Outlook for Achieving Fiscal Year 1983 Offshore Revenue Estimate:

Possible but Not Likely

EMD-82-83: Published: Jun 8, 1982. Publicly Released: Jun 14, 1982.

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GAO was asked to review the Administration's estimate that Outer Continental Shelf revenues would total $18 billion for fiscal year (FY) 1983. Questions focused on: (1) the assumptions, data, and methodology used to develop the estimate; (2) the relationship of the estimate to prior years' receipts; (3) the accuracy of estimates for the past 10 years; (4) the role of the Office of Management and Budget (OMB) in developing the estimate; and (5) the difference between the Administration's estimate and the lesser estimate developed by the Congressional Budget Office (CBO).

The estimate was reduced to $15.7 billion after various groups suggested that the original estimate was a means of reducing projected budget deficits. Under the areawide lease offering approach, sale sizes will increase substantially. The Department of the Interior has developed a new method to forecast bonus receipts; however, its track record shows that accurately forecasting receipts for any one year is difficult. The high revenue estimate for FY 1983 is unprecedented. The realization of the estimated revenues depends largely upon how precisely bonuses for two sales in the Gulf of Mexico were estimated, since these account for about two-thirds of the original bonus estimate. Bonuses of this size seem questionable because most of the Gulf areas have already been considered by industry. Resource estimates for these two areas vary widely, and the last two sales in the Gulf of Mexico brought in substantially lower bonuses than expected. The OMB estimate was more than $1 billion higher than the original Interior estimate; the major difference was that OMB assumed that about $1.5 billion held in escrow would be released to the Department of the Treasury in FY 1983. The CBO estimate was about $5.2 billion lower than the Administration's original estimate. The CBO estimate was based on different projections for bonus and royalty receipts and different assumptions about the release of monies held in escrow. Achievement of even the latest Administration offshore revenue estimate for FY 1983 is possible, but not likely.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Interior officials do evaluate prior leasing experience to estimate future OCS revenues. These officials evaluated prior leasing experience in forecasting OCS revenues for fiscal year 1984. However, Interior officials stated that this was common pratice or procedure and was not the result of the recommendation.

    Recommendation: The Secretary of the Interior should evaluate future leasing experience against the methodology and assumptions used in the current forecasting model. Such analyses should lead to validations or necessary adjustments to the model needed to increase the reliability and confidence in future revenue forecasts.

    Agency Affected: Department of the Interior

  2. Status: Closed - Not Implemented

    Comments: OMB states that information on the development of OCS revenue estimates is available upon request and does not believe that routine publication of this information would provide sufficient public benefit to justify the publication costs.

    Recommendation: The Director of OMB should provide, concurrent with future offshore revenue estimates, a full discussion of the rationale used in developing the estimate. This discussion would keep Congress and others better informed, and should include complete descriptions of the various factors that could impact on the accuracy of the estimate, type and quality of the data used to develop the estimate, and likelihood of achieving that level of revenue.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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