U.S. Would Grant to States 27% of Offshore Oil Funds

The Reagan Administration, in a major step to end a bitter seven-year dispute with California and other coastal states over how to share almost $6 billion reaped from offshore oil leases, agreed Thursday to support legislation giving more than one quarter of the funds to the states.

Gov. George Deukmejian expressed reservations about the proposal, under which California would get $375 million of the more than $1.3 billion in disputed funds collected from federal oil- and gas-producing tracts off the state’s coast.

Deukmejian needs time to “really review the proposal and see if it is in the best interests of the people of California,” Deputy Press Secretary Bob Taylor said in a telephone interview from Sacramento.

State officials said the main drawback of the offer is that it would not include sharing any royalties that the federal government receives from tracts upon which oil or gas is discovered.

“If the states agreed to a proposal that doesn’t include royalties, they would be shutting themselves out of a major revenue source,” said Bill Sessa, a spokesman for California Environmental Affairs Secretary Jan Sharpless.

On the other hand, Michael E. Shapiro, who authored a state Senate Office of Research proposal pressing Deukmejian to negotiate for a larger share of the funds, said: “If I were a betting man, I would say all the states, including California, will accept the offer.”

The Administration announced its support for the plan only hours after a House subcommittee approved one-year extensions of bans on drilling for oil and gas off Central and Northern California and off Massachusetts’ Georges Bank fishing grounds. The federal government controls leasing on lands three to six miles off the U.S. coast.

Under the proposed revenue-sharing formula, the Administration would give the states 27% of the initial payments it receives when it awards oil companies rights to leases, plus interest and rent. It is a significant increase from the 16.7% it previously had suggested but falls short of the 37.5% that had been asked by the governors of most major oil-producing states other than California.

Deukmejian turned down the previous offer and has not specified what he would accept as a minimum. However, the issue has loomed so large that last week Deukmejian, a strong Reagan Administration ally and a supporter of offshore leasing, warned that the federal government’s failure to make a “sincere effort” to resolve the dispute could jeopardize negotiations over future leasing.

Escrow Account

The formula originally was proposed by the House Budget Committee as a means of settling the dispute and freeing the federal share of the revenue from an escrow account, in which it could not be used to help cut the federal deficit. It subsequently was adopted by the entire House as part of its fiscal 1986 budget resolution.

In budget negotiations with the House on Thursday, Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) indicated that his Republican-controlled chamber would support the House proposal.

Budget Director David A. Stockman wrote later, in a letter to Rep. W. Henson Moore (R-La.), that the Administration “would support subsequent legislation to implement this proposal.”

Five-Year Plan

Interior Secretary Donald P. Hodel “fully endorses our decision to support a legislative solution and believes this should now clear the way for forward movement on the department’s proposed five-year (offshore) leasing plan,” Stockman added.

However, the 7-3 vote Thursday by the House Appropriations Interior subcommittee to continue the drilling bans indicates that sentiment is still alive on Capitol Hill to curb federal leasing off parts of California that have been deemed environmentally sensitive. The subcommittee’s decision now must go before the full Appropriations Committee, which last year affirmed the bans on drilling off California and Massachusetts by a single vote.

Karen Tumulty reported from Washington and Larry B. Stammer from Los Angeles.