In the case of other federal agencies with jurisdiction to control surface use, management can result in a virtual veto over mineral development. In most instances the surface management agency has significant control over the economics of a proposed operation through its control of access, surface use permits, etc. The legitimate need to protect surface uses is recognized, but there must be a procedure for balancing that interest against the need for a particular development. When this balance is determined solely within the surface management agency, the protection of surface uses is frequently given preferential consideration. Such surface uses are usually perceived and valued exclusively in terms of nation-wide priorities to the detriment of both State needs and the particular subsurface development.

Even though mineral development decisions in federal public lands will always remain essentially federal decisions, some systematic mechanism must be found to measure and consider their effects on state as well as national objectives. Relegating the presentation and consideration of the state point of view solely to public hearings where it frequently becomes lost among the multiplicity of public points of view is inadequate. Public hearings are vitally important sounding boards for judging the range and intensity of public concern, but state policy represents a distillation and refinement of state views and priorities which should be thoroughly considered by federal decision-makers at an earlier point in the administrative process.

Congress has created complex procedures of administrative review under the National Environmental Policy Act in order to apply the yardstick of environmental protection to every federal development decision. Hundreds of millions of dollars are spent each year producing and reviewing environmental impact statements, and huge losses from delay are countenanced all to protect the nation's environmental integrity. Congress might wish to consider legislation that would require every federal project or decision affecting development to be scrutinized for any adverse effects on state goals, including an exhaustive evaluation of alternatives designed to minimize harm to state objectives or to maximize state economic health. This would create a very impressive federal commitment toward considering federal mineral development decisions in terms of their impact on state goals, both developmental and environmental.

Attachment B-Question 34

STATE OF ALASKA

How many applications for prospecting permits and coal leases are currently pending and what acreage is involved, by state?

(a) What are the proved coal reserves, and probable and potential coal rescurces, on the lands under application for lease?

(b) In each state where permit or lease applications are pending, what are the proved coal reserves, and probable and potential coal resources currently on private lands, and under federal lease, and under state, local or private lease? What was coal production in the most recent year of record? Subdivide these items, to the extent possible, into coal mined or mineable by underground, and by surface methods.

(c) Which, if any, of these applications are under active consideration by the Department for issuance of permits or leases?

(d) Upon what specific analyses regarding the supply and demand for coal in each region would any permits or leases be granted?

Where data requested in the foregoing are not available, present the best available information and indicate what action would be necessary to make the requested data available.

The best available information for the State of Alaska is as follows:

Coal production in the most recent year of record in Alaska was 748,000 tons in 1971.

Because of the amount of research and investigation involved, it would require several man years to make available the remainder of the information requested. including field exploration, a variety of data gathering, and the initiation of coal supply and demand analyses.

Attachment B-Question 42

What options are being considered with respect to Outer Continental Shelf leasing system changes, and what are the Department's preliminary views regarding the comparative advantages and disadvantages of each in the context of achieving Departmental OCS leasing objectives? What would be the impact of each such option on:

(a) Competition;

(b) Incentive to rapid exploration and development;

(c) Conservation of energy resources for future use;

(d) Proportion of oil and gas ultimately recovered;

(e) Efficiency of resource allocation;

(f) Possible bias toward any one class of lessees (Ease of entry, etc.) ;

(g) Timing and amount of revenue to Government;

(h) Costs and difficulties of administration;

(i) Ability to implement within the authority of the Act (i.e., Would it require amendment of the OCS Lands Act)?

Specifically deal with the advantages and disadvantages, compared to the present system and to each other. What, under the foregoing criteria, are the Department's current views, with regard to: lump sum (bonus only) bidding; deferred bonus bidding (with fixed royalty); royalty bidding (with fixed bonus); profit share bidding; and, work-program bidding (as used, for example, in the U.K.)?

Bonus bidding tends to limit competition to the larger companies, while royalty bidding as long as a minimum demonstrated ability to produce is required-wil let in smaller operators and increase competition. From the point of view of the lessor, if there is a high degree of knowledge about a prospect, bonus bidding is best since the bids are likely to be high; in an unknown area, royalty bidding is more attractive since it encourages exploration and development and enables the lessor to share in the result.

The State's current view is that a flexible policy should be employed that can be varied depending on the geologic knowledge of the area. In the broad middle ground between high and low levels of geologic knowledge, a system of combined bonus and royalty bidding would appear to be desirable, although leaving both bonuses and royalties as variables would create a system virtually impossible to administer responsibly. The state is currently inclined to favor a system using a fixed cash bonus bid that the lessor would set according to the circumstances of each sale, plus variable point bidding on the royalty. The royalty would also be on a sliding scale, offsetting the "anticonservation" tendency of royalty bidding since a sliding scale would make continued operation economical over a longer period of time as the rate of production dropped. This system would allow a broader range of entrants into the bidding, increasing competition and thus the returns to the lessor, while at the same time insuring that a higher proportion of oil and gas are ultimately recovered.

The remaining questions have been re-ordered and grouped together for ease of discussion.

Attachment B-Question 54

What, if any, formal studies or analyses exist of the net social and economic benefits or costs to coastal states of OCS mineral exploration and production adjacent their coasts? Summarize the major findings of these studies or analyses. As for Alaska, there are no formal studies or analyses of the net social and economic benefits or costs of OCS mineral exploration and production adjacent to the coast. In view of the effects of Cook Inlet exploration and development on the City of Kenai, which will be discussed shortly, it appears essential that money be appropriated and studies conducted before any OCS Leasing actions are undertaken. The results would allow the state and the local areas affected by the consequences of OCS leasing to respond better to the needs and pressures that are likely to occur.

Attachment B-Question 55

What are the historical and expected impacts upon the economies of coastal states and communities from OCS exploration, development and production activities:

(a) Increases in local employment and payrolls; profits of local enterprise; local and state business and personal taxes, etc.

(b) Increased outlays of state and local governments for public safety, education and welfare; public works and environmental protection.

(c) Desirable or undesirable secondary effects from location of refineries and other industries; population growth, etc.

While there has been no OCS activity off Alaska, the effects of Cook Inlet exploration, development and production activities upon the City of Kenai are likely to be a fairly accurate indication of the impact OCS activity will have on other Alaskan coastal communities. No detailed, comprehensive studies have been done on what happened to Kenai, but extracts from two published reports give some indication.

An April 1971 report entitled "Community Impacts of the Trans-Alaska Pipeline," by the Alaska State Housing Authority Planning and Technical Department and the Local Affairs Agency in the Office of the Governor, says the following:

Over the 1960-1970 decade, Kenai-Cook Inlet District was the fastest growing region in the State. Petrochemical exploration and development and associated construction activity fueled rapid population and economic growth. (See table D. That is the rosy side of the picture. Contemporaneously, in that district gross unemployment grew rapidly, if less noticeably, nearly doubling over the decade. Apparently, many of the new jobs went to workers newly attracted to the boom area, and more workers came than could find jobs. Furthermore, now that the boom has passed, unemployment is rising to new highs and population, workforce and payrolls are declining to a lower level.

Employment levels in two industrial sectors were bellwethers for the "boom and bust" cycle of economic activity. Construction employment reached extraordinary heights then declined precipitously as the industrial, commercial and residential demands triggered by petrochemical development tapered off. To a lesser degree, mining employment shot up and then dropped off as development matured. Some measure of the steepness of the decline is indicated by table II. comparing employment figures for the first quarters of 1967 and 1970. Construction employment is returning to a sustainable level, far below previous peaks, and mining employment is settling toward the level of permanent new jobs created in petrochemical industry.

In sum, the short term impact of the development phase was to boost employment and payrolls. Obscured by this flashy growth was the fact that general unemployment also rose rapidly, mainly due to a heavy influx of outside workers. As the boom broke, the region was vulnerable to a severe employment decline. The major long-term benefit was the solid core of permanent employment in new industrial jobs.

Fortunately, in the Kenai area, the establishment of a number of petrochemical plants tempered the decline in mining employment. To a degree, permanent plant jobs have replaced construction and development jobs.

TABLE 11.-SELECTED EMPLOYMENT DATA, KENAI-COOK INLET AREA, 1969 AND 1970

The following extracts are from the Overall Economic Development Program of the Kenai Peninsula Borough, March 31, 1972:

"The rapid growth of the Kenai-Cook Inlet workforce from 1966 through 1968 and its decline since then reflects the oil construction boom and bust of those years. . . . In Kenai-Cook Inlet, the height of the boom in 1967-1968 saw mining and construction accounting for nearly 35% of employment, with unemployment at the five year low of 9%. The end of the boom came in 1969, and by 1971 mining and construction employment had dropped to 15% of the workforce. The slack in employment caused by this downswing was absorbed by unemployment, which increased to 20% of the workforce by 1971, by increased government employment (to 16% in 1971), and by a small workforce, which decreased by 14% from 1968 to 1971. A small amount of the slack was absorbed by manufacturing employment which increased from 5% to 10% of the workforce. The supportive industries maintained their proportionate share of the workforce (about 20%), and the official statistics show the agricultural-fishermen-self-employed group decreasing relative to the workforce by a slight amount."

(From the Overall Economic Development Program of the Kenai Peninsula Borough, March 31, 1972)

(From the Overall Economic Development Program of the
Kenai Peninsula Borough, March 31, 1972)

Estimated based on 1970 relationship of January-June average employment to annual average employment, ratio applied to 1971 January-June employment.

The published data on fishery employment is recognized as underestimating seasonal employment and overestimating annual average employment.

Supportive sector includes transportation, communications, public utilities, wholesale and retail trade, services, finance, insurance, real estate, and miscellaneous activities. *Data unavailable due to disclosure regulations.

Source: "Workforce Estimates", Alaska Department of Labor Employment Securities Division, Research and Analysis Section, 1966-1970, and preliminary data for JanuaryJune, 1971.