Federal Government Restores States’ Mineral Royalty Payments

Mineral leasing is big business particularly in the late 1800s and early 1900s when the federal government was building infrastructure and the majority of America remained largely unexplored. During this time period, the General Mining Act was established in 1872 that allowed citizens to freely prospect public lands for minerals. The law instantly created a rush of prospecting, and many citizens captured land at a rapid pace.

The Mineral Leasing Act of 1920 was later enacted that established compensation owed to states for mineral development. Under the law, the companies extracting the oil, gas and minerals pay a fee when they lease a piece of federal land and then they pay the federal government a royalty from the revenue that is generated from the sale of the minerals produced from the land.  In turn, the federal government returns the royalties earned from the production of minerals on these lands to the states. The states use these funds to pay for schools, roads, and infrastructure projects.

However, during the 2013 fiscal year, the federal government withheld the royalty money from Colorado and 33 other states as the result of a budget sequester.  The federal government asserted that the royalty payments were expenditures and could be retained as part of the sequester.

However, the Conference of Western Attorney Generals contended that the mineral royalty payments to the states were not gifts. The group asserted the payments were the result of the Mineral Leasing Act that determined states needed to be compensated for their respective mineral development.

Under pressure by elected officials, the U.S. Department of Interior recently announced that it will release a total of $110 million in mineral royalty payments to the 34 states.

The remaining issue that lawmakers will continue to address is protecting royalty funds in the future. Wyoming representative Cynthia Lummis has introduced the State Mineral Revenue Protection Act bill that would eliminate the federal government’s “middle man” status when it comes to states’ mineral revenue. The bill would ensure that all of the funds go directly to the state in a timely manner, eliminating money being re-routed to the federal government. The states depend on these funds, and could face serious issues if the money becomes held up at any point during the process.

What do you think of the existing and proposed royalty payment plans? Is the existing payment plan a relic of yesteryear or is the proposed bill a much needed arrangement? Leave a comment and let us know your thoughts.

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