By Heidi Slinkard Brasher
In September 2011, President Obama issued his plan for economic growth and deficit reduction ("Living Within our Means and Investing in the Future, The President's Plan for Economic Growth and Deficit Reduction"). Within this plan, he advocated for savings through reduction of certain mandatory programs generally not appropriated on an annual basis. One area the president identified for reform was the Abandoned Mine Lands (AML) program, despite its inclusion in the president's failed budget request for FY2012.
Currently, the coal industry is assessed a fee which finances abandoned coal mine cleanup. While that fee has been used to fund state and tribal reclamation grants, additional funding was authorized by Congress in 2006 for states and tribes which had completed mine reclamation work; it was up to those entities to determine what to finance with these additional unrestricted federal funds.
The president seeks to reduce the unrestricted federal funding in the following manner:
- Terminate payments to states and tribes that have completed their coal reclamation work;
- Distribute unrestricted funds based on the priority level of the coal AML site; and
- Distribute unrestricted funds based on the priority level of the hardrock AML sites while also establishing a parallel AML program for abandoned hardrock sites financed by a new AML fee on hardrock mineral production similar to the one already in effect for the coal industry.
While the president's plan seems to shuffle allocation of the unrestricted funds according to priority levels, he purports this plan will save $1.3 billion over the next decade without explanation of the source of the savings and while creating the need for a new AML Advisory Council to review AMLs and rank them by priority level to determine the order of distribution of funding.
Hardrock mining industry opposition exists, not only for the assessment of a new production fee to fund the proposed hardrock AML program (designed to parallel the coal AML fee), but also because of the uncertainty associated with the lack of information about the amount of the fee and the source of the purported savings through reallocation of the currently unrestricted funds.
In addition to establishing an AML fee on hardrock mining and redistributing the unrestricted funding discussed above, the president also seeks to establish a leasing program for hardrock production on federal lands of at least 5% of gross proceeds – half would go to the states and half to the federal government – with an exemption provided for current mining claims which could elect to convert to the new leasing program. While the industry is not in favor of the new fees, particularly on gross, as opposed to net, proceeds, the president claims this hardrock leasing program will save an additional $36 million over the next decade.
The next step for these proposals is the Joint Selected Committee on Deficit Reduction.
Additional proposals in the president's deficit reduction plan
affecting regulated industries
Additional White House proposals of interest to our regulatory clients include:
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Reduction in subsidies to crop insurance companies by lowering the rate of return on investment from 14% to 12%, reducing the cap on administrative expenses to the 2006 level, lowering the insurance company's reimbursement for the premium on catastrophic coverage policies, reduction of premium subsidies to farmers who are subsidized over 50% and a reduction in private land conservation funding to farmers, ranchers and forest owners.
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Increases in pesticide user fees because testing required by the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) costs more than the existing registration and maintenance fees paid by industry, and the Federal Food, Drug and Cosmetic Act's requirement that the EPA collect fees for the establishment and reassessment of pesticide tolerances has been blocked through 2012. The president wants to increase FIFRA user fees and begin to collect the FFDCA tolerance fee in 2012.
- Lift the Toxic Substances Control Act (TSCA) statutory cap on chemical manufacturers' pre-manufacture user fees.
- Collect fees from users beginning in 2014 to establish a Resource Conservation and Recovery Act (RCRA) electronic manifest system.
- Reauthorize a 15-year special assessment (similar to one which expired in 2007) from domestic nuclear utilities to cover the decontamination and decommissioning of the Department of Energy's gaseous diffusion plants.
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Repeal the mandatory oil and gas research and development program in 2012, two years before it was set to sunset in 2014, causing private companies to fund such research and development projects.
- Additional Department of the Interior fees for use of federal lands and water, including:
- Non-producing oil and gas fee of $4/acre
- The cost of administering leases will be shared with the states who also share in the proceeds
- Establish hardrock mining lease program (as discussed above)
- Increase the federal share on geothermal leases to 50/50 with the states
- Repeal oil and gas fee prohibition and mandatory permit funds for development on federal lands
- Reauthorize the recently expired Federal Land Transaction Facilitation Act (FLTFA) of 2000.
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Eliminate oil and gas tax preferences by repealing as of 2013 those available to fossil fuels including:
- The use of percentage depletion with respect to oil and gas wells
- The ability to claim domestic manufacturing deduction against income derived from production of oil and gas
- The expensing of intangible drilling costs
- Deduction for costs paid and incurred for any tertiary injectant used as part of a tertiary recovery method
- The exception to passive loss limitations provided to working interests in oil and gas production
- Two-year amortization of independent producers' geological and geophysical expenditures, instead of allowing amortization over the same seven year period as for integrated oil and gas producers.
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Repealing the following tax preferences for coal industry to begin in 2013:
- Expensing exploration and development costs
- Percentage depletion for hard mineral fossil fuels
- Capital gains treatment for royalties
- The ability to claim domestic manufacturing deduction against income derived from the production of coal and other hard mineral fossil fuels.
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Reinstatement of superfund taxes to fund the cleanup of hazardous waste sites, beginning 2013 through 2021 including the following:
- A 9.7 cent-per-barrel excise tax on crude oil and imported petroleum products;
- An excise tax on hazardous chemicals listed in 26 USC § 4661 of the Internal Revenue Code at rates between 22 cents and $4.87 per ton
- An excise tax on imported substances used with listed hazardous chemicals as feedstock
- Corporate environmental income tax imposed as 0.12% of amount by which the modified AMT income of the corporation exceeds $2 million.
These proposals, and several more, are set to go to the Joint Selected Committee on Deficit Reduction as part of the American Jobs Act, Mandatory Savings, Health Savings, and Tax Reforms included in the President's Plan for Economic Growth and Deficit Reduction. Keep your eyes open for Congressional debate and action on these White House proposals.