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updated 9/28/2010 4:26:25 PM ET 2010-09-28T20:26:25

President Barack Obama's point person on the Gulf coast's restoration on Tuesday advised paying for it with some of the billions of dollars in civil penalties that could be collected from companies responsible for the BP oil spill.

Navy Secretary Ray Mabus said a significant portion of any fines against companies involved in the spill should be placed in a fund for Gulf restoration. He said it would be up to Congress to determine how much of the fines to set aside.

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The April 20 rig explosion in the Gulf killed 11 workers and led to 206 million gallons of oil spewing from BP's undersea well.

Dedicating fines levied against BP and other companies to restoration and directly to Gulf states would require a change in law. Currently, Clean Water Act fines go into a trust fund to pay for oil spill cleanups.

Rep. Steve Scalise, R-La., and Sen. Mary Landrieu, D-La., support legislation that would require that at least 80 percent of the civil and criminal penalties charged to BP under the Clean Water Act be returned to the Gulf Coast for long-term economic and environmental recovery. The bill is still pending.

Mabus envisions some of the funds being spent on repairing wetlands damaged over the years by the construction of canals to serve coastal oilfields.

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With the equipment and manpower already in the Gulf repairing damage from the oil spill, Mabus said it would be cheaper and more efficient to also repair the coastline from other damage it has suffered over the years.

Mabus is proposing that a panel be set up to administer any money set aside from the fines for coastal restoration. He said there should be a federal and state chair on the panel.

A senior administration official said the White House has already endorsed Mabus' proposal.

Even before the announcement had been made, state and local officials were saying how it should be spent and managed.

"My view is that it should be specific to the injury and the subject that we are dealing with," Landrieu said during testimony Tuesday before the oil spill commission Obama set up to investigate the accident. She named coastal restoration, ocean education, energy infrastructure and levee protection as possible projects.

Landrieu said the money should be used not just for "restoring what we had, but building what we need," something that she said had bipartisan support.

Mississippi Gov. Haley Barbour, a Republican, joined Landrieu before the panel Tuesday. He said that "anything that resulted from this oil spill should be the first priority" for the money.

He also was clear that he didn't want bureaucrats in Washington deciding how it was spent.

"Washington, D.C. is not going to tell the Mississippi Gulf Coast how to rebuild the Mississippi Gulf Coast," Barbour said.

Obama has said repeatedly Gulf Coast residents should decide, and Mabus, a former Mississippi governor, has traveled throughout the region to gather information from local officials.

Obama is expected to sign an executive order soon to carry out another of the report's recommendations, setting up a Gulf Coast Ecosystem Restoration Task Force, which would coordinate the money and help decide which project are funded until Congress sets up a council.

Environmental Protection Agency administrator Lisa Jackson, a New Orleans native, will lead it.

Talks over settling fines denied
Also Tuesday, a Justice Department spokesman denied a report by Scalise that BP and the Obama administration were discussing a possible settlement over fines in an effort to avoid a costly legal fight that would delay that money from reaching the affected states.

Scalise told The Associated Press on Tuesday that members of his staff got information about the talks while working on oil spill-related legislation he is proposing. Scalise said the goal of the talks between BP PLC and the government is to reach a deal instead of having to fight it out in court.

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Any settlement would be separate from the thousands of lawsuits filed by fishermen, restaurant owners and others alleging damages from the spill.

Scalise said the two sides appear to be at odds over whether BP should be considered grossly negligent for the spill, a finding that could mean higher fines. There was no immediate comment from the Justice Department or BP, where on Friday Bob Dudley will take over as chief executive officer.

"It's a negotiation," Scalise said. "If they can't reach an agreement then it would go to court. We would be able to get that money to the Gulf coast quicker if they would agree to it."

Scalise made his comments after appearing at a news conference with Mabus.

Penalties can be levied against BP, which owned the well and was leasing the rig that exploded, under a variety of environmental protection laws, including fines of up to $1,100 for each barrel of oil spilled. If BP were found to have committed gross negligence or willful misconduct, the fine could be up to $4,300 per barrel.

Billions at stake
That means that based on the 4.9 million barrels released from the Macondo well, BP could face civil fines under the Clean Water Act alone of between $5.4 billion and $21 billion.

Dudley, BP's incoming CEO, will have to deal with how to refute claims that BP was grossly negligent.

If it is successful, its partners in the blown-out well, including 25 percent owner Anadarko and 10 percent owner Mitsui, will be forced to share up to 35 percent of the cost.

BP has already shelled out $9.5 billion for cleanup costs and agreed to set aside another $20 billion for a victims' compensation fund.

It also faces hundreds of lawsuits, including one filed Sept. 15 by three Mexican states bordering the Gulf of Mexico — Veracruz, Quintana Roo and Tamaulipas.

A federal judge in New Orleans overseeing many of the lawsuits said Friday he was appointing a Duke University law professor as a special master because of the complexity of the litigation.

The murky issue over the fines is whether BP would be given credit for the amount of oil that never touched the water.

The government, sensing a legal fight, is not clarifying exactly how much of the oil actually entered the Gulf before being captured by various collection methods.

"If and when we were to seek penalties, there would be a number we would use, but because we still have an open investigation we can't go into what measurements we will and will not use," Justice spokeswoman Hannah August said.

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David Uhlmann, a University of Michigan law school professor and former chief of the Justice Department's environmental crimes section, said there is no definitive case law on the question of whether the oil discharge has to be in the water to count toward the penalty.

But Uhlmann said he believes oil that never entered the water should not count and, even if the government is unsure of how much didn't touch the water, it may not make such a big issue of that because of the billions of dollars in criminal penalties BP also may face.

"We are already in the stratosphere," Uhlmann said.

Oil that entered the water and was collected by ships on the surface would count, but the penalty could be adjusted to take into account the cleanup effort, according to Eric Schaeffer, who led the Environmental Protection Agency's civil enforcement office from 1997 to 2002.

If the ultimate fine were based on the total amount of oil spilled from the well and BP were found to have committed gross negligence, it could be slapped with a penalty of up to $21 billion.

Richard Stewart, who led the government's prosecution of Exxon for the Exxon Valdez incident, told the national oil spill commission Tuesday that criminal charges and stiff civil penalties will likely drive BP to settle. Stewart now teaches law at New York University.

The Associated Press and Reuters contributed to this report.

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