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Budget Reconciliation: Taxes and a Wildlife Refuge on the Chopping Block

Monday, November 13, 2017

Patricia J. Beneke

Visiting Scholar

Many of the provisions in the tax legislation being considered by Congress this month (H.R. 1 “The Tax Cuts and Jobs Act” and related Senate legislation) as part of the Budget Reconciliation process are getting substantial attention: the reduction in corporate tax rates, elimination of the estate tax, consolidation of individual income tax brackets, elimination of medical and state and local tax deductions, and modification of the mortgage interest deduction. However, one key matter in the package is only now beginning to receive notable public attention: the long and hard-fought legislation to open the Coastal Plain of the Arctic National Wildlife Refuge (Arctic Refuge) to oil and gas leasing and development.

Congress created the 19-million acre refuge when it enlarged an already-existing conservation area as part of the Alaska National Interest Lands Conservation Act (ANILCA) of 1980. At that time, Congress was unable to agree on whether the Coastal Plain of the Arctic Refuge should be made wilderness or opened for oil and gas development. In a compromise, Congress prohibited oil leasing and development and directed further study on oil and gas and biological resources in the area under ANICLA §1002. In addition, §1003 prohibits leasing or other actions leading to oil and gas production unless authorized by an Act of Congress. Drilling proponents have repeatedly tried to authorize drilling over the past three-plus decades, pitting conservationists against oil and gas interests and the state of Alaska.

Drilling advocates now see an opportunity in the Budget Reconciliation process to change the law and open the area for development. Unlike a free-standing bill, Budget Reconciliation is not subject to filibuster and, thus, requires only 51 votes to pass the Senate, making it a more expedient approach. In addition, only two Senate committees were given “reconciliation instructions” directing them to address spending and revenues. One was the Senate Committee on Finance, which received an instruction to decrease taxes by $1.5 trillion. The second was the Senate Committee on Energy and Natural Resources, which was instructed to increase receipts by $1 billion. Their solution for raising revenue? Opening up the Coastal Plain of the Arctic Refuge to oil and gas leasing and production.

The Coastal Plain of the Arctic National Wildlife Refuge (US Fish & Wildlife Service).

The Coastal Plain is a federally owned and managed 1.57-million acre area on Alaska’s North Slope. Drilling advocates view the area as highly prospective for oil. Opponents, meanwhile, view it as the “biological heart” of the Refuge, labeling it “America’s Serengeti” due to the abundance of species found there, including caribou, polar bears, migratory birds, and musk oxen. In 2015, the U.S. Fish and Wildlife Service (FWS) recommended that the Coastal Plain be designated by Congress as wilderness—the highest form of federal protection—due to the seasonal habitat it provides and its importance to wildlife conservation.

As it stands now, the Budget Reconciliation package is expected to include a new program calling for such development. Sen. Lisa Murkowski (R-Alaska), Chair of the Senate Committee on Energy and Natural Resources, has long championed opening the Arctic Refuge. She was preceded in this effort by her father, Sen. Frank Murkowski, the late Sen. Ted Stevens, and other members of the Alaska delegation. A strong advocate for her Alaska constituents, Senator Murkowski has also recently proven to be a key player in the Senate in efforts to advance the president’s agenda more broadly.

Alaska Gov. Bill Walker also supports oil and gas development in the Coastal Plain. In a November 2, 2017, hearing before the Senate Committee on Energy and Natural Resources, he emphasized the fiscal importance of drilling in the Arctic Refuge to the state of Alaska, which in recent years has faced a dire budget situation. One driving force behind the desire to open the Refuge to drilling is Alaska’s Permanent Fund, which distributes annual dividends from its oil and mineral extraction revenues to individual state residents. The governor referenced the underutilization of the Trans-Alaska Pipeline System as yet another reason to produce oil from the Coastal Plain of the Arctic Refuge.

Critics argue that the Budget Reconciliation approach elevates expediency and politics over budgetary (as well as environmental) concerns. They question whether the Congressional Budget Office’s (CBO’s) projection that the legislation will raise $1 billion over 10 years is correct, based on analysis of sales in the North Slope region and the oil and gas community’s waning interest in the area, among other factors. Even so, an additional $1 billion in revenues is a drop in the overall budget bucket when compared to the $1.5 trillion in proposed tax cuts. And as a political matter, it is striking that opening the Arctic Refuge to drilling appears to be the only non-tax provision that will be included in the Budget Reconciliation.

What would the new oil and gas leasing program look like? While legislation to open the Coastal Plain has been considered numerous times over the past several decades, Senator Murkowski introduced yet another version—the “Chairman’s Mark”—on November 8. This legislation will be considered by the Committee on November 15.

The Chairman’s Mark would amend ANILCA to designate oil and gas development on the Coastal Plain as a new “purpose” for which the Arctic Refuge was established. This essentially waives the Refuge System Administration Act’s environmentally protective “compatibility” finding requirement by making oil and gas activity per se compatible. This “waiver” ironically leaves the Arctic Refuge with a lower level of protection than other less environmentally sensitive wildlife refuges.

In addition, the legislation would effectively turn the Coastal Plain into another “petroleum reserve.” It does so by providing that the Coastal Plain be managed by the Bureau of Land Management (BLM)—not FWS—under the oil and gas leasing rules for the National Petroleum Reserve-Alaska (NPR-A), a 23.5-million acre area on Alaska’s North Slope west of the Arctic Refuge. Unlike the Arctic Refuge, however, the NPR-A is not a wildlife refuge. Rather, it was set aside in 1923 as a naval petroleum reserve. BLM is currently conducting the largest oil and gas lease sale in history on the NPR-A, putting 10.3 million acres up for bid. Given this enormous offering for oil and gas development, many are likely to ask why it is necessary to drill the Coastal Plain.

So, as the high-profile debate on tax reform continues in Congress, this long-controversial environmental matter is slowly finding its way into the discussion. If Senator Murkowski’s legislative efforts are successful, it would stand as a huge victory for drilling advocates and a home-state win for a senator who has proven key to accomplishing the president’s larger legislative agenda. Yet, even if opening the Arctic Refuge to drilling were to raise $1 billion in revenues, it would do little to offset $1.5 trillion in forgone taxes in the budget. Perhaps more costly, however, is that once these leases are issued in the Arctic Refuge, it will be next to impossible to reverse course.