Authored by: Tim Richardson, Independent Consultant
August 17, 2012
On June 28, the House of Representatives voted 373-52 to pass the Transportation Bill. H.R. 4348 assures current federal highway and transportation infrastructure project funding and authorizes those programs until the end of fiscal year 2014. The looming June 30 threat of the cut-off of highway funding without passage of a bill motivated Congress to legislate on a bi-partisan basis and get it done.
The Transportation Bill is the 112th Congress’ most impressive success, but it received scant media attention because it passed the same day the Supreme Court upheld the Obama Administration’s Affordable Care Act by a 5-4 vote. The following evening, Washington, DC was hit by violent winds, thunder and lightning which knocked out electric power for nearly a million people, many of whom were in the dark until after the 4th of July.
Therefore, it bears noting – the Transportation Bill passed and was signed by the President on July 6th.
Readers of The Horinko Group’s May newsletter knew that the Transportation Bill would likely include the RESTORE Act, designed to allocate 80% of the Clean Water Act fines from the Deepwater Horizon oil spill. Happily, it did. The RESTORE Act begins on page 187 of H.R. 4348 and continues to page 207. The May 2012 issue of The Horinko Group’s newsletter summarized the key points of the RESTORE Act.
What follows is a reader’s guide to the eight sections of the RESTORE Act in the Transportation Bill labeled Subtitle F “Gulf Coast Restoration” that is now law.
RESTORE Act is Aptly Named
Section 1601 provides the subtitle of the bill as “Resources and Ecosystem Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012” (RESTORE). The catchy and lengthy title reveals congressional intent that there are wide ranging purposes for which Deepwater Horizon Clean Water Act fines can be used. The broadness of the spending categories guarantees a lively public debate about RESTORE’s priorities and outcomes. For example, there will be disagreements over how much of RESTORE goes to economic purposes and how much for ecosystem restoration. Both outcomes are authorized and there may be enough money to satisfy both aims. Some proposals will likely offer hybrid blends of economic and environmental outcomes such as water and sewer infrastructure projects that create jobs and allow for future development, but also help “Restore the Gulf” by delivering cleaner water reaching the Gulf of Mexico from terrestrial watersheds.
Bottom Line: Congress was clear; RESTORE is a come one, come all invitation for economic and environmental projects.
Treasury Secretary to Have Significant Oversight Clout
Section 1602 establishes a trust fund known as the Gulf Coast Restoration Trust Fund (Trust Fund) and places it at the U.S. Treasury “consisting of such amounts as are deposited in the Trust Fund under this Act…The Secretary of the Treasury shall deposit…an amount equal to 80 percent of all administrative and civil penalties paid by responsible parties…in connection with the explosion on, and sinking of, the mobile offshore drilling unit Deepwater Horizon pursuant to a court order, negotiated settlement, or other instrument.” This section goes on to say the funds are available without further appropriation by Congress and are to “remain available until expended without fiscal year limitation.”
In short, Congress is now out of the RESTORE picture forevermore except for getting annual reports on RESTORE Act expenditures and outcomes. Further, the funds to be deposited in the Trust Fund have gained the coveted status of “no year money.” It bears repeating: Congress has no further role in appropriating or allocating RESTORE proceeds from the Clean Water Act and the money will stay in the Trust Fund until it is all spent. RESTORE funds will be outside of future federal appropriations or rescissions. They will not be impacted by the across the board ‘Sequester’ in January 2013 or other budget cuts. It would take a highly unusual congressional action to repeal RESTORE or somehow sequester these funds back into the general treasury. This outcome was a major success by the Gulf States’ congressional delegations that deserve to take a bow, especially Louisiana’s.
The section also places the Secretary of the Treasury “in consultation with the Secretary of Interior and Secretary of Commerce” in a very strong oversight role throughout the Act with the responsibility to deposit, expend, and audit the expenditures.
Bottom Line: Although the Trust fund is protected from congressional meddling (unless RESTORE is repealed), it is nonetheless a federal account and the Secretary of the Treasury serving at the pleasure of the President of the United States has significant oversight authority therefore the President is ultimately still in charge of the federal role under RESTORE. Interior and Commerce will be consulted but Treasury wields the hammer.
How 95% of RESTORE Funds will be Spent
Section 1603 is the “meat” of RESTORE and provides key definitions, ascribes responsibilities, establishes important geographic boundaries. The section allocates 95% of the Deepwater Horizon Trust money into three accounts deciding how much can be spent, by whom, and for what purposes.
After defining several terms such as ‘comprehensive plan, chairperson, Gulf Coast Ecosystem Restoration Council, Gulf Coast Region’ the bill moves into sixteen pages that outline and define the three spending categories of RESTORE and re-emphasizing the point that the Gulf Coast states are to be the primary area, if not the exclusive area for funding projects. The most important definition prescribing where funds can be spent says “…the term Gulf Coast region means –
(A) in the Gulf Coast States, the coastal zones (as that term is defined in section 304 of the Coastal Zone Management Act of 1972 (16 U.S.C. 1453));
(B) any adjacent land, water, and watersheds, that are within 25 miles of the coastal zones described in sub-paragraph (A) of the Gulf Coast States; and,
(C) all federal waters in the Gulf of Mexico…”
The term ‘Gulf Coast State’ means “any of the States of Alabama, Florida, Louisiana, Mississippi, and Texas.” The reader should note that each of these states have clearly defined coastal management zones, but differ greatly in size. For example, Alabama’s coastal zone extends inland from the Gulf and Mobile Bay to the continuous 10-foot elevation contour (above sea level) in Baldwin and Mobile Counties. In other words, parts of two counties are in the coastal zone.
Under a narrow interpretation of RESTORE, Alabama would have to spend all the RESTORE funds it receives within 25 miles of the 10-foot elevation contour inland from its two Gulf coast counties. However, if the “watersheds” restoration goal in the bill language means that watersheds within the official coastal zone (plus 25 adjacent miles) are eligible as areas in which to invest in, then shouldn’t most of the state draining into Mobile Bay via the Alabama, Tombigbee, Mobile, and Tensaw Rivers be eligible for RESTORE Act funds?
Florida doesn’t have that problem because the whole state is within its approved coastal management zone.
In Mississippi, the three southernmost counties, Hancock, Harrison, and Jackson counties are in the coastal zone and RESTORE would allow an additional 25 miles beyond the northern boundaries of those three counties under a narrow interpretation of the definition of “watersheds” in the RESTORE Act. But using a broad “watersheds” interpretation would open the whole state to RESTORE funding because all of the counties bordering the Mississippi River and its tributaries, the Tombigbee River, Pearl River, and other rivers draining to the Gulf would qualify as being within the spill region and eligible for funding.
Louisiana’s coastal zone is roughly 16 to 32 miles above the Intracoastal Waterway running from the Texas-Louisiana border then follows highways through Vermilion, Iberia, and St. Mary’s parishes, then dipping southward following the natural ridges below Houma, then turning northward to take in Lake Pontchartrain and ending at the Mississippi-Louisiana border.
Texas’ 18 Gulf of Mexico coastal counties are all in its coastal management zone. Under a narrow interpretation of the RESTORE Act regional spending requirement, the Texas RESTORE investment boundary would be those 18 counties’ landward border, plus 25 miles of adjacent land inland from those counties. Parts of Houston and parts of McAllen are in that zone. Under a broad watershed-defined spill region, funding could be spent up all the major rivers in the Lone Star state and their tributaries.
So, clearly, the geographic boundary of where funds are eligible to be spent under the RESTORE Act is pivotal to visualizing the outcomes of RESTORE.
Following the critical definitional part of Section 1603, the RESTORE Act describes three separate funding categories with very different allocation formulas and decision-making systems.
- State Allocations
The first category of spending is called State Allocation and Expenditures and “of the total amounts available in any fiscal year from the Trust Fund, 35% shall be available…to Gulf Coast States in equal shares for expenditure for ecological and economic restoration of the Gulf Coast region.” Therefore, under this section of the Act each of the five states will receive 7% of the total amount available in the Trust Fund that can be spent on a broad range of eligible activities.
Each state has a separate decision making system presumably adopted by Congress at each state’s request. Alabama and Florida have council structures with counties and mayors holding important decision-making roles along with the governor and state agency officials. Louisiana has a single Coastal Protection and Restoration Authority, Mississippi will utilize the Mississippi Department of Environmental Quality and Texas will rely on the Governor or his appointee.
While RESTORE provides each state with wide latitude in its choices of restoration investments in drawing up their individual plans, they are all under transparency requirements, including the requirement of adequate public input and all are subject to auditing by the Secretary of the Treasury. If expenditures by states are deemed to be for purposes outside RESTORE’s intent, the offending states will have to reimburse the Trust Fund and no new funds will flow to them unless they meet the transparency, planning and public input requirements.
This transparency, “state autonomy with federal oversight” feature of RESTORE will likely get tested, if not testy, depending upon Gulf State attitudes toward the federal government and depending upon whomever the Secretary of the Treasury happens at a given time. But who knows, just as in the consensus that developed to pass the Transportation Bill, “peace may break out” among state and federal officials in the unfolding of RESTORE? In the case of Exxon Valdez restoration the State of Alaska and the federal government overcame often fractious relations on many issues to work in harness on oil spill restoration to wide acclaim.
- Federal and State Council
A second category of spending totaling 30% of funds available in a given year will be invested by a Federal and State Council carrying out an approved Comprehensive Plan. Members of the Council “shall consist of the following members, or in the case of a Federal agency, a designee at the level of the Assistant Secretary of the equivalent,” the Secretaries of Interior, Agriculture, Army, Commerce, the EPA Administrator, the Head of the Coast Guard and the governors of all five states. The chairman will be a federal official nominated by the states and appointed by the President.
The Council must have a comprehensive plan, each state must have a comprehensive plan for using this category of money, and they must report to Congress and operate under the audit power of the Secretary of the Treasury. The Council has the same broad menu of investment options for environmental purposes but not for economic purposes as I read the Act regarding this 30% allocation. The Council’s comprehensive plan must be published “not later than 180 days after the date of enactment of RESTORE (which means by January 2, 2013). The Council “shall develop the initial Comprehensive Plan in close coordination with the President’s Gulf Coast Restoration Task Force.”
The Council’s comprehensive plan closely resembles the Exxon Valdez Oil Spill Trustee Council Comprehensive Restoration Plan model and funding allocations for specific projects from this 30% kitty of available funds will be ranked and prioritized according to which projects “make the greatest contribution to restoring and protecting the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches and coastal wetlands of the Gulf Coast region, without regard to geographic location within the Gulf Coast region.”
This approach is designed to maximize projects offering the best ecological outcomes. Various states will be winners and some will be losers in this competitive process. In Alaska, biologists were put in charge of setting the priorities that state and federal agencies voted on, and it worked well.
The following limitation is placed upon the federally-led Council under RESTORE, “The Council, a Federal agency, or a State may not carry out a project or program funded under this paragraph outside the Gulf Coast region.” Hence, the “watersheds” definitional question raised above arises here as well, yet Congress reemphasized the Gulf Coast prioritization they wanted in the RESTORE Act with this limitation language.
- Restoration Impact Allocation
The last of the three spending categories, Oil Spill Restoration Impact Allocation, will also come under Council control and uses 30% of available funds and is weighted for allocation based on a formula “established by the Council” in order to invest in areas that experienced the most oiling measured by miles of oiled coast, and that had the greatest human and economic impacts based on population density near the oiled coast. This formula clearly favors Louisiana. There is special language on Florida that prioritizes seven Gulf Coast counties over the rest of the counties in the state, all of which are in the coastal management zone.
These impact-related funds will have their own planning requirements placed upon states that receive the funds and may include some economic investments. However, there is a limitation that not more than 25% of this 30% Impact Allocation kitty can be dedicated for infrastructure projects. Presumably, 75% of the impact-related funds need to be ecosystem focused but it may remain to be seen once the process gets underway.
There are other aspects of the use of RESTORE Act funds defined in Section 1603, including the states’ ability to use those funds as non-federal matching funds for other federal projects (e.g. highways, ports, levees, etc.) but the availability of the RESTORE Act funds will not create a competitive ranking advantage for the Gulf States compared to non-Gulf states. In short, the five Gulf States won’t gain competitive ranking benefits in federal programs over the other 45 states by virtue of having access to, and using RESTORE funds to meet non-federal match requirements.
The last part of Section 1603 sets up transfers from interest earned on available Trust funds for use in two specific categories. The first is for “Gulf Coast Ecosystem Restoration Science, Observation, Monitoring, and Technology” projects that serve the goals of RESTORE and for “Centers of Excellence” that will offer research grants authorized in section 1605 of the RESTORE Act. Each of these spending categories gets their own direct funding allocation, but will also split the annual interest earned on unspent funds covered in Section 1603.
Ecosystem Science Funding will be Included
Section 1604 of RESTORE establishes a Gulf Coast Ecosystem Restoration Science, Observation, Monitoring, and Technology Program. This funding category will receive 2.5% of the total amount made available for each fiscal year in the Trust Fund plus half the interest on unspent Section 1603 funds. All the research focus allowed in this section of RESTORE will be for environmental resources with a significant emphasis on establishing baseline information on fish stocks in the Gulf of Mexico. Presumably birds and marine mammals will receive baseline monitoring funds as well. A plan for this spending category must be ready within the same 180-day timeframe as the Section 1603 funds.
Centers of Excellence
Section 1605 of the Act creates Centers of Excellence Research Grants using the remaining 2.5% of the RESTORE Act Trust Fund plus half the annual interest from unspent Section 1603 funds. Each center of excellence will focus on science, technology and monitoring in “at least one of the following disciplines: coastal and deltaic sustainability, restoration and protection, including solutions and technology that allow citizens to live in a safe and sustainable manner in a coastal delta in the Gulf Coast Region.”
Coastal fisheries and wildlife ecosystem research and monitoring in the region, offshore energy development research, sustainable economic development in the region and “comprehensive observation, monitoring, and mapping of the Gulf of Mexico” are all eligible funding categories.
RESTORE Won’t Supersede Other Federal Law
Section 1606 simply states that no specific language or provision in RESTORE will supersede or otherwise effect “any other portion of Federal law, including, in particular, laws providing recovery for injury to natural resources under the Oil Pollution Act of 1990.”
Federal Land Acquisition Requires Willing Sellers and Governor’s Okay
Section 1607establishes a restoration activity limitation that “funds made available under this subtitle may only be used to acquire land by purchase, exchange or donation from a willing seller.” Finally, in a tweak of language impacting federal land acquisition this section states, “None of the funds made available under this subtitle may be used to acquire land in fee title by the Federal Government unless –
- The land is acquired by exchange of donation; or,
- The acquisition is necessary for the restoration and protection of the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, and coastal wetlands of the Gulf Coast region and has the concurrence of the Governor of the State in which the acquisition will take place.
Federal Oversight will be a Constant
Section 1608 repeats the mantra of federal oversight throughout RESTORE, concluding with this statement, “The Office of Inspector General of the Department of the Treasury shall have authority to conduct, supervise, and coordinate audits and investigations of projects, programs, and activities funded under this subtitle and the amendments made by this subtitle.”
Each of the states has already begun their planning process on how to allocate funds they will receive from the 35% category in Section 1603. For the remaining 60% of funds under the Council, the first order of business is to name the council members and to create a chairperson, which has not happened as of this writing, nearly six weeks after RESTORE became law. The 180-day comprehensive plan adoption placed on the Council directed funds is now approaching 130 days, so some nervousness about complying with the planning requirement of RESTORE is likely.
Other crucial items include obtaining RESTORE Act funds either through a consent decree settlement over the Clean Water Act fine with BP and its partners, or the beginning of the trial in January 2013 in New Orleans.
Speculation about a settlement was lively during May and June but has died down. One source said that the time between the political party conventions might be the last chance for a settlement to be reached before the election. The time between the election and the January trial is perhaps the most likely point for a settlement.
It is worth noting that BP is not mentioned in the RESTORE Act. Instead, the bill refers to “…civil penalties paid by responsible parties…in connection with the explosion on, and sinking of, the mobile offshore drilling unit Deepwater Horizon.” This language means that Congress did not try to sort out blame for the accident. BP has already paid $1 billion under the Natural Resources Damages Act, but it has sued its partners Transocean and Halliburton over liability for the disastrous failure of the well. Readers interested in exploring this legal liability topic can visit the website for the most comprehensive discussion of how the disaster occurred and how liability effects the multiple companies involved.
The range of fines is another critically important topic under either a settlement or trial outcome scenario. Based on a calculation of the amount of oil spilled, the figure of $5 billion is used for the minimum amount responsible parties will pay. If that is the case then RESTORE directs 80% of that, or $4 billion, to the above purposes. If negligence is found in trial, the award figures of $17 billion and $20 billion have appeared in the media. One London-based source says that BP may have utilized the Financial Times story earlier this year citing a “$15 billion settlement offer” as an attempt to set expectations for the likely size of the settlement and also said that BP will not admit to criminal negligence under a settlement scenario.
RESTORE only effects civil penalties and there could well be criminal penalties. One source reported that BP’s (and/or responsible parties’) exposure under the maximum civil and criminal penalties under all the law’s broken could reach a jaw-dropping figure of $160 billion.