[Senate Report 109-4]
[From the U.S. Government Publishing Office]
Calendar No. 11
109th Congress Report
SENATE
1st Session 109-4
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SODA ASH ROYALTY REDUCTION ACT OF 2005
_______
February 16, 2005.--Ordered to be printed
_______
Mr. Domenici, from the Committee on Energy and Natural Resources,
submitted the following
R E P O R T
[To accompany S. 203]
The Committee on Energy and Natural Resources, to which was
referred the bill (S. 203) to reduce temporarily the royalty
required to be paid for sodium produced on Federal lands, and
for other purposes, reports favorably thereon without amendment
and recommends that the bill do pass.
PURPOSE OF THE MEASURE
The purpose of S. 203 is to reduce temporarily the royalty
required to be paid for sodium produced on Federal lands, and
for other purposes.
BACKGROUND AND NEED
S. 203 would provide a temporary 5-year reduction in the
current Federal royalty rate to 2 percent. The original Federal
royalty rate was set by statute at not less than 2 percent of
the quantity or gross value of the output of sodium compound
and other related products at the point of shipment to market.
Based on the rapid growth in the export market during the
1980's, the Bureau of Land Management increased the royalty
rate from 5 percent to 6 percent in 1993. The combination of
global competitive pressures, flat domestic demand and
spiraling costs has impacted the U.S. soda ash industry. Up
until 2003, the United States was the world's largest producer
of soda ash, accounting for 28 percent of total world output.
Ninety percent comes from the Green River deposit in Wyoming.
Approximately 60% of all U.S. produced soda ash is consumed
domestically while the remaining 40% is exported. Despite
booming world demand, U.S. export growth since 1997 has been
flat. The industry has implemented a number of cost reduction
initiatives in the past few years that have served to maintain
production levels and profitability, but not without impacting
employment and economics in southwestern Wyoming. Since 1997,
employment has declined from 3,000 jobs to 2,300. To remain
competitive, the industry will need to find additional
efficiencies to deal with rising energy costs and shipping
costs.
LEGISLATIVE HISTORY
S. 203 was introduced by Senator Thomas on January 31,
2005. The Subcommittee on Public Lands and Forests held a
hearing on a similar bill, S. 2317, July 14, 2004 (S. Hrg. 108-
702). H.R. 4625, introduced by Congresswoman Cubin, passed the
House of Representatives on July 19, 2004, and again on October
4, 2004 as Title VII to S. 1521. A Senate amendment to S. 1521,
concurring in Title VII but modifying other portions of the
bill, passed the Senate on December 7, 2004. At the business
meeting on February 9, 2005, the Committee on Energy and
Natural Resources ordered S. 203 favorably reported.
COMMITTEE RECOMMENDATION
The Committee on Energy and Natural Resources, in open
business session on February 9, 2005, by a unanimous vote of a
quorum present, recommends that the Senate pass S. 203.
SECTION-BY-SECTION ANALYSIS
Section 1 contains the short title.
Section 2 provides that, notwithstanding section 102(a)(9)
of the Federal Land Policy and Management Act, section 24 of
the Mineral Leasing Act, and the terms of any lease under that
Act, for a period of five years beginning on the date of
enactment, the royalty rate on the quantity or gross value of
the output of sodium compounds and related products from
Federal land shall be 2 percent.
Section 3 directs the Secretary of the Interior, at the end
of a 4-year period, to prepare a study and report to Congress
on the effects of the royalty reduction.
COST AND BUDGETARY CONSIDERATIONS
The following estimate of costs of this measure has been
provided by the Congressional Budget Office:
February 11, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 203, the Soda Ash
Royalty Reduction Act of 2005.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Megan
Carroll and Deborah Reis.
Sincerely,
Douglas Holtz-Eakin.
Enclosure.
S. 203--Soda Ash Royalty Reduction Act of 2005
Summary: S. 203 would provide temporary royalty relief for
producers of sodium compounds and related products on federal
land. CBO estimates that enacting this legislation would
increase direct spending by $1 million in 2005 and by $14
million over the following five-year period. Enacting S. 203
would not affect revenues.
S. 203 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
The royalty reduction required by the bill would temporarily
reduce federal payments to the three states--Wyoming, Colorado,
and California--by about $1 million in fiscal year 2005 and a
total of $15 million over the 2005-2010 period.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 203 is shown in the following table. The
costs of this legislation fall within budget function 300
(natural resources and environment).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
----------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Estimated Budget Authority......... 1 3 3 3 3 2 0 0 0 0 0
Estimated Outlays.................. 1 3 3 3 3 2 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Basis of estimate: S. 203 would reduce the federal royalty
rate for sodium compounds and related materials produced on
federal land over the five-year period following enactment of
the bill. Based on information provided by the Minerals
Management Service about the amount of royalties expected to be
generated by production of these materials under current law,
CBO estimates that this bill would reduce federal receipts by
$2 million in 2005 and by $30 million over a five-year period.
The loss of receipts would be partially offset by a
corresponding decrease in direct spending for payments to the
states in which they are generated, resulting in a net increase
in direct spending under S. 203 of $1 million in 2005 and by
$15 million through 2010, assuming that S. 203 is enacted by
June 1, 2005.
Intergovernmental and private-sector impact: S. 203
contains no intergovernmental or private-sector mandates as
defined in UMRA. The royalty reduction required by the bill
would temporarily reduce federal payments to three states--
Wyoming, Colorado, and California--by about $1 million in
fiscal year 2005 and a total of $!5 million over the 2005-2010
period.
Estimate prepared by: Federal Costs: Megan Carroll and
Deborah Reis; Impact on State, Local, and Tribal Governments:
Marjorie Miller; and Impact on the Private Sector: Paige Piper/
Bach.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
REGULATORY IMPACT EVALUATION
In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
evaluation of the regulatory impact which would be incurred in
carrying out S. 203. The bill is not a regulatory measure in
the sense of imposing Government-established standards or
significant economic responsibilities on private individuals
and businesses.
No personal information would be collected in administering
the program. Therefore, there would be no impact on personal
privacy.
Little, if any, additional paperwork would result from the
enactment of S. 203, as ordered reported.
EXECUTIVE COMMUNICATIONS
Views of the administration were included in testimony
received by the Committee at a hearing on a substantially
similar bill on July 14, 2004.
Statement of the Department of the Interior
The Department of the Interior submits the following
statement for the hearing record on S. 2317, a bill to reduce
the royalty on soda ash production from federal lands.
S. 2317 would establish a two percent royalty rate to the
United States for sodium minerals mined from Federal lands, (a
reduction from six or eight percent) on all current and future
sodium leases, for a five-year period. In Section 102(9) of the
Federal Land Policy and Management Act (FLPMA), Congress
declared that the policy of the United States is to obtain fair
market value for the use of the public lands, including
royalties from sodium production, unless otherwise provided by
statute. The Administration believes a two percent royalty is
well below fair market value for the resource, and therefore
cannot support the bill.
soda ash background
Soda ash is one of several products derived from sodium
minerals mined on public lands and is used in many common
products, including glass, detergents, and baking soda. The
mineral trona is a naturally occurring mixture of sodium
carbonate, sodium bicarbonate, and water. Soda ash, or ``sodium
carbonate,'' is refined from trona mined at depths between 800
and 1600 feet below the surface.
The chemical soda ash, is either natural or synthetic. Soda
ash can be extracted from natural trona deposits that are
mined, or it can be manufactured synthetically. Synthetic soda
ash production began in this country in the 1880's and
increased as the demand for soda ash increased. Although soda
ash represented only two percent of the total estimated $38
billion U.S. non-fuel mineral industry in 2003, its use in many
diversified products contributes substantially to the gross
domestic product of the United States, and the industry is a
cornerstone of Wyoming's economy.
In the early 1950s, the modern natural soda ash industry
began in the Green River Basin of Wyoming, home of the world's
largest natural deposit of trona. Since then five soda ash
processing facilities have been constructed in Southwest
Wyoming. Natural soda ash production from Wyoming, in an open
market, is more competitive than synthetic soda ash produced at
plants elsewhere in this country and the world.
soda ash--current production
Currently, the U.S. soda ash industry is made up of four
companies in Wyoming operating four plants (a fifth plant is
idle); one company in California with one plant; and one plant
in Colorado owned by one of the Wyoming producers. The five
U.S. producers have a combined annual designed production
capacity of 14.5 million tons (16 million short tons). The
total estimated value of domestic soda ash produced in 2003 was
$750 million.
Ninety percent of the domestic soda ash production occurs
in the Green River Basin of Wyoming. Of this, about 44 percent
of the production is from Federal lands. The other production
in the Basin is on nearby or adjacent State and private lands,
which are often in a checkerboard pattern with the Federal
lands. Nationwide, the Bureau of Land Management (BLM)
estimates that 48 percent of the soda ash production is from
Federal lands.
s. 2317
S. 2317 proposes a statutory royalty rate on sodium of two
percent. As mentioned, the Department of the Interior believes
a two percent royalty rate is below fair market value, which
was estimated to be above the current six percent rate. The
BLM's policy, as declared by Congress in FLPMA, has been to
obtain fair market value for sodium resources. To implement
this policy, in 1995, the BLM completed a market study to
examine fair market value in the sodium industry in Wyoming.
The study reviewed many comparable state and private leases and
found that fair market value in Wyoming appeared to be somewhat
higher than the five percent being charged by BLM at that time.
As a result of the 1995 study, in February 1996, the BLM
determined that the royalty for all then-existing leases would
be increased from five to six percent at the lease renewal
date. The BLM also determined, based on the study, that the
royalty rate for all new leases entered into during or after
1996 would be eight percent. In the Green River Basin, the
current sodium royalty rate on most private land is eight
percent; five percent on State lands.
The bill also would result in significant revenue loss to
both the Federal government and the State of Wyoming. In 2001,
(the most current year for which publicly available statistics
have been published by the Minerals Management Service), $11.1
million in Federal royalties were collected from soda ash
production on public lands in Wyoming. Of that amount, pursuant
to the Mineral Leasing Act, 50 percent, or $5.5 million, was
distributed to the State of Wyoming, 40 percent went to the
Reclamation Fund (a fund created by statute in 1901 for the
construction and maintenance of irrigation works and
reclamation projects) and 10 percent was distributed in
miscellaneous receipts to the U.S. Treasury. The bill's
reduction of the royalty from six to two percent for soda ash
production would mean that total royalties would be reduced
from approximately $11.1 million to approximately $3.7
million--a reduction of $7.4 million in one year. Under the
bill's reduced royalty rate, the State of Wyoming's share of
the Federal royalties would be reduced to $1.8 million, as
compared to $5.5 million in 2001. The United States' share also
would be reduced by an equal amount.
It should be noted that most of the soda ash mines in the
Green River Basin of Wyoming have both Federal and non-Federal
ownership of the mineral rights and are within the Union
Pacific Railroad land grant corridor which creates a
checkerboard pattern of private and Federal mineral ownership,
where a section (1 square mile) of federal ownership is
surrounded on four sides by private or state ownership. Many of
the lease agreements for the mining of soda ash from the
privately-held mineral rights specify that the mining company
must mine as much soda ash from private mineral rights as mined
from adjoining Federal or State mineral rights. These
agreements contain financial penalties that discourage mining
more than fifty percent from non-private portions of the mines.
Therefore, reductions in the Federal royalty rate will not
provide a directly proportional incentive to produce more soda
ash from Federal leases.
conclusion
The Administration cannot support S. 2317 because the bill
reduces government receipts and reduces the fee below fair
market value.
The Department of the Interior appreciates the opportunity
to submit a statement on S. 2317 and would welcome further
opportunities to discuss the bill and related issues with the
Committee. The Department would be pleased to answer any
questions the Committee may have for the record.
CHANGES IN EXISTING LAW
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the Committee notes that no
changes in existing law are made by the bill S. 203, as ordered
reported.