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The city of Kenai is in many respects a laboratory model of what may be expected to happen to any of the rural, dominantly fishing communities of Alaska under the pressure of OCS development. While workers may live on the platforms, their families and the people required for the shore based aspects of OCS operations and those required to provide needed services will create a sudden population influx. The increased population plus the expectations of those who have come from outside of Alaska will produce strong pressure for a variety of modern, expensive public service systems.
There will be a heavy demand on the local government to overcommit its resources to provide improved schools, roads, water and sewerage and other services. Land speculators, developers and subdividers will move into the area to capitalize on housing and commercial building space shortages thereby inflating land values. Substantial pressures will develop for "accommodating" changes in zoning. To meet the housing demand in Kenai, a large number of mobile housing units were introduced in the area, many of them substandard, resulting in increased danger to members of the community from such varied threats as fire and the cold of a sub-arctic winter.
The costs of responding to the pressures of sudden growth create a large burden on the state and local government, and on the taxpayers. When the boom part of the cycle is played out and the population declines, the burden becomes greater for those who remain. The Kenai area was unprepared for what hit it, but it has responded admirably. Regional borough government officials have learned from the episode and are all ready for the pressures on Homer and Anchor Point that are expected to accompany the development of the Lower Cook Inlet oil fields.
The Kenai experience indicates that the real concern of the federal, state, and local governments in an area affected by OCS leasing should be the viability of the affected communities after oil and gas exploration and development phases are completed. To obtain that objective, a variety of actions must be taken to mitigate the detrimental effects of peak activity.
The particular means to accomplish this include:
Municipal Capital Programming geared for a shorter than average life payout so that the burden of the cost will be shared more equitably by those responsible for accelerated development. Payback by the State or Borough will include a flow through of tax revenues from the oil industry, related to the average life of the industry.
Establishment of a reservoir of durable housing, principally at the middle income level.
Creation of an area-wide community coordinating agency to evaluate plans and assist in the construction of appropriately selected, designed and located: a) industrial facilities, including docks, harbors, warehouses, storage yards, and serrice industries; b) school facilities; and c) related businesses, including hotels, motels, restaurants, stores, etc.
A flexible approach must be taken to the problems posed by petroleum activity in order to accommodate changes in time frame and in the nature of the development. A specific time frame cannot be assumed because of the variables inherent in such things as: the scheduling and conduct of an OCS lease sale; the preparation of an environmental impact statement; the course of any court challenges; changes in oil company plans: and state and local considerations growing out of the nsospective development.
The results of exploration activity will dictate changes in the direction nf derel. opment, since the consequences of oil discovery are different than those of gas discovery. In Alaska's case, oil discovery would probably require only shipping facilities, not refinery operations. Gas, on the other hand, must be processed and shipped in a different form (1.e., fertilizer, liquefied natural gas, etc.). This re. quires the construction of processing plants, with an attendant construrtion force durinz that period, then a subsequent operating force and service workforce for the plant. Thus the solutions to the problems of OCS leasing will be governed in part hy the balance of oil and gas discoveries, the size of the reserves of each, and the external economic factors. Attachment B-Question 53
What arguments hare been advanced hy representatives of coastal states that they should share in mineral leasing revenues?
Attachment A-Question 14
Does oil and gas exploration, development and production on the Outer Contidental Shelf impose a net economic or fiscal burden on the adjacent coastal state? should this burden, if any, be compensated by granting the coastal states a share of OCs mineral leasing revenues ?
Even when the benefits of OCS leasing to adjacent coastal communities are acknowledged, there remains a net economic or fiscal burden that should be compensated by granting the adjacent coastal state a share of OCS mineral leasing revenues.
The benefits include the following: There would be growth in transportation and construction, as well as in supply businesses, local hotels, restaurants, laundries, and industry-related specialty tool and equipment companies. Dependent upon the size and duration of exploration and development activity, there would be improvements in ports, transportation and communication facilities that would remain to benefit the area and other businesses. The discovery of commercial production could also lead to the development of handling, storage and processing plants, providing increased short-term construction employment, and long-term employment on a smaller scale. Secondary effects would be realized in the local economy from the general increase in business activity. This, to some extent, would generate an increase in State income taxes, but only because of the secondary effecis, since the Alaska Income Tax does not allow the state to impose taxes on persons working outside the three-mile limit, nor on companies conducting all, or substantially all, of their activities outside the State.
Many of the burdens upon the state and affected local communities have been touched upon in the discussion of the impact of Cook Inlet oil and gas develop ment on the city of Kenai. The State and the affected municipalities would be assuming a greater responsibility for all public services. The additional influx of shore-based population, including the families of platform workers, would require a wide range of services and facilities related to education, police and fire protection, hospital care, road construction, utility service, libraries, parks and other blir facilities, to say nothing of the welfare burdens that would accompany a rise in unemployment.
In addition, the state would be required to undertake expanded environmental protection programs to guard its coastline and its fisheries from the pollution threats posed by OCS development. Fishing is the second largest industry in the state in terms of income, and the largest in terms of employment. Depending on their locations, drilling rigs could disturh or even destroy certain localized commercial fisheries operations while the secondary effects of drilling and the effects of oil spills could endanger even larger areas. The required policing and [irotection measures would be a burden to the State, and should a major environmental disaster occur, then a tremendous economic burden would be placed on the state in order to relocate individuals, equipment and capital presently emploved in the fishing industry. This last prospect, however, will diminish as appropriate technology is developed to cope with the demands of offshore drilling in the often rugged and hazardous offshore waters of Alaska.
Furthermore, in contrast to on-shore leasing, Alaska would not receive personal and corporate tax revenues on that portion of income earned for work performed outside of Alaska : that is, outside of the three-mile limit.
In the case of Alaska, this burden would be placed on a narrow existing tax base. Consequently, the State should be compensated by receiving a share of OCS revenues. Attachment B-Question 56
Summarize, by state and by type for the last ten years, payments to the states and to the Reclamation Fund from federal onshore mineral lease revenues, under terms of the Mineral Leasing Act, and the Alaska Statehood Act.
This information was provided in the answer to Question 15 Attachment A. Attachment B-Question 58
What are the implications, including the advantages and disadvantages, of legislation authorizing the coastal states to levy and collect a severance tax at a rate no higher than that applicable to onshore production within the state, on mineral production from the adjacent Outer Continental Shelf?
It appears inevitable that the State of Alaska would suffer a burden of considerable magnitude from OCS activities. This burden could be partially com
pensated for by maintaining the revenue sharing provisions that are currently applicable to on-shore federal lands. However, only if the sharing of federal royalties were to continue on a 90 per cent basis would legislation permitting Alaska's severance tax to be levied on OCS mineral production result in not an advantage but simply equitable compensation for the burdens incurred.
Without the 90 per cent royalty sharing, the revenues generated from a severance tax on OCS production would not be nearly as large as revenues from on. shore production on a per barrel basis, due to the higher production costs involved. None the less, the burdens on the state and local governments from OCS activity would be greater than those imposed by onshore activity. It would be desirable, therefore, to couple legislation permitting the levying of a severance tax with legislation expanding the scope of the royalty-sharing provisions of the Alaska Statehood Act so that they include OCS oil and gas activities. Attachment B-Question 52
What is the Department's tentative schedule for future OCS oil and gas lease sales, particularly in: the Atlantic, The Gulf of Alaska, California, and other “new” areas?
The question of OCS oil and gas lease sales in the Gulf of Alaska and in other "new" areas raises a matter of State OCS development policy that has already been broached by Governor William A. Egan. On November 9, 1971, Governor Egan wrote Secretary of the Interior Rogers Morton concerning the proposed issuance of federal leases on some outer continental shelf lands in the Gulf of Alaska. The Governor's letter (Attachment #1) requested the indefinite sus. pension of this proposed OCS leasing based upon his consideration of the fol. lowing factors :
(1) Given the present state of offshore production technology, the leasing of lands underlying the exceptionally stormy waters of the Gulf of Alaska carries an unacceptably high environmental risk.
(2) Environmental harm resulting from offshore blowouts or chronic oil spills might have a substantial adverse effect upon the Gulf's renewable fishery resources which are vitally important to the Alaskan economy.
(3) The availability of onshore oil development alternatives which would be more acceptable environmentally, and which would provide a greater economic benefit to the state.
This state position on the proposed Gulf of Alaska lease sale can be generalized as an expression of state policy on the present exploration and development of OCS oil potential in any of the waters surrounding Alaska. In almost all instances such OCS development near Alaska will create environmental risks because of the harsh and unpredictable Alaskan marine environment.
These concerns were restated by the Governor in a letter dated December 16, 1971 (Attachment #2) to the late Under Secretary of the Interior, William Pecora, as follows:
"(T)he State of Alaska has grave concern with respect to industry's techno. logical ability to adequately cope with safety problems involved in the beyond Territorial water limit of the Gulf of Alaska. As you know, all outer areas of the Gulf of Alaska are "wild waters" so to speak. Vicious storms with attendant hurricane-like winds and extremely harsh seas are regular occurrences through. out the entire perimeter of the North Pacific Ocean. Let us take Cook Inlet, for example. Comparing the hazards and ferocity of storms offshore in the Gulf of Alaska with problems that may have been encountered from the standpoint of industrial operation safety in Cook Inlet would be akin to comparing storms along the Potomac River to storm hazards that regularly occur in the North Atlantic Ocean."
The state's interest in the relationship between offshore oil development and the conservation of renewable resonrces has also resulted in the recent creation of a Bristol Bay Fisheries Reserve by the Alaska Legislature (Attachinent #3). In May 1972, the legislature passed a bill, since became law, which requires a legislative resolution approving the issuance of any state permit or lease for oil development of state tidelands in the Bristol Bay region. The protection provided by this reserve could be lost in large measure if the federal sovernment rermitted OCS leasing and development seaward of this state reserve. For this reason, it would be desirable if federal statute or regulation at the very least required the establishment of a federal marine reserve seaward of any state-established reserve.
The state strongly supports the federal establishment of marine sanctuaries on OCS lands. Such a policy would also hold the resources of the continental shelf as reserves to meet future national energy needs. Governor Egan suggested this in his December 1971 letter to Under Secretary Pecora :
"Another highly important consideration that I believe should be a matter for immediate eraluation by our Nation's National Security Council deals with the overall question of the wisdom of petroleum development on Federal offshore lands at the present time. Given the projection of further petroleum product needs by the United States, I am convinced that the petroleum resources of Federal offshore submerged lands throughout the Gulf of Alaska area as well as off all other coast lines of the United States should be held in reserve as energy and money in the bank, until all other petroleum resource reserves of the states and Federal Government have been fully developed.”
ATTACHMENT No. 1
NOVEMBER 9, 1971. Hon. Rogers C. B. MORTON, Secretary of the Interior, Interior Building, Washington, D.C.
DEAR SECRETARY MORTON : As chief executive for the State of Alaska, I am requesting that you indefinitely suspend the leasing of outer continental shelf lands in the Gulf of Alaska for oil development. I understand that the Bureau of Land Management has tentatively scheduled the offering of such leases for mid-1972
My reason for requesting this action is the very substantial danger which offshore drilling and production in this particular area will pose for Alaska's marine environment and its living resources. The waters of the Gulf of Alaska are more than frequently extremely stormy, and it is a known area of high seismic activity. The ability of present offshore production technology to adequately cope with these factors is seriously questioned. Because the State of Alaska has an established fishing industry absolutely dependent upon an unimpaired marine ecology, and a direct responsibility to its citizens to prevent the pollution of their territorial waters, we find the risks unacceptably high in the Gulf of Alaska. I am confident that at a future time, technology will have progressed to a point where Gulf of Alaska offshore oil production procedures will be reasonably compatible with environmental concerns. But, I am convinced that thinking of such an enterprise utilizing presently known techniques would be an abrogation of our obligation to insure a safe operation.
An early response from you on this question would be greatly appreciated. I have the responsibility for pursuing alternative courses of action in this matter in a timely fashion should this appeal fail. Warmest personal regards, and good wishes to your staff. Sincerely,
WILLIAM A. EGAN, Governor.
ATTACHMENT No. 2
DECEMBER 16, 1971. Hon. WILLIAM T. PECORA, Under Secretary, U.S. Department of the Interior, Washington, D.C.
DEAR MR. PECORA : Thank you for your reply to my letter of November 9, 1971, in which I urged indefinite suspension of any plans for leasing outer Gulf of Alaska submerged lands for oil development. While I was gratified to learn from your letter of December 2, 1971, that your Department has made no decision to move forward with such endeavor, I am concerned with the apparent indication that positive steps might be taken by the Federal Government to proceed at a relatively early time. Recent news items on the press wires indicate that such plans may in fact be under way.
As conveyed in my earlier letter, the State of Alaska has grave concern with respect to industry's technological ability to adequately cope with safety problems involved in the beyond Territorial water limits of the Gulf of Alaska. As you know, all outer areas of the Gulf of Alaska are "wild waters," so to speak. Vicious storms with attendant hurricane-like winds and extremely harsh seas are regular occurrences throughout the entire perimeter of the North Pacific Ocean. Let us take Cook Inlet, for example. Comparing the hazards and ferocity of storms offshore in the Gulf of Alaska with problems that may have been encountered from the standpoint of industrial operation safety in Cook Inlet would be akin to comparing storms along the Potomac River to storm hazards that regularly occur in the North Atlantic Ocean.
I am convinced that Gulf of Alaska petroleum industry exploration and development is fraught with far too many dangers with respect to the rich marine life environment that exists there, together with the safety risks involved with regard to the manpower that would be necessary to man the projects, to take a chance on leasing such submerged lands in the foreseeable future. It might vers well be that in an er decade, science and industry together may have devised safe methods of development that will overcome what I firmly believe to be lack of positive capability to cope with the risky violence of offshore storms.
Another highly important consideration that I believe should be a matter for immediate evaluation by our Nation's National Security Council deals with the overall question of the wisdom of petroleum development on Federal offshore lands at the present time. Given the projection of future petroleum product needs by the United States, I am convinced that the petroleum resources of Federal offshore submerged lands throughout the Gulf of Alaska area as well as off all other coast lines of the United States should be held in reserve as energy and money in the bank, until all other petroleum resource reserves of the states and Federal Government have been fully developed.
I would appreciate an early response to the concerns expressed in this letter.
Kindest personal regards and good wishes to you and your staff for a joyous holiday season. Sincerely,
WILLIAM A. EGAX,
Governor. ATTACHMENT No. 3 Original sponsor : Hammond. Offered: February 2, 1971. Referred: Rules.
IN THE SENATE BY THE RESOURCES COMMITTEE
CS For SENATE BILL No. 2, IN THE LEGISLATURE OF THE STATE OF ALASKA,
SEVENTH LEGISLATURE, FIRST SESSION A BILL For an Act entitled: "An Act relating to limitations upon oll and gas leases
in certain areas."
Be it enacted by the Legislature of the State of Alaska:
(f) The submerged and shorelands lying north of 57°, 30 minutes north lati. tude and east of 159°, 49 minutes west longitude within the Bristol Bay drainage are designated as the Bristol Bay Fisheries Reserve. Within the Bristol Bay Fisheries Reserve no surface entry permit to develop an oil or gas lease may be issed on state owned or controlled lands until the legislature by appropriate resolution shall specifically find that such entry shall not constitute danger to the fishery.
SUBMISSION OF THE STATE OF LOUISIANA
STATE OF LOUISIANA,
Baton Rouge, June 19, 1972.
DEAR SENATOR JACKSON: Thank you for affording me an opportunity to comment on policies concerning the Outer Continental Shelf now being reviewed by your committee. Attached is our statement with our views listed in alphabetical order, with the exception of answers D-1 through J-2, which express paralle! State procedures to Federal. They are generally responsive to those matters set out in your letter of April 14, 1972, to then Governor John J. McKeithen.