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First, the program provides financial assistance balanced between 

 loans and bond guarantees to coastal State and local governments on 

 the one hand, and outright grants on the other. Limited grants are 

 provided for studying the conse(|uences of new or expanded coastal 

 energy facilities in order to prepare courses of actions for dealing with 

 the anticipated fiscal and environmental impacts. Grants are also 

 provided when clear ineciuities arise to coastal State and local govern- 

 ments from energy activity in which the coastal zone plays a special 

 national role- — OCS oil and gas activity and the coastal transportation 

 of fossil energy resources. Such an inequity occurs if coastal energy 

 activity causes unavoidable loss of valuable coastal environmental or 

 recreational resources, and the coastal State involved has no remedy 

 against persons causing such a loss. 



Such an inequity also arises if the energy activity leads to popula- 

 tion increases requiring costly new public facilities and services; but 

 because of jurisdictional or other reasons, the activity does not provide 

 sufficient offsetting tax revenues to the fiscally impacted coastal State 

 or local governments. The primary assistajice offered by the program, 

 hoAvever, for financing public facilities and services made necessary by 

 any coastal energy activity, are Federal loans and bond guarantees, 

 not grants. Initial assistance for such facilities and services is in the 

 form of credit rather than grants, because in many cases the adverse 

 fiscal impacts experienced by a coastal State or local government will 

 only be temporary and will be offset later on by increased tax revenues 

 from the coastal energy activity involved. 



The fact that coastal energy activity can be, in some cases, a source 

 of significant tax revenues, but that coastal States can still be con- 

 fronted by severe front-end financing problems because of such activity, 

 is supported both by experience and by studies — an important one 

 being the Office of Technology Assessment's "Fiscal Effects on State 

 and Local Government from Offshore Oil/Gas and Port Develop- 

 ment.'' Repaying the assistance for public facilities and services from 

 later offsetting tax revenues M'ill make the assistance again available 

 for meeting new coastal State and local needs. "Recycling'' the assist- 

 ance through the program in this way means, therefoi-e, that much 

 more can be accomplished with the same amount of funds. 



The approach taken by the program is essentially the same as the 

 original approach of S. 586 — loans for temporary adverse impacts and 

 grants for net adverse impacts. I believe this approach to be the best 

 way of solving the basic front-end financing and equity problems 

 brought on by coastal energy- activity, at the least cost of the Federal 

 taxpayer. 



Administratively, the program strikes a careful balance between 

 being "automatic" and being "discretionary." Formulas will be used 

 to allocate among tlie coastal States both the OCS formula grants, 

 section 308(b), and the coastal energy activity loans and guarantees, 

 section 308(d). In both cases, though, the proceeds or guarantees to 

 Avhich a State is entitled will not be disbursed or made until the State 

 demonstrates to the Secretary that tliey will be used for the purposes 

 described in the bill. lentil such demonstration, the proceeds of the 

 formula grants will stay in the State's "account'' with the Seci-etary, 

 and similarly for the coastal energy activity credit. Thus, while coastal 



