In addition to the implementation costs of this bill, there is a possibility that there may be a loss in revenues in the early years of the implementation of the act, only to be made up in later years.

Section 205 of the bill authorizes the Secretary of the Interior to experiment with the bidding procedures used in granting leases. In addition to the front-end cash bonus method which is the primary bidding method used today, the Secretary is authorized to use other bidding procedures. Some of these other bidding procedures call for payment to the Secretary to be made after production has begun, based on net profits or royalties, rather than as a front-end bonus. Therefore, revenues should be collected by the Secretary in later years rather than at the time of the lease sale.

The Secretary is required to use these alternate bidding procedures on at least fifty percent of the leases in new areas, unless he finds that such a practice would delay the development of the resources or reduce the revenues of the Government. Therefore, the reduction in revenues in early years may be anywhere from 0 percent (if the Secretary continues to use the front-end cash bonus method on 100 percent of the leases) to 100 percent (if the Secretary defers all revenues until later years by using alternate bidding methods on 100 percent of the leases. Based on the assumption that bidding experimentation would be implemented for the minimum of 50 percent of the leases, resulting in a decrease of about one-half of the bonus revenues of these leases, the Congressional Budget Office (CBO) estimated the short-term revenue loss to the Government through fiscal year 1982 (see the August 5, 1977 communication and cost estimates provided by the Director of the CBO, Alice M. Rivlin). The estimated revenue loss for FY 1978 was put at $375 million.

Section 205 of the bill would also authorize the Secretary of Interior to establish and maintain, at his discretion, a Fishermen's Gear Compensation Fund for any area of the Outer Continental Shelf, as defined by the Secretary. The collection of fees, not to exceed $5,000 per lease annually, for leases issued after the enactment of H.R. 1614, will support the funds at a maximum level of $100,000 per fund. Borrowing authority to a maximum of $1 million from the Treasury for each fund is authorized if funding is insufficient to pay obligations. It is expected that any such fund will be fully supported by lessor fees in the long run. The CBO has projected that the net income from such feels will be less than $500,000 in fiscal year 1978 and approach zero in the following years.

It should be mentioned that section 204, section 5 and section 208, a new section, would impose a contingent liability upon the Federal Government if a lease were cancelled or denied under certain circumstances. It is improbable that any liability for such cancellation would occur in fiscal year 1978. In an April 26, 1976 communication from the Congressional Budget Office, it was estimated that: "This liability could exceed $100 million, and no limit on liability is set in the bill, however, there is a very low probability of occurrence for such an event." (House Rept. No. 94-1084). The Committee concurs with this estimate,

Title III of H.R. 1614 establishes an Off-shore Oil Production Compensation Fund within the Department of Transportation. The fund would be supported by a fee of 3 cents levied per barrel of oil produced on the OCS until it totals at least $100 million. The fund will cover administrative and personnel expenses, cleanup costs, and

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other claims under this title. The incidence of claims and cleanup costs is highly unpredictable. For administration of this title, H.R. 1614 authorizes $10 million for fiscal year 1978 and $5 million for each of the two following fiscal years. The appropriation of additional sums as may be necessary to carry out the provisions of the bill is also authorized. Finally, borrowing authority of up to $500 million from the Treasury Department is included to cover necessary expenses.

Title IV amends the Coastal Zone Management Act of 1972 (Section 308 (b)) by providing direct grants to states adversely affected by OCS activities in order to ameliorate the impacts of exploration and development. The costs expected to be incurred by this program are summarized by the following table, as provided by NOAA.

Title V contains miscellaneous provisions which will not result in any additional implementation costs; except that section 506, which requires that the Secretary conduct an investigation of the availability of oil and natural gas from the Outer Continental Shelf, may entail administrative and other costs. Interior has estimated that this provision may require from $10 million to $15 million for fiscal year 1978. The total for all implementation costs expected to be incurred as a result of the enactment of this legislation are summarized in the following table:

VIII. INFLATIONARY IMPACT STATEMENT

Pursuant to clause 2(1) (4) of Rule XI of the Rules of the House of Representatives, the committee estimates that the enactment of H.R. 1614 would have a net negative inflationary impact on the prices and costs in the national economy. By promoting the development

and production of the oil resources on the Outer Continental Shelf, this bill would increase the domestic supply of petroleum and could potentially cause a decrease in the world price of oil. This potential reduction in the price of oil would be reflected in the prices and costs of virtually all products and services in the national economy, and would thus result in a net negative inflationary impact. On top of that, and even more likely, gas production, particularly off the eastern seaboard, would provide a stabilizing influence on the price of that commodity and would, therefore, exert a retarding inflationary force. The onshore impacts of OCS development may have localized inflationary effects. Rapid, disorganized development is by its very nature inflationary, because it increases the demand for materials, goods, and services in the economy. The bill, combined with other laws dealing with the impact of energy activity, particularly the Coastal Zone Management Act, would improve the planning capabilities of impacted states and localities, and provide for direct grants to assist this process. Prudent, timely planning on the part of the States would allow for a more manageable growth rate, which can be expected to be less inflationary than might otherwise be the case.

H.R. 1614 in providing for a five year leasing program; a structured legal process to curtail frivolous lawsuits; structured State, local, and citizen input; a more reliable and realistic leasing schedule; greater efficiency in the direction of capital into the active production of the beneficial, near-term energy resources-will: (1) provide reliable time schedules for industry to contract for long lead items at a reasonable pace; (2) create a needed atmosphere of credibility and public confidence regarding our leasing and coastal zone management program; and (3) eliminate unnecessary uncertainties and delays in the system. In this respect, the bill will moderate a multiplicity of inflationary forces.

In addition, by providing for increased domestic energy sources, and thus a potential reduction in the balance of payment deficit, it will enhance public confidence in the dollar, and the economy.

IX. COMPLIANCE WITH CLAUSE 2(1) (3) OF RULE XI

With respect to the requirements of clause 2(1)(3) of House Rule XI of the Rules of the House of Representatives

(A) The Ad Hoc Select Committee on Outer Continental Shelf has no oversight responsibility pursuant to clause 2(b) (1) of rule X, because it is not a standing committee. Furthermore, under the House resolution which created the ad hoc committee. H. Res. 97, no oversight responsibility is delegated to the committee. The committee did, however, hold extensive hearings in the preparation of this legislation, hearing from over 55 witnesses, and compiling a couple of thousand pages of testimony. The major points brought out in this testimony are highlighted in "Need for H.R. 1614."

(B) In the opinion of the committee, no new budget authority or increased tax expenditures, as required in section 308 (a) of the Congressional Budget Act of 1974, will result from the enactment of this Act.

(C) The Committee on Government Operations has sent no report to the Ad Hoc Select Committee on Outer Continental Shelf pursuant to clause 2 (b) (2) of rule X.

(D) Pursuant to Section 403 of the Congressional Budget Act of 1974, the Congressional Budget Office has prepared a cost estimate for H.R. 1614. (The cost estimate follows:)

Hon. JOHN M. MURPHY,

CONGRESSIONAL BUDGET OFFICE,

U.S. CONGRESS,

Washington, D.C., August 5, 1977.

Chairman, Ad Hoc Committee on the Outer Continental Shelf, U.S. House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: Pursuant to section 403 of the Congressional Budget Act of 1974, the Congressional Budget Office has prepared the attached cost estimate for H.R. 1614, the Outer Continental Shelf Lands Act Amendments of 1977.

Should the committee so desire, we would be pleased to provide. further details on the attached cost estimate.

Sincerely,

ALICE M. RIVLIN, Director.

CONGRESSIONAL BUDGET OFFICE, COST ESTIMATE, AUGUST 4, 1977

1. Bill number: H.R. 1614.

2. Bill title: Outer Continental Shelf Lands Act Amendments of 1977.

3. Bill status: As ordered reported on July 27, 1977 by the House Ad Hoc Select Committee on the Outer Continental Shelf.

4. Purpose of bill: The major objectives of this bill are to amend the Outer Continental Shelf Lands Act and establish a policy for the management of Outer Continental Shelf (OCS) oil and natural gas. The bill would protect the marine and coastal environment through the establishment of an offshore oil spill pollution fund, and would provide funds for claims of damages to commercial fishing vessels, gear, or loss of revenue through the establishment of fishermen's gear compensation funds. In addition, the bill would amend the Coastal Zone Management Act of 1972 by providing additional grants to coastal states for the purpose of ameliorating adverse impacts resulting from exploration, development, or production of energy

6. Basis of estimate:

Title II Amendments to the Outer Continental Shelf Lands Act This part of the bill would have three cost effects: (1) Implementation costs for enforcement and safety, new responsibilities at the Department of the Interior, and miscellaneous responsibilities at the Department of Justice and the Department of Labor; (2) the establishment of fishermen's gear compensation funds; and (3) revenue loss due to experimental bidding procedures.

Implementation costs

The primary implementation costs are for enforcement, which requires purchases of new vessels, aircraft, and other enforcement equipment. These costs are estimated as follows:

An estimated $2 million in fiscal year 1978, with increases thereafter for inflation, falls in functions 550 and 750, for the Department of Labor and the Department of Justice respectively. An estimated $14 million in fiscal year 1978 falls in function 300. The remainder of the implementation costs fall within budget function 400.

Fishermen's gear compensation fund

Section 205 would authorize the Secretary of the Interior to establish and maintain a Fishermen's Gear Compensation Fund for any area of the Outer Continental Shelf. The funds are to be established at the discretion of the Secretary, and each fund is to be maintained at a level not to exceed $100,000. The funds are to be supported by collection of fees of up to $5,000 per lease per year, for leases issued after enactment of this bill. In addition, each fund is authorized to borrow up to $1 million from the Treasury to lower its obligations. It is anticipated that the Secretary will establish only a small number of funds, and that, over the long term, they will be fully supported by lessor fees. Net income from such fees is projected to be less than $500,000 in fiscal year 1978, and zero thereafter.

Revenue loss

Section 205 of the bill would authorize the Secretary of the Interior to grant leases according to several experimental procedures in addition to the traditional cash bonus bid method. The thrust of this provision is to decrease the front-end cash required so that competition for leases might be increased. The methods used are at the discretion of the Secretary of the Interior, with the only constraint being the use of the non-cash bonus bid fixed royalty method for at least 50 percent of the leases. The assumption is made that the bidding experimentation would be implemented for the minimum 50 percent of the leases and that this would result in a decrease of approximately one-half for the bonus revenues of this 50 percent of the leases. These experimental methods are designed to increase revenues in the production phase of