Senate OKs Deficit Cuts, Offshore Plan That Could Net State $400 Million

The Senate, in a move that could net California $400 million next year and $450 million over the next few decades, Thursday approved a complex deficit reduction package that includes a controversial plan to split offshore oil revenues between the federal government and coastal states.

The Republican-controlled chamber, ignoring a presidential veto threat, voted 93 to 6 in favor of a so-called “reconciliation package” designed to implement $55 billion in deficit cuts required under a hard-fought budget agreement worked out by Congress last summer.

Against Cigarette Tax

White House Chief of Staff Donald T. Regan last month listed the oil revenue plan as one of several key provisions that he found unacceptable in the bill, which he indicated President Reagan might reject if it were not revised. In addition, Regan said that the White House opposes permanent retention of the 16-cent-a-pack cigarette tax, also called for in the measure approved Thursday.

The House last month approved a similar reconciliation measure, but the two chambers must work out minor differences between their versions before the package is sent to Reagan.

Before final action, the Senate voted 54 to 45 to reject Administration-backed attempts to slash the share of money earmarked for California and six other coastal states under a plan to divide revenues derived from offshore oil-drilling operations.

The oil plan was designed to settle a seven-year dispute between the states and the federal government over how to divide revenues from the sale and development of offshore oil leases hugging the coastlines. Nearly $6 billion in revenues has built up in an escrow account while the dispute has simmered.

Lion’s Share for 3 States

Under both the House and Senate measures, the states would take about $1.5 billion of the pot, leaving the rest to the federal government. The lion’s share of the state money would go to Louisiana, Texas and California, with California receiving $375 million to $400 million next year.

Opponents primarily objected to a formula for dividing future royalties from offshore tracts. That plan, which critics contend is overly generous to the coastal states, would give them 27% of all future revenues, with the rest of the money going to federal coffers. The formula will earn California an estimated $450 million over the next 20 to 50 years, according to the California State Lands Commission.

Sen. Howard M. Metzenbaum (D-Ohio) contended during debate that the distribution formula would shortchange the federal government by at least $7 billion.

“Are seven coastal states going to get an unearned and unjustified windfall at the expense of 43 other states?” he argued.

But Sen. Frank H. Murkowski (R-Alaska) contended that the state split is “a modest one,” given the environmental risks that coastal states must endure because of offshore drilling.

The overall budget package is designed to bring the federal deficit for fiscal 1986, which began Oct. 1, down to the $172-billion target set by Congress in July.

In addition to the reconciliation package, lawmakers are squabbling over a more sweeping deficit-cutting plan that would force automatic spending cuts in most programs if government red ink exceeds a series of descending annual deficit targets. The goal would be to force a balanced budget by 1991 at the latest.

The cigarette tax had been scheduled to revert to 8 cents a pack Oct. 1, but Reagan grudgingly signed a 45-day extension of the 16-cent tax and is expected to sign another monthlong extension voted recently by Congress.

The President has opposed permanent retention of the higher tax because 17 states, anticipating the drop in the federal levy, had voted to pick up the extra 8 cents for their own coffers. However, congressional leaders seized on retaining the higher tax as a way to ease the federal revenue crisis. The 16-cent tax would be expected to yield $4.9 billion more for the Treasury over the next three years than an 8-cent tax.

Also opposed by the White House is a new tax outlined in the package that would impose an 0.08% levy on the cost of manufactured and raw goods. It is expected to raise $5.4 billion over five years for the Superfund toxic-dump cleanup program.