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                                                        Calendar No. 11
109th Congress                                                   Report
                                 SENATE
 1st Session                                                      109-4

======================================================================
 
                 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.