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June 16, 2006
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Transcript - June 16, 2006

BRANCACCIO: Welcome to NOW...

Been through your family bills lately? How are the ones for gasoline, oil or natural gas? We've got a story tonight that's going to make some of those bills tougher to swallow.

It's no secret that oil and gas companies have been making some file and in some cases record-breaking profits.

But here's something that gets rather less attention in the media: some of that oil and gas is being pumped out of America's publicly-owned lands and seabeds.

Industry is supposed to be paying the government royalties for the right to do that...

It's a critical source of revenue for the government, turn out second only to the income tax.

But as senior correspondent Maria Hinojosa and producer Na Eng have found out, Democrats and Republicans have been falling over each other to engineer/concoct special deals for big energy companies -- costing taxpayers a fortune.

HINOJOSA: From the open land that blankets this country to the deep waters in the Gulf of Mexico... American taxpayers own some very valuable property. Rich deposits of crude oil and natural gas lie underneath the millions of acres of this publicly owned territory. In exchange for a drilling lease, oil and gas companies agree to pay the government royalties -- a share of their sales made off the natural resources.

But are oil and gas companies ripping us off? Are they paying all of the royalties they should be paying? Some in Congress say these companies are getting sweetheart deals, deals that could cost the public 80 billions dollars. That's right, 80 billion dollars owed to the American taxpayer, and so far, the check is not in the mail...

You may think this is just another story about some big oil Republicans in the White House, but our story actually begins in 1995, when a Democrat was President.

And in the Senate, there was big oil democrat Bennett Johnston.

JOHNSTON: And Mr. President, you helped us get the oil industry going out in the Gulf of Mexico...

HINOJOSA: Back in 1995, Johnston -- from oil-producing Louisiana -- succeeded in getting congress and President Clinton to allow companies to drill in the deep waters in the Gulf of Mexico without having to pay hardly any royalties. Here's Johnston today.

JOHNSTON: And so you want to get an oil company to drill in 6,000 feet of water. Might cost them a billion dollars. It might take ten years to get it done. And it's very, very chancy. They may not -- they may not get it. So you give them prospective royalty relief. And it worked.

HINOJOSA: Here's how the royalty system is supposed to work. For much of the past century, oil and gas companies had agreed to pay at least 12% in royalties for a lease to drill on public land or water. Over the years, those royalty payments generated over 100 billion dollars in revenues. But with Johnston's Deep Water Royalty Relief Act, companies no longer had to pay U.S. Taxpayers some of those royalties. And this raised the ire of Democrat George Miller.

MILLER: Royalty relief is just a metaphor. It's a metaphor for taking the people's money and giving it to the richest companies.

HINOJOSA: As chair of the house resources committee in the early 90s, California congressman George Miller led the fight against Bennett's royalty relief plan...

When the oil companies seek royalty relief from -- from Congress, what kind of deal are they getting?

MILLER: That's what's known as a sweetheart deal. These oil companies along with some members of Congress have really engineered one of the great train robberies of all time. And all of the money, all of the gold that they've taken off the train belongs to the taxpayers.

HINOJOSA: oil prices were fairly low in the 1990s -- under 20 dollars a barrel -- and the Clinton administration wanted to spur drilling and production inside the United States.

CLINTON: Our economy, our environment, our national security depend upon a healthy domestic oil and gas industry....

HINOJOSA: The royalty relief bill sailed through Congress.

Since then, the deep water drilling business has been booming ... but was it the royalty breaks that brought the companies there, or was it the pursuit of oil -- and big profits?

HINOJOSA: Bennett Johnston says that were it not for the royalty relief -- that the companies would not have gone into deep sea drilling. And that this is the only way that these companies are going to do what they have to do to provide for all of us.

MILLER: Just not so. The companies will go there because it's good for them. They're going into deep water cause that's where the oil is.

HINOJOSA: Explain to the American public though, How it is that a member of Congress essentially enters into a deal with the oil companies that perhaps may shortchange the tax payer.

MILLER: These companies know exactly what they're doing. But they sell that line to a member of Congress. And the member of Congress sells that line to the rest of the colleagues. And you end up with royalty relief -- for -- for oil companies at the expense of the American tax payers.

HINOJOSA: Bennett Johnston disagrees. He insists those drillers would not be in the gulf if it weren't for those royalty breaks...and for the past decade, companies have been making investments, providing jobs, and of course, producing oil and natural gas...

JOHNSTON: You can say -- you can say the companies would have drilled even without this. That is just not true. They were not drilling. And we put this law in effect. And overnight the -- the interest, and the drilling, and the leases. The lease sales were -- went up tremendously. Went up 400 percent in a matter of five years. 400 percent. I mean that's success. I don't think you're going to get people to believe that. But it is true.

HINOJOSA: Why do you think that people aren't going to believe that?

JOHNSTON: Because they think -- oil companies are making obscene profits. And they see their price go up at the pump. And look, oil companies are next to the devil in the minds of people.

HINOJOSA: They say the devil is in the details. The details in this law, it turns out, generated some enormous loopholes. Now, the relief program did set some price limits- so for example, when oil went over $34/barrel, the companies were supposed to start paying royalties.

But a strange thing happened on the way to the bank. The interior department, under president Clinton, forgot to put in those price limits for about 1,000 long term leases granted over a two year period. According to a draft report from the government accountability office, or G.A.O., the estimated cost to taxpayers from this government goof is... ten billion dollars. That's ten billion dollars in royalties that the U.S. will not be able to collect because they weren't included in the lease agreements.

It gets worse. Not only were there loopholes and missed revenues from poorly written leases -- insiders say the oil and gas industry is doing almost anything it can to avoid paying the full royalties they owe.

GAMBRELL: I think the American taxpayers are losing billions of dollars.

HINOJOSA: For seven years, Kevin Gambrell was the man in charge of collecting those royalties from petroleum companies working on federal and native American lands in the Americans southwest... this former government employee, speaking out for the first time on television, says he caught many oil and gas companies lying and cheating to avoid paying the full royalties they owed.

GAMBRELL: I think oil and gas companies were always trying to figure out how to -- how not to pay royalties or to pay as little as possible.

HINOJOSA: How did they do it?

GAMBRELL: They would take deductions -- that they could not legally take. They would -- price their oil to gas using artificial pricing mechanisms that weren't true to the market. They would hide things.

HINOJOSA: This is not the first time the industry has faced a scandal over not paying royalties. In the 1990s, watchdog groups sued to try to win back missing royalty payments. More than a dozen oil companies--while not admitting any wrongdoing--did pay over 400 million dollars to settle the cases. Beth Daley is with the project on government oversight, the group that filed the suit.

DALEY: The industry's track record is pretty abysmal. What we see is that the industry is -- is very deliberate and persistent about finding ways to short change on their royalty payments.

HINOJOSA: Kevin Gambrell says the pressure on him was intense, so much so that the oil and gas companies resorted to some strong-arm tactics. The companies would not only bring out their army of attorneys and accountants, but Gambrell said members of congress had their staffs leaning on him on the industry's behalf.

GAMBRELL: I get a lot of resistance. I've had companies -- have their congressman contact me or contact my -- my supervisor and try to circumvent me. That's happened many times.

HINOJOSA: But you're an auditor representing the United States government and the American taxpayer. You're trying to get what's due to us. Right?

GAMBRELL: I guess you can say I don't really contribute to that Congressman's -- you know re-election campaign fund and therefore I ca -- I don't have quite the influence that industry has over many of the Congressmen.

HINOJOSA: And what has the White House been doing? President Bush has said several times that the industry doesn't need incentives to drill...

In fact, during the 2000 race, bush criticized his opponent, Al Gore, for his support of royalty breaks for the industry.

BUSH: The price of natural gas is what is stimulating exploration, and the price of natural gas is pretty high now. In other words, my opponent is giving major oil companies a huge tax break.

HINOJOSA: And as recently as this past April, he said it again.

BUSH: "Congress has got to understand that these energy companies don't need unnecessary tax breaks..."

HINOJOSA: But critics charge the Bush Administration has actually handed out even more tax breaks to the oil and gas industry. In 2004, without having to go to Congress, then interior secretary Gale Norton added more royalty relief for the industry to drill for natural gas in shallow water too.

And Gambrell -- who worked under both the Clinton and the Bush administration -- says he noticed a remarkable shift in the Bush era. When he had to confront industry, he no longer had his bosses in his corner.

HINOJOSA: When you found that there were problems in the audits, and you saw that there -- they weren't paying what they should be paying, and you wanted to push the oil and gas companies to pay up, what would happen?

GAMBRELL: I would -- sometimes I would get -- get a call from my boss, who was talking to that oil and gas company, that oil and gas executive -- would contact my boss. And my boss would call me and say, "What are you doing? Why are you doing this? We don't want you -- pushing this issue on this oil and gas company."

HINOJOSA: They didn't want you pushing?

GAMBRELL: Uh-huh.

HINOJOSA: For the collection of royalties?

GAMBRELL: That's what I observed and what I felt.

HINOJOSA: And guess what -- the agency charged with collecting those royalties on our behalf is doing fewer audits.

DALEY: The Interior Department has dramatically scaled back its auditing of the oil and gas leases. They've cut in half the amount of money that they've spent on audits. That sends a clear signal to oil and gas company -- co -- companies that they can steal oil and gas.

HINOJOSA: And under the Bush Administration, says Gambrell, those audits were no longer very thorough.

GAMBRELL: They try to push a lot of short cuts in doing the audit process. In fact it became not even a -- no longer an audit process. It became almost a review, a simple review, and there wasn't really any audit any longer.

HINOJOSA: The interior department's royalty collection bureau -- called M.M.S. -- denies these charges and says the agency "maintains an aggressive and comprehensive audit program."

Meanwhile, the deals keep on coming. Consider this, when gas prices had already gone up to almost $2.50/gallon. The energy bill the president signed into law last summer expanded royalty relief even further. It increased the amount of oil that can be drilled without paying royalties in some of the deepest waters.

BUSH: This bill launches an energy strategy for the 21st century.

HINOJOSA: And incredibly, there's even more the public may lose. One company -- energy giant Kerr-McGee -- doesn't want to pay billions of dollars the government says it owes American taxpayers. In March, the company filed suit against the department of the interior over the interpretation of the Royalty Relief Act... arguing that the leases it signed don't require it to pay any royalties.

DALEY: This is royalty relief on steroids.

HINOJOSA: Beth Daley worries this could be a bombshell.

DALEY: It could extend to all oil and gas leases in the Gulf of Mexico because, of course, the first thing that the other oil and gas companies will probably do is that they'll want to file suit in the same way that Kerr-McGee did.

HINOJOSA: The Kerr-McGee suit is making its way through the courts now... If the company wins -- it could mean a gigantic windfall for the industry. According to a G.A.O. estimate, the loss to tax payers would be sixty billion dollars in the next 25 years.

Kerr-McGee turned down our request for an interview -- but it did give us this statement: "Years ago, we made significant investments in high-risk opportunities in the deep waters of the gulf of Mexico that are helping reduce the nation's dependence on foreign sources of oil and natural gas. Now, the government is trying to take away the guarantees that were enacted by Congress..."

And what is Congress doing about all this? With prices soaring and oil and gas companies showing record profits -- members of Congress on both sides of the aisle say they are now outraged.

There has been some action on the House side. Its resources committee is currently investigating whether the missing price limits on some leases was simply a bureaucratic blunder, or something more.

hinchey: Mr. Chairman, the amendment I have at the desk is a very simple one...

And in May, the house took up a measure to force companies to renegotiate a better deal for U.S. Taxpayers, especially with energy prices as high as they are now...

markey: All we're saying it that you're going to play Uncle Sam as Uncle Sucker, then we're not going to allow you any new contracts!

MILLER: This is a business transaction. It just happens to be a business transaction on behalf of the people of the United States of America who own these lands.

Representative George Miller was a co-sponsor of the bill. That bill has passed the house and is awaiting action in the Senate.

MILLER: We did instruct the Secretary of Interior to renegotiate these leases on behalf of the American people and to put some fairness into them. And if they don't do that, they can't have new leases. We'll see what happens when it goes to the Senate.

So far, the Senate does not have royalty collection on its agenda.

As for Bennett Johnston--the original architect of the Royalty Relief Act -- he retired after 24 years in the senate. He is now a successful oil lobbyist. There's a replica of an oil tanker named after him in his office.

And Kevin Gambrell also left his government post -- not exactly on the best of terms with management. But he remains confident he took the right stand.

GAMBRELL: These resources belong to the taxpayers. When, you know, oil and gas companies don't pay royalties, correctly, it damages everybody. It hurts the American taxpayer. These resources, once they're gone, they're gone forever. And that's the end of it.

BRANCACCIO: If you want to drill down on all this some more, you can check out our website at pbs-dot-org.

One of the features of Maria Hinojosa's story is Republicans and Democrats working hard to help industry. But who is working hard to help Americans who may not have a powerful lobby in Washington. Meet a guy who doesn't mince words on this subject.

David Sirota is a political strategist, blogger and author of the book Hostile Takeover.

BRANCACCIO: David, thanks for coming in.

SIROTA: Thanks for having me.

BRANCACCIO: So you say our democracy is under assault. How?

SIROTA: Our democracy is under assault because big money now controls our democracy; it owns our government. And by that I mean that big money basically decides what Congress does on a daily basis. It makes lawmakers. It controls lawmakers into doing things against -- often against the interests of their constituents.

BRANCACCIO: Well, give me some examples of what big money has wrought in terms of policy that really bothers you.

SIROTA: Sure, sure. We have to understand that the economic challenges facing ordinary Americans are directly related to this problem. So when people go to the gas pump and they're paying $3, $3.50 a gallon for gas, there's a connection between that and the energy companies writing our energy policy.

When people go to the drug store and they're paying exorbitant prices, the highest prices in the world for prescription drugs, they have to understand that there's a connection between that price gouging and the pharmaceutical industry writing our Medicare laws and our pharmaceutical regulations.

Congress isn't letting these industries write these regulations for no reason. They're letting them write these regulations because these are the industries that are funding lawmakers' campaigns.

BRANCACCIO: Well, David, who's doing this? Republicans?

SIROTA: Well -- it's both parties. I mean, this is a -- this is a -- truly a culture of corruption in the bipartisan sense. In Washington, DC, it has become mundane, it has become business as usual to allow big business and the super wealthy to write our laws. And that often, again, puts our government and our public policy at odds with the public that our government is supposed to be serving.

BRANCACCIO: It's your view that if you really understood what the broad American public wants, you'd come up with something that's pretty close to a liberal agenda.

SIROTA: Well, I wouldn't call it liberal. I'd call it -- I'd call it centrist, actually.

BRANCACCIO: Centrist?

SIROTA: Absolutely. The polls show, for instance, that people support a universal government-guaranteed, government-sponsored healthcare system, even it requires tax increases. That's not talked about in our political debate. That not being talked about is no accident. That not being talked about is a deliberate product of a political process that is bought off.

The polls show that the public wants stronger consumer protections. We don't really talk about stronger consumer protections. Instead what we get from Congress lately is gutting of consumer protections.

BRANCACCIO: You're talking about like bankruptcy reform?

SIROTA: The bankruptcy reform -- class action reform.

BRANCACCIO: I thought centrist was, say, a Democrat taking a few steps toward being a Republican.

BRANCACCIO: That's what worked for Bill Clinton, and he was elected twice.

SIROTA: Well, that's -- that's -- that's Washington's definition of centrism. Centrism is you actually look at what's at the center of -- of American public opinion, of what America wants. America wants a government that is willing to guarantee them a better economic security -- is willing to be a protector of the middle class and the working class in this country, against the excesses of unbridled capitalism.

BRANCACCIO: But you're skating on some thin ice here. You ask the American public what they believe, and you're not always gonna get what you would view as an enlightened agenda. If you ask the American public right now, "What do you think about the government snooping in on your phone records in the fight against terror?" Most Americans think they're fine with that.

SIROTA: Look -- you can go down every individual issue. My point in -- in this is on the core fundamental economic issues, pension security, job security, wage security, do Americans want a government that better asserts itself against the big money interests that are destabilizing their economic lives?

The problem is you don't hear that in our political debate because big money interests that control the political debate don't want us to hear it. The biggest thing that threatens big money interest is a political debate that actually asks the tough questions about what Americans want from their government in terms of economic issues.

BRANCACCIO: And you're not hearing the Democrats do that right now.

SIROTA: Not in a substantive, serious way. We cannot fix our political process. We cannot hope to cure the culture of corruption unless we actually attack what's at the root of it, which is private money paying for lawmakers' campaigns and legislative favors coming out on the other end.

BRANCACCIO: Well, TV ads cost a lot of money. Radio ads cost a lot of money. You want your message out if you're running for office.

SIROTA: Absolutely.

BRANCACCIO: How do you get around it?

SIROTA: We need a system of public financing of elections.

BRANCACCIO: Doing that in where? Maine? Arizona? A few places.

SIROTA: That's right. Connecticut. Other localities. It's not a liberal or a conservative idea. Not a Democrat or Republican idea.

BRANCACCIO: All right. So public financing of elections. But if the Democrats are no good on this and the Republicans are no good on this, public financing of elections could take a while to take root nationally. What are we supposed to do? Move to Iceland? I mean, what's the strategy?

SIROTA: Well, I think the strategy is, along with advocating for public financing, is for people to really get far more local in their political activism. The media tells us essentially to focus most of our political activism only on the White House.

But if we really get local. If you put 20 people in the room with your state legislator and you tell them you want them to stop selling you out on the economic issue, they might not change their vote. But they're certainly listening a lot more than your congressman, senator, or president, no matter how good -- your congressman, senator, or president is. That's because the hostile takeover of our government is far less pronounced as you go down the political food chain.

BRANCACCIO: All right. David Sirota is author of Hostile Takeover. Thank you very much.

SIROTA: Thanks for having me.

And that's it for NOW.

From New York, I'm David Brancaccio.

We'll see you next week.



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