metallic minerals) from the public lands, the Subcommittee opposes the Administration's proposal to permanently reauthorize the mining claim maintenance fee which expires this fiscal year. The 103rd Congress authorized BLM to collect a $100 per claim per year fee for five years in the Omnibus Budget Reconciliation Act of 1993 and allowed the agency to spend the funds collected by each August 31 for mining surface management regulatory functions (less $5 million/year for fee collection itself) the following fiscal year. As a result, fewer funds were necessary in the BLM's

Management of Land and Resources (MLR) appropriation, ranging from approximately $27 to 32 million per year.

The Subcommittee is very concerned that expenditures of such fees are not properly accounted for by agencies that are granted this type of "slush fund" mechanism to pay the costs of their programs. While this funding method provides room under the Sec. 602 (b) allocation cap for the Appropriations Subcommittee to fund competing programs, it is hardly a model for rigorous Congressional oversight, and at the very least ought not to be reauthorized as a rider upon an appropriations bill, as the Administration seems to suggest. Furthermore, the Subcommittee is concerned that the impact of the imposition of this fee has not been sufficiently evaluated by the executive or legislative branch to hastily seek to reauthorize the fee, indeed at even higher levels than current law. BLM records from 1989 (pre-$100 fee) indicate approximately 1.2 million mining claims were being held under the recordation requirements imposed under the Federal Land Policy and Management Act (FLPMA), whereas for the last several years only about 300,000 claims are of record. Furthermore, comparison of new claims filed each year (a better measure of ongoing exploration interest) in Alaska shows that Federal mining claim staking has lagged far behind that on State lands since imposition of the first BLM holding fee in calendar year 1992. For the years 1989-1991, new State claims averaged 3,300 per year and new Federal claims about 1,600 per year. But, from 1992-1996 when State claim staking accelerated to approximately 4,725 per year, new Federal claims dropped precipitously to only 720 per year! no doubt, because the annual rental on mining claims on Alaska State lands initiates at 50 cents per acre per year, compared to the average of $5 per acre per year owed the BLM. In other words, despite similar geological prospectiveness, Federal lands have become noncompetitive with State lands as base upon which to explore for gold, silver, lead, zinc and many other mineral commodities.

Furthermore, although the FY '99 budget request lacks reference to a gross proceeds royalty as was proposed in the FY '98 budget (but never forthcoming from the Administration), the proposal to strip percentage depletion allowance from the tax code for income from mines on 1872 Act-patented or unpatented claims has surfaced again in this budget. The Subcommittee remains concerned the Administration has failed to analyze, in even the most perfunctory fashion, the cumulative impact of these proposals on the domestic industry and the tens of thousands of mining and related jobs for our citizens. The $100 claim maintenance fee hits the exploration end of the business which can only be sustained by profits from the production end. There is no requirement to explore and mine on Federal lands, and the Administration's budget would hasten the exodus of capital that has already occurred, in a misguided attempt to take away perceived undue benefits the industry receives from public lands. The Administration would penalize nearly all western mines by these proposals, yet leave eastern and mid-western mines untouched, despite no objective data whatsoever to back up assertions of "fairness." What price did Vice President Gore's family pay to acquire its zinc mine in Carthage, Tennessee? Or iron mines in Minnesota and Michigan, lead mines in Missouri, or gold mines in South Carolina, etc.? Although, the tax proposal falls within the jurisdiction of the Ways and Means Committee, the Subcommittee's jurisdiction over "mining interests generally" dictates these strong concerns be

noted.

Lastly, the Administration's request to continue the appropriations moratorium on patenting of mining claims will likely contribute to stalemate on the issue of reform the Mining Law as it has for four fiscal years. The issue of the Treasury receiving fair market value for public land assets, such as the patenting of fully valid mining claims, was dealt with responsibly in the Balanced Budget Act of 1995 which President Clinton vetoed. The Administration has yet to propose legislative changes to the 1872 Act, rather a “stealth mining law reform" effort is underway at the Department of the Interior through wholesale rewriting of the surface management regulations announced one year ago. And despite the requirement imposed by Congress in the FY '98 Interior Appropriations Act that the Secretary certify he has consulted with Governors of States where the mining law operates, little or no such prospective consultation has occurred. Rather, BLM has relied upon retrospective contacts with States' representatives to assert the consultation has been made.

The Subcommittee is very concerned BLM is uninterested in the wealth of information the States, individually and collectively, have about regulating mining and requiring reclamation, because BLM has already decided upon changes in these regulations. The refusal by BLM to seek any public input on a hardrock bonding rule made final last March after nearly six years since comments were sought by the Bush Administration on a very different proposed rule seems evidence enough of the incredibly arrogant attitude of this Administration when it comes to mining issues. The Subcommittee notes that the Office of Advocacy of the Small Business Administration, an independent entity free from OMB interference, for the first time ever has filed an amicus curiae brief for the plaintiff in Northwest Mining Association v. Babbitt, which litigation was brought to challenge the validity of the bonding rule. The Subcommittee is confident the courts will agree the BLM rulemaking effort was seriously flawed.

Minerals Management Service

The Minerals Management Service (MMS) was created in 1982 to consolidate fragmented royalty management functions, offshore leasing, and lease management functions which include safety and environmental assessments for developing the Outer Continental Shelf (OCS) resources. In FY '99, the MMS will account for more than $6 billion in Federal receipts. The FY '99 budget requests an authorized appropriation of $129 million for MMS without respect to the permanent appropriation of lease receipts to States, Tribes and local governments which share in these revenues, a decrease of $15 million from the FY '98 enacted, without reference to a supplemental request.

Permanent appropriation: The three-part permanent appropriations provide for the sharing with States, Tribes and local governments of mineral leasing receipts collected from the sale, lease, or development of mineral resources located on Federal lands and within the Section 8 (g) zone of the OCS. An increase of $21 million over that estimated for FY '98 reflects an increase in production volumes and/or value and leasing activity which in turn provides more revenue for the Federal treasury as well as the States. MMS distributes these funds in accordance with