BUDGET-COMBERS FIND SHELL, HEAR STATE PAY RAISE INSIDE
Mar 21, 2002
By JEFF AMY
Capital Bureau
Millions received from oil giant could help finance 3 percent boost for
Alabama employees
MONTGOMERY -- A key budget writer said Wednesday that millions of dollars
received from Shell Oil Co. will help finance 3 percent salary increases
for state employees.
The election-year pay boost, backed by Gov. Don Siegelman and many senators,
had been in doubt. Earlier this month, the House passed a $1.19 billion
General Fund budget without the pay raises, which would cost about $13
million to $14 million.
Shell wired $27.11 million to the state Tuesday to settle a Mobile County
Circuit Court lawsuit in which Alabama claimed the company defrauded the
state by deliberately underpaying royalties from natural gas drilling.
Of the total, $13.44 million was classified by state officials as punitive
damages, which means Alabama doesn't have to put those moneys into
a savings account, but instead can spend them for most non-education purposes.
"It's already included in the budget," said Sen. Roger Bedford,
D-Russellville, who is chairman of the Senate's General Fund budget
committee. "It will be used to prop up the state agencies and to
help pay for the state employees' pay raise."
The General Fund pays for most agency operations except education and
transportation. The 2003 budget passed by the House already depends on
$48 million in other one-time transfers, a situation some legislative
leaders warned will create a cash crunch in 2004.
The House did agree to a 3 percent increase for school employees, paid
for in the separate education budget. That could serve to increase pressure
to provide the raise for other state employees.
"The governor is still very supportive of a cost-of-living adjustment
for state employees," said Rip Andrews, a spokesman for Siegelman.
"If this is the way they choose to do it, this is the way they choose
to do it."
Sen. George Callahan, R-Theodore, decried putting the money into the 2003
budget, saying it would be better off in the $2.1 billion savings account,
known as the Alabama Trust Fund.
"I think it has more to do with the governor's current budget
proposal than it does with justice," Callahan said.
But representatives for Siegelman and Attorney General Bill Pryor defended
the accounting decisions which kept some of the money from being put into
the $2.1 billion Alabama Trust Fund, a state savings account for royalties
paid by companies producing natural gas in Mobile Bay and state waters
in the Gulf of Mexico.
The fund produces interest income which helps pay for General Fund operations.
Some of the royalties also pay for bridge repairs and economic development.
Shell paid a total of $33.5 million. The Mobile firm of Cunning ham, Bounds,
Yance, Crowder and Brown earned 14 percent, or $4.69 million, as a contingency
fee. The firm, hired by Siegelman to sue five gas drillers, also received
another $1.69 million in expenses. That left $27.11 million for the state.
Siegelman, Pryor and the hired lawyers decided to classify $13.68 million
of the settlement as compensatory damages, reimbursement for money the
state would have collected if Shell had always paid according to the guidelines
Alabama claims are proper. The other $13.44 million were described as
punitive damages, money extracted as punishment over and above any actual injuries.
The decision is crucial, because compensatory damages are locked away
in the Trust Fund where state officials can't spend them directly,
but punitive damages are available now. The lure of such damages sparked
weeks of wrangling in the state Senate earlier this session, as senators
argued over proposals to send the money to various programs.
"If they're compensatory, it goes to the Alabama Trust Fund.
If they're punitive, it goes to the General Fund," said Richard
Dorman, a lawyer with Cunningham, Bounds.
"That's the way we felt it should be apportioned," Dorman
said. When asked who specifically made the decision, he declined comment,
saying he felt that would require an improper discussion of his client's affairs.
Kelly Coone, a spokeswoman in Shell's New Orleans office, said the
company didn't consider any of the total it paid the state to be punitive damages.
"Ours are compensatory damages," she said.
Houston-based Shell is the American unit of Royal DutcShell, a Dutch-British
firm that reported $10.9 billion in profits last year.
The state had claimed Shell owed $25.4 million in compensatory damages
when it filed the suit in 1999, using figures from a state-commissioned
audit. At the 12 percent interest rate mandated for royalty disputes,
that amount would have grown to more than $31.9 million by now. But Dorman
said consultations with other experts indicated that amount was probably too high.
Pryor's office provided a March 6 letter from Dorman to Siegelman
that discussed the settlement. In the letter, Dorman notes that Shell
claimed it only owed $12.26 million in compensatory damages. Dorman and
Pryor recommend to Siegelman that the state allow Shell a $6.2 million
write-off for transporting gas, and that it split the difference on some
remaining items, placing the compensatory amount at $13.68 million.
Because that was the cap on compensatory damages, a spokeswoman for Pryor
argued that by definition everything else had to be classified as punitive damages.
"It wouldn't have been a legal option to have the rest of the
money be considered compensatory. It would have had to be punitive,"
said Joy Patterson, a spokeswoman for Pryor.
She said the attorney general approved of the division between punitive
and compensatory damages. Patterson said Pryor believed the maximum amount
the state could collect in compensatory damages was about $15.1 million.
Lt. Gov. Steve Windom, a director of the Alabama Trust Fund, declined
comment. State Treasurer Lucy Baxley, another of the nine directors, said
that she didn't know much about the issue.
"If there are dollars that are due to the fund by law, then by all
means they should go there," Baxley said.
Appeals are pending for two previous trial verdicts the state won against
natural gas drillers. In December 2000, a Montgomery County jury ordered
Exxon Mobil Corp. to pay $3.5 billion to the state, of which $3.42 billion
were punitive damages. Last year, the state won $24.5 million from Hunt
Petroleum Corp., of which $20 million were punitive damages.
Suits are still pending against the former Amoco Corp., now absorbed into
British firm BP PLC and against Mobil Corp., now part of Exxon Mobil.