ment of the lease before the full bonus payment was required thereby reducing the amount of bonus received and retained by the Govern

ment.

Accordingly, to this extent the Government shares in the discovery risk. Production payments would be over the same general time frame as would be applicable to bonus bidding.

Strong arguments can be made as to which of the two alternatives would be more conducive to full exploration and development efforts. The total cash bonus limits exploration financing and could be conducive to less exploration than might result under the deferred installment bonus system where less initial bonus cash is required, leaving more cash available for exploration, and where the operator might be more inclined to make further exploration efforts since the balance of the bonus payment would not be required, if he should elect to abandon the lease after such further exploration.

Royalty bidding would provide an initial revenue only the amount obtained under the fixed bonus requirement while royalty payments due the Government would be stretched out over the production life of the lease.

There are different opinions as to the overall relative revenue effect the three alternative systems would have on the rate timing and total amount of income accruing to the Government.

There are many that believe that the current bonus bidding system maximizes the present value of returns to the Government.

The argument is based primarily on the reasoning that tracts are leased to the bidder who has the highest evaluation of each tract-the most optimistic of bidders and, therefore, the total received from a sale will be the highest potential future evaluation of production possibilities represented by all bidders in the sale. If this is so, then the maximum could be expected to be obtained.

By contrast, it can be argued that the Government's return on a present value basis would be larger under either the installment bonus or royalty bidding system based on the assumption that bonus bids are heavily discounted because of the risk factor.

Under either the installment or royalty bidding system, the Government would take some of the risk burden and there could be a probability that this would be recognized in terms of higher installment bonus or royalty bids. It is possible that the value of the higher bids would exceed the potential value of the degree of risk assumed by the Government.

Because of the size of the Government's role and operation, the overall risk it faces is considerably less than that facing an individual operator in connection with an individual lease. If the operator is willing to compensate the Government for his risk aversion, the ultimate total Government income could be larger.

H. Problems of administration and levels of Government personnel required to administer the leasing system: The cash bonus system is easy to administer with a minimum of personnel requirements. The deferred bonus bidding system would present no significant administrative problems but it probably would involve additional costs and staffing to handle progressive installment payments, diligence and performance requirements, cancellations in advance of installment payments, et cetera.

The royalty bidding system would require a considerably greater amount of administrative cost and staffing. Unitized operations involving multiple operators at different royalty and production rates would be extremely difficult to administer.

Major problems could develop when highest royalty operators reach the cost threshhold at which their production would cease, while operators with lower royalty rates would want continued production.

Operator self interests could result in restrained production. This could be further complicated if a declining royalty rate was involved as it would be extremely difficult for the Government to provide the controls required to determine at what point lower royalty rates should be applicable to individual operators.

Royalty bidding could result in the possibilities of companies overbidding and then finding that, even though they have discovered oil or gas in producible quantities, their bid commitment is so high as to preclude their ability for development and production.

Such operators could be expected to petition the Government for a reduced royalty rate. There also is the possibility that nonresponsible or marginal operators and even speculators would participate in royalty bidding because of the limited initial capital required to acquire the lease.

The administration, monitoring, supervision and litigation of problems associated with such operators could require a great amount of cost and personnel.

Ability to implement within the authority of the act, that is, would it require amendment of the OCS Lands Act.

Either the cash bonus-fixed royalty bidding system or the fixed. bonus-royalty bidding system can be implemented within the authority of the act.

Some question has been raised as to the legal authority for use of the deferred bonus-fixed royalty bidding system. Further study will be required to determine if such a system would require amendment of existing legislation.

Question 13. How adequate for purposes of planning and management is the information available to your department or agency on energy resources of the public lands? Consider particularly:

(a) Geological and geophysical information relevant to OCS oil and gas leasing;

(b) The reserves, and probable and potential resources, on lands under coal permit or lease, or under application for permit or lease;

(c) The number, acreage, and reserves or resources of uranium claims;

(d) The persons owning or effectively controlling leases or claims;

(e) The progress of development, or volume and value of production from leases or claims.

If it is the position of your department, or agency, that inadequate information is available, what changes in law, organization, or regulations would be necessary to make the desired information available? Answer 13. (a) The acquisition of geological and geophysical information relevant to OCS oil and gas leasing is under the purview of the Geological Survey. Seismic and well data available to the Survey are

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currently adequate for oil and gas leasing and management of OCS lands in the Gulf of Mexico.

My statement goes into some detail as to the amount and type of information so available. It is pertinent to point out if it is ever decided to consider a leasing program on the Atlantic and Gulf of Alaska OCS, it is anticipated that adequate geological and geophysical data will be available.

The Survey has acquired 12,000 line miles of CDP seismic on the Atlantic OCS and 10,000 line miles of CDP in the Gulf of Alaska and is in the process of purchasing an additional 4,000 line miles of CDP in the Gulf of Alaska. Additional seismic data will be purchased in each of these areas.

(b) Currently the existing amount of geological information on coal on Federal lands is such that a significant number of decisions affecting Federal lands are made annually with inadequate geological information as to basic data involving the thickness, quality, depth, and extent of coal resources. While it is not possible to determine the full extent of the inadequacy of these decisions, enough is known of specific cases to indicate that present geological information is not adequate to fully protect the Federal interests involved.

Changes in law, or regulations are not needed to make the desired information available. Specifically, the need is full implementation of current programs within the present organization. Current programs consist of (1) defining areas where the existence of leasable minerals is sufficiently known in advance of application to warrant competitive leasing rather than issuance of prospecting permits, and (2) evaluation of all such lands to assure receipt of fair market value to the public in return for Federal coal lands.

Implementation in future years may require greater staffing and funding to provide for detailed geologic mapping and evaluation of all tracts to be made available for leasing.

(c) The Department does not know the total number, acreage, reserves or resources on uranium claims because the mining claimants are not required to record this information with the Government.

However, the AEC through a voluntary relationship with industry, has received detailed information or uranium reserves and resources on mining claims and publishes data on the basis of total reserves and resources on all lands.

(d) Federal agencies have no knowledge of activities on mining claims for nuclear minerals unless the claimant applies for a patent. Adequate information on persons effectively controlling Federal leases for nuclear minerals is recorded by the Department.

Senator Moss. It is a pretty long answer we are getting from you, so I can understand that your voice would be a little taxed, but that is quite all right.

You go right ahead.

Mr. LOESCH. Fortunately, we are nearly through. We do think we have adequate information on the progress of development and amount of value of production from Federal leases is obtained through supervision of operations by the Geological Survey.

For oil and gas, summary records are widely available on new developments, new completion of wells, and the production from all Federal lands and royalty value by county and State. Similar summary records for other leasable energy minerals are available.

Question 14. Does oil and gas exploration, development and production on the Outer Continental 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?

Answer 14. The arguments have been made that (1) OCS activity has an adverse fiscal impact on the adjacent State(s), (2) mineral production from the OCS does not yield any royalties or severance taxes to State governments, (3) yet the governments of adjacent States and localities must provide public services to OCS workers and their families, and (4) to help pay for these services, OCS revenues should be shared with adjacent States.

These arguments ignore the fact that OCS activity currently provides considerable revenues to adjacent States at present. Employees engaged in the various aspects of OCS activity are subject to the State income tax, State general and selective sales taxes, State license fees, and State and local property taxes. Businesses located onshore serving offshore facilities are subject to State corporate income taxes, State sales taxes, and State and local property taxes.

The question thus becomes one of determining whether the additional State and local revenues attributable to OCS activity exceed or are equal to additional State and local expenditures because of OCS activity and, if not, whether this provides a rationale for sharing OCS revenues to make up the difference.

For the average State, it is likely that revenues will exceed or equal expenditures for the following reasons.

Offshore workers and onshore workers in support of offshore facilities have incomes at average to above average levels compared to average per capita and family income in the adjacent States off which OCS activity has occurred.

Subsequently, they, on average, pay more per capita in State sales and income taxes than the average resident of the State; these taxes accounted for 84 percent of all State tax collections in 1970.

They will also on average pay more personal property tax to local governments. Onshore facilities serving OCS activity are major components of the property tax base of the communities where they are located. Hence, OCS activity provides, in most cases, greater than average shares of State and local revenues.

The expenditure picture on the whole is more cloudy since the impact of OCS activity on various State and local functions varies widely. Additional expenditures per capita for education for OCSassociated employees and their families are likely to be slightly greater than the statewide average, given a preponderance of OCSassociated employees with children of school age.

Additional expenditures per capita for transportation of OCS activities could be more or less, depending on location. With the exception of most of the Alaskan OCS areas, the OCS areas of the Nation having a high potential for oil and gas production have well developed transportation networks in the coastal regions of the adjacent States.

Additional expenditure per capital for welfare programs attributable to OCS activity is likely to be substantially less than the statewide average. Additional total expenditures per capita attributable to OCS is therefore not likely to be significantly greater than average State expenditure per capita.

On average, OCS activity would, therefore, not be likely to impose a net fiscal burden upon adjacent States. The likely single exception to this would come in those States which depend upon royalties and severance taxes for substantial proportions of State revenue.

States adjacent to current or potential OCS activity in this category are Louisiana, Texas, and Alaska, once north slope production begins. Those States which by the good fortune of natural endowment have substantial mineral production on which they can levy royalties and severance taxes have a source of revenue not available to most States. This enables them to have either greater expenditures with identical sales, income, and property taxes per $1,000 of personal income, a typical measure of revenue effort, or the same amount of expenditure with lower sales, income, and property taxes per $1,000 of personal income than those States which by reason of natural endowment cannot levy a severance tax.

On the basis of equal revenue efforts on those tax sources available to all States for similar levels of expenditure, there would be little empirical evidence for net fiscal burden resulting from OCS activity.

I think it is probably fair to say that while there could be an exception, the way we look at it, it would pretty much have to be proved that offshore activities cause an undue burden on the neighboring State.

Question 15. What funds have been paid to States under the revenuesharing provisions of the Mineral Leasing Act of 1920? What is the basis in policy for such sharing of revenues? With respect to public lands States other than Alaska is there any reason why such a revenuesharing policy should not be perpetuated in any subsequent legislation related to mineral leasing?

Answer 15. As of June 30, 1971, approximately $880 million have been paid to States under the revenue-sharing provisions of the Mineral Leasing Act of 1920.

The revenue is distributed with 37.5 percent to the State where mineral production occurred, 52.5 percent to the reclamation fund, and 10 percent to the U.S. Treasury to be credited to miscellaneous receipts. No payment is made to the reclamation fund from revenues in Alaska, and in that State an additional 52.5 percent is paid to the State.

The basis in policy for the States sharing in the revenue was to help fund the construction and maintenance of public roads or for the support of public schools or other public educational institutions as the legislature of the State may direct. The 52.5 percent was allocated to help fund the Reclamation Act of June 17, 1902.

With regard to any subsequent legislation related to mineral leasing, the administration's bill to reform the mineral leasing laws proposes to change the disposition of revenue to: 37.5 percent to the State and 62.5 percent to the U.S. Treasury to be credited to miscellaneous receipts, except that Alaska would receive 90 percent of the revenues from that State.

The accompanying table lists the distribution of revenues to the States from February 25, 1920, to June 30, 1971.

(The Secretary's full statement including the table referred to follows:)