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BP, Obama administration near spill deal but gulf lawmakers wary

U.S. Coast Guard via Reuters

The Deepwater Horizon oil rig burns on April 21, 2010. Eleven workers died and 4.9 million barrels of oil were spilled.

BP and the Obama administration have made progress toward a criminal and civil settlement over the 2010 Gulf of Mexico oil spill --narrowing their differences to $6 billion, the Wall Street Journal reported -- but Gulf Coast lawmakers from both parties are worried the terms will send most of the money to the federal government instead of the affected states.

"The Obama administration could be cutting a deal that allows BP to write off much of the fines as a tax deduction," Rep. Jo Bonner, R-Ala., said in a statement this week. "What’s more, the bulk of the penalty collected by the federal government would essentially be walled off from local control to be doled out as the administration sees fit."

The Journal, citing people familiar with the talks, reported Wednesday night that BP and the Justice Department are close to a broad deal but that a key obstacle is what degree of negligence, if any, should be attributed to BP. The more negligent, the higher the fines under the Clean Water Act.

Civil penalties under the act could range between $5.4 billion and $21 billion. One person familiar with the talks said that as of last month, the two sides were about $6 billion apart on a final settlement figure, the Journal reported.

The talks are separate from a March settlement whereby BP agreed to pay plaintiffs $7.8 billion for damages.

The Justice Department is weighing whether to levy fines not through the Clean Water Act but through a provision of the Oil Pollution Act that would allow BP to deduct the fines from corporate taxes, the Journal reported.

Moreover, funds in the Oil Pollution Act are controlled by the federal government, whereas Congress passed a law requiring that 80 percent of any BP fines via the Clean Water Act go to the five Gulf Coast states.

Two years after the BP drilling rig exploded and triggered the largest offshore oil spill in U.S. history, some scientists and residents say they are starting to see signs of environmental damage in fish and other marine life in the Gulf Coast – which is a vital part of the local economy. Sen. Mary Landrieu, D-La., discusses.

Louisiana could actually benefit from fines via the Oil Pollution Act, since those must go to environmental cleanup and Louisiana was the hardest hit state in terms of spill damage.

But seven House lawmakers from Alabama, Florida, Mississippi and Texas last week sent a letter to U.S. Attorney General Eric Holder saying they object to any deal "that disproportionately applies penalties" through the Oil Pollution Act.

Related: Oil sheen coming from Deepwater Horizon site

A similar letter was sent by eight Senators, including Louisiana's Mary Landrieu, a Democrat who co-sponsored the RESTORE Act requiring that 80 percent of any Clean Water Act fines go to the gulf states.

"Circumventing the will of Congress by short changing the RESTORE Act is wholly unacceptable to us," they wrote. 

An explosion aboard the Deepwater Horizon drilling rig on April 20, 2010, led to deaths of 11 workers and the worst oil spill in U.S. history -- 4.9 million barrels of oil.

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