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Resources that the Department has made "noteworthy progress" in resolving past problems. Senator William Proxmire (one of Congress' most ardent opponents of governmental mismanagement) praised our efforts late last year, stating that the Interior Department "deserves a pat on the back for beginning to do a difficult job well." Additionally, on March 23, 1988, two RMP employees received the Department of the Treasury's Award for Distinction in Cash Management. The efforts of these employees in converting royalty payors to the use of Electronic Funds Transfers saved an estimated $1 million in interest costs to the Treasury during FY 1987 alone. Similar savings will be realized in each subsequent fiscal year. That is not to say that MMS has not come under fire from the media and other critics. You are undoubtedly familiar with the Arizona Republic series of articles which severely criticized the Department's management of Indian affairs, and included commentary on minerals and royalty management issues. As a consequence, the Select Committee on Indian Affairs began an investigation inquiring into the Department's fulfillment of its trust responsibilities to Indians, including the royalty management mission. I believe, however, that MMS should receive more than a passing grade from this investigation and I would like to submit for the record at this time my detailed response to the Arizona Republic as well as a similar response to a series of articles which appeared in the Tulsa Tribune.

Mr. Chairman, this completes my prepared statement. I would be pleased to answer any questions you or the Subcommittee members may have.

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In FY 1989, MMS plans to hold 6 oil and gas lease sales; 1 in California (91 Northern, ); 1 in Atlantic (96 North); & 4 in the Gulf of Mexico (116 Eastern, 118 Central, 122 Western, & SUI Supplemental).

The budget includes $250,000 to continue the Alaska Boundary Project, subject to matching funds from the State of Alaska.

O ENVIRONMENTAL STUDIES

The request for environmental studies is $21,865,000. This continues the FY 1988 level of studies after deducting one-time funding of $900.000 appropriated specifically to accelerate studies in various frontier areas in FY 1988.

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O RESOURCE EVALUATION

The $700.000 decrease represents the final year of the phase out of reinburgements to industry for the costs of processing geologic and geophysical data requested by Mrs. The budget Includes $1,800,000 for OCs minerals aining and identifies three potential new initiatives for FY 1989: (1) a New York-New Jersey task force to address development of sand and gravel resources in the New York Bight area; a Virginia task force to address titanium-bearing placer deposits near the mouth of the Chesapeake Bay; and an Alaska task force to examine development of the gold placer deposits occurring in the Norton Basin. O MINERAL REVENUE COLLECTIONS An increase of $2,366.000 18 requested in this subactivity to extend automated production reporting, which allows automated comparison of sales reports from royalty payors with production reports from lease operators, to all 24.000 onshore Federal and Indian oil and gas leases. The total increase requested for this initiative is $4,406.000 (includes $1,995,000 in Systems Development & Operation & $45.000 in the General Administration budget activity). The total FY 1989 funding level is $4,606,000 ($200.000 is in the base). A phased conversion is planned to be accomplished by mid-FY 1989. Similar reporting on Outer Continental Shelf leases has resulted in $18.6 million in increased collections in 2.5 years. The implementation of this additional onshore production reporting is expected to increase revenues in 1990 by $11.1 billion. A reduction of $309,000 in the contract for exception processing reflects the completion in FY 1989 of retroactive exception processing for prior period backlogs dating from October 1983.

O MINERAL REVENUE COMPLIANCE

The budget includes $2,500,000 for cooperative and delegated audits.
The FY 1989 request for the audit program totals $11.6 million which will
fund 175 auditors plus support staff.
O SYSTEMS DEVELOPMENT AND OPERATION
Decreases totalling $1,007,000 are offered for: (1) one-time
telecommunications equipment purchases, $175,000; (2) computer operations
and maintenance (O&M). $607.000; & (3) mainframe leasing costs, $225,000.

An increase of $1,995.000 is requested for computer operations and soft-
ware improvements for the onshore production accounting system.
O GENERAL ADMINISTRATION

Headquarters consolidation initiated in FY 1988 will be completed.
A decrease of $213.000 reflects a nonrecurring need for funds expended
on telecommunications expenses associated with the consolidation.

An increase of $45,000 is requested for FTS costs associated with onshore production accounting.

o PAYMENTS TO STATES

The projected increase of $26,064,000 in the Payments to States from Receipts under Mineral Leasing Act budget activity reflects rising oil, gas, and coal prices; re-adjustment of 31 coal leases to % of sales royalty calculation; and full year oil and gas rental receipts. under the competitive onshore leasing program.

The $600,000 increase in miscellaneous payments is for interest on late payments ($250,000). interest on refunds ($150,000), and rewards ($200,000).

O BASE ADJUSTMENTS

The major components of a total base adjustment of $1,323,000 for fixed costs are:

o $1,895,000 for the full-year cost of the FY 1988 pay raise and for

the effect of the FY 1987 executive and Washington-area clerical pay raises;

0 -$2,568,000 for the revised costs of the Federal Employees

Retirement System, reflecting changes in actuarial, switch rates, and thrift plan assumptions used to calculate agency contributions for FERS.

o $1,996,000 for adjustments in administrative costs such as

rental payments and telecommunications.

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United States Department of the Interior

MINERALS MANAGEMENT SERVICE

WASHINGTON, DC 20240

DEC 14 1987

Mr. Alan Moyer
Managing Editor
The Arizona Republic
120 East Van Buren
Phoenix, Arizona 85004

Dear Mr. Moyer:

babril In early October 1987, your newspaper published a series of articles entitled "Fraud in Indian Country: A Billion-Dollar Betrayal." Several times the series addressed the collection and disbursement of mineral royalties owed to Indians and specifically discussed actions allegedly taken or neglected by the Minerals Management Service (MMS). Prior to publication, MMS provided your reporters many documents and records, and I myself spent hours with them explaining the program. I am disappointed to see that, for the most part, they chose to ignore the facts and instead deliver to your readers a false and misleading story. In recent years we have seen several other reports in the press about alleged mismanagement of federal and Indian lease revenues, most of them based on the same unsupportable "data" and relying on the same ill-informed sources. We have responsibly refuted these reports and the sources cited by them, the most outstanding examples being an article in the April 1987 issue of Washington Monthly magazine and a seriously flawed Congressional report upon which the article was based. Both of these documents and our detailed responses to each were among the records made available to the Arizona Republic. The overriding and explicit charge made by the Republic's series against MMS is that the royalty management program is "badly managed" and "poorly run." In fact, the program has been greatly improved since 1982, when MMS was created expressly to take over federal and Indian mineral revenue management. While there have been many studies critical of past mismanagement and MMS'S failure to resolve decades of problems overnight, those criticisms simply are no longer valid. The General Accounting Office (GAO), a close observer and often a severe critic of royalty management, testified before Congress in April 1987 that "in fairness to the Department there has been noteworthy progress made." In the September 29, 1987, Congressional Record, Senator William Proxmire stated about royalty management and its past problems that "... the Department is no longer at fault. Instead of a lashing, they deserve a pat on the back for beginning to do a difficult job well." He also said, "Given the complexities of the the system, the Department is doing a reasonably good job. A little more time to continue their improvements and they may soon be doing an outstanding one."

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