the next several hundred years will certainly not be due to a lack of undiscovered reserves but rather a failure of the discovery effort for one reason or another.

"Experience suggests that failure is more often the result of failure to provide a healthy political and economic climate than it is a failure of technology." It should be noted that what oil has been developed on this coast was by private enterprise with directional drilling. Respectfully submitted.

Dr. OLIN S. PROCTOR.

EXECUTIVE OFFICE OF THE PRESIDENT,

Hon. EMANUEL CELLER,

BUREAU OF THE BUDGET, Washington, D. C., September 28, 1949.

Chairman, Committee on the Judiciary,

House of Representatives, Washington, D. C.

MY DEAR MR. CELLER: Our attention has been called to the hearings which were held on August 29, 1949, by the subcommittee of the Committee on the Judiciary, House of Representatives, on H. R. 5991 and H. R. 5992, bills to promote the exploration, development, and conservation of certain resources in the submerged coastal lands and to provide for the use, control, and disposition of said lands and resources and of lands beneath inland waters. We understand that the subcommittee does not intend to receive additional oral testimony but that this matter will remain open until October 1 for the receipt of comment from interested parties. In view of the fiscal implications of this legislation, we are taking this opportunity to present for your consideration the Bureau's views on some of the problems raised by these bills. It would be appreciated if you would make this letter part of the record on the subject legislation.

The Bureau considers it most desirable that in any legislation dealing with the issue of the submerged coastal lands all proceeds to Federal Government from gas and oil operations should be paid into the Treasury and credited to miscellaneous receipts. Any provisions earmarking such moneys for a particular function would result in an undesirable complication of accounting procedures and would tend to present a misleading picture with respect to the fiscal operations of the Government. Moreover, it is believed that the revenues to the Federal Government from these resources should be available for the general purposes of the Government which benefit the Nation as a whole.

It is noted that neither H. R. 5991 nor H. R. 5992 contains any provision designating the purposes for which proceeds to the Federal Government may be used, but that H. R. 5991 in sections 7 and 9 (c) does provide that the moneys received shall be paid into the Treasury of the United States for credit to miscellaneous receipts. H. R. 5992 does not contain any language to this effect; nevertheless, in the absence of any provision on this issue all proceeds would be paid into the Treasury for the general purposes of the Government. It thus appears that the desired result would be obtained by either of the approaches adopted in these bills.

Section 9 (c) of H. R. 5991 would vest in each coastal State the right to 622 percent of all moneys received from operations within the State's marginal belt. Such a provision would apparently constitute congressional recognition of the equitable interest which may exist in the State off whose shores operations under the legislation are conducted. It is believed, however, that the share allocated to the States by H. R. 5991 is inordinately high, especially when it is considered that the Mineral Leasing Act, which has been in operation for many years, provides that the States within whose boundaries Government lands are located receive but 371⁄2 percent of the royalties obtained from oil produced thereon. It is difficult to understand the greater equities which the States have in lands off their coastal shores. Moreover, the States are accorded a significant, additional benefit in all legislation currently before the Congress on this issue in view of the fact that under none of the bills will the Federal Government seek an accounting from the States for funds received from their activities on the submerged coastal lands prior to a specific date in 1947 or later. In light of the foregoing, it is even more difficult to understand the equitable considerations which would justify the additional share which section 7 of H. R. 5991 would accord to the coastal States in the proceeds from minerals produced from the large area located beyond the 3-mile limit and lying between the marginal belt and the edge of the Continental Shelf.

With respect to the exchange of existing State leases in the Continental Shelf, it is noted that section 5 (a) of H. R. 5991 provides for a cut-off date of January 1, 1949, rather than June 23, 1947, as provided in section 5 of H. R. 5992. On this latter date the Supreme Court handed down its decision in the California case. It is our belief that the interests of the Federal Government are inadequately protected by the cut-off date provided in H. R. 5991 which does not take into account the continued and, indeed, renewed State activity in the lands in question subsequent to the California decision. Equally objectionable in this respect is the provision in section 5 (c) of H. R. 5991 calling for an accounting by the States to the Federal Government for moneys received from leases as of the effective date of the act, which will be later than the cut-off date provided in that bill; it is our opinion that the date for this purpose should be no later than June 23, 1947.

Moreover, it should be noted that in removing any liability of the States for proceeds received from operations prior to January 1, 1949, in H. R. 5991 or June 23, 1947, in H. R. 5992, these bills do not take into account the bonuses which States may have received in following the generally adopted policy of awarding leases at a fixed royalty rate of 121⁄2 percent to the bidder offering the highest bonus. Thus, in effect, the Federal Government in exchanging leases will receive a much smaller return from these resources than it would have received had it granted the original leases on a competitive basis. This, then, is another area in which the Federal Government is conceding to the State a significant benefit which, it is believed, should be kept in mind when evaluating the equity of the States in the proceeds from activities in the submerged coastal lands.

A further objection to H. R. 5991 is that it does not contain any provision authorizing the President to withdraw any of the submerged coastal lands from disposition and to establish reserves for the United States in the interest of national security.

In light of the foregoing observations, which indicate some of the objectionable features of H. R. 5991, the Bureau of the Budget is of the opinion that its provisions do not adequately protect the interests of the Federal Government. While H. R. 5992 appears to meet a member of the above-mentioned objections, it is our belief that a preferable approach to this entire problem is to be found in those bills, brought to the subcommittee's attention in testimony on August 29, 1949, which incorporate the drafts of legislation jointly proposed to the Congress by the Departments of the Interior, Justice, and Defense. It is believed that these measures afford a desirable framework within which adequate provisions for the interests of the Federal Government and the various States may be made.

Sincerely yours,

(Signed) FRANK PACE, Jr.,

Director.

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