Folks at Montana's public lands office take notice whenever the U.S. government tinkers with drilling and mining on federal property.

Policy shifts on federal land send tremors through Montana's public lands. When the Department of Interior looked this week at resetting the price companies pay to drill and dig for profit on federal property, the state was all ears. 

"Our perspective, I think from the governor's office, is we want to assure that what comes out of this is going to promote economic development and jobs, while finding a full market value for the taxpayers," said Shawn Thomas, Montana's trust lands administrator.

Drilling and mining on federal lands typically results in development on state public land, a relationship Montana profits from twice as royalties flow in from both.

But changing royalties on federal land can be problematic and that's one of the things Interior's newly-formed Royalty Policy Committee will be considering. Thomas is an alternate member to the committee, which has been controversial since it was formed in September.

Critics of drilling and mining on federal public lands say the committee isn't likely to protect Americans' right to get a fair price for fossil fuels taken from public lands.

The committee of 20 members and 18 alternates is comprised of oil and mining company employees, government representatives from fossil fuel states, American Indian tribal representatives, academics and special interest group members.

Federal royalties are no small matter, amounting to $5.9 billion in 2016, with millions going to states where federal land is drilled or mined for more than 50 products, with oil, coal and natural gas being the big three.

“Seven of the regular and alternative members of the committee represent companies directly. That’s not a commentary on the character of those individuals, but there is a question of integrity and conflict of interest,” said Dan Bucks, a former Montana Department of Revenue director who is frequently called upon to testify about whether royalties owed by the public are under-collected. Bucks contends that Western states like Montana have lost hundreds of millions of dollars over the years from under-collected royalties.

Montana's former taxman has made a name for himself arguing that cuts to coal taxes in Montana haven't resulted in increased mining and cost the state millions in lost revenue. More to the point, Bucks contends that increasing federal royalties isn't likely to slow drilling and mining on federal land. 

Bucks isn’t on the Royalty Policy Committee. He’s pointing to committee members like Matthew Adams, of Cloud Peak Energy, with concern. Cloud Peak is Montana’s largest coal producer, with its Spring Creek surface mine in the southeastern part of the state. The former revenue director suggests that the industry representatives on the committee disclose their company finances so the public will know how Royalty Policy Committee decisions affect the employers of committee members.

There are extensive Montana ties to the committee, which was resurrected by Interior Secretary Ryan Zinke, formerly Montana’s only U.S. House member. Zinke first proposed resurrecting the committee while in Congress.

Monte Mills, a University of Montana School of Law professor, is on the committee. Harry Barnes of the Blackfeet Tribal Business Council is a committee alternate.

Who’s not on the committee is a representative of U.S. taxpayers, though the ground rules for the committee would have allowed one. Ryan Alexander, of Taxpayers for Common Sense, a D.C.-based government watchdog that argues the public is already being shortchanged on oil, gas and mining royalties. 

TCS, a group Bucks works with frequently, advised the Royalty Policy Committee that leaving a taxpayer representative off the committee was a big mistake.

Coal companies disagree that the public isn’t getting a fair price for federal natural resources. The debate over royalty fairness was at a full boil during the Barack Obama presidency, during which coal companies appeared to be losing the argument.

The Obama administration recommended increasing the coal royalty rate less than two weeks before President Donald Trump took office. Obama's Department of Interior concluded that coal royalties were being under-collected when mining companies sold to corporate siblings, who then sold to a third party. The royalties were established on the non-arm's-length sale.

Trump put Obama’s royalty work on ice. Zinke said Interior was still committed to collecting the full amount of royalties due, but that rescinding Obama's work set a "clean slate to create workable valuation regulations." Coal companies agreed with Zinke.

“The long-standing royalty valuation rules have provided tremendous benefits to the American people,” said Rick Curtsinger of Cloud Peak. “Nearly 40 percent of the selling price of every ton of federal coal mined in the PRB consists of taxes, fees and royalties, making it among the highest taxed commodities in the world. This money is used to fund critical public services in communities across our nation.”

Cloud Peak and other mining companies have argued that royalty rates should remain as is, though as recently as June, the federal Government Accountability Office concluded that a two to three percent increase in royalties would have a negligible effect on businesses.

The Montana Coal Council's Bud Clinch, said that maybe royalties alone would have a negligible effect, but he said royalties, taxes and transportation costs paid by coal companies create a "death by a thousand cuts" scenario.

U.S. Mineral royalties in Montana amount to about $23 million a year, according to annual state revenue records. That’s amount means Montana is poorly positioned to see decrease because of a reduction in royalties collected, Bucks said.

The federal royalty rate is 12.5 percent, of which 49 percent goes to state and local governments.

Montana is making deep cuts to its government because revenue hasn’t been what state lawmakers expected. Part of the revenue decline stems from decreased revenue from natural resource activity. Activity on federal land is also declining.

U.S. mineral royalties paid to Montana have fallen from $43 million in 2012 to $23 million last year. A coal mining slump plays a significant role in that revenue slide, but so does oil and gas. Montana’s share of oil royalties from federal land is a third of what it was five years ago, according to Interior’s Office of Natural Resource Revenue.


Politics and agriculture reporter for The Billings Gazette.