Battle Lines Forming Over Severance Tax

“Severance tax” may not a familiar phrase to most Coloradans, but by the time the 2007 Colorado legislature has wrapped up, many more will know of its significance. First of all, when severance tax collections for the state jump from $33 million to nearly $200 million in four years, it is not hard for any politician or special interest group to take notice.The Colorado severance tax is imposed upon nonrenewable natural resources that are removed from the earth. The tax is applied to gross oil (crude oil and condensate) and gas (natural gas, coalbed methane and carbon dioxide) income. Most of the increase in severance tax revenues in recent years has been from the explosion of natural gas drilling on the Western Slope, most particularly in the Piceance Creek area of Garfield and Rio Blanco counties.

The revenues from the state severance tax collections are divided in half, with 50% of the funds going to the State Trust Fund and 50% to the Local Impact Fund.  The Department of Natural Resources receives half of the State Trust Fund monies and the other half goes into a perpetual fund that loans money to Colorado Water Conservation projects.

The Local Impact Fund is divided accordingly: 85% goes to Department of Local Affairs grant projects and 15% is distributed directly to local governments affected by oil and gas impacts based upon the number of oil and gas workers living in that particular town or county. Most of the localities eligible for direct severance tax funds are in rural Western Slope areas such as Rio Blanco, Garfield, Montrose, Delta, Mesa, LaPlata and Moffat, among others.

With county roads in disrepair from oil and gas truck traffic and municipal services and schools slammed by an influx of energy workers and their families, rural town mayors and county commissioners have been pressuring their state representatives to increase the direct assistance portion of the severance tax. Revenues from the 15% share are not covering the cost of impacts, Western Slope government officials have stressed.

Rep. Bernie Buescher (D-Mesa) is looking at a proposed house bill that would increase the percentage from the Local Impact Fund to 30% to address the monetary concerns of these energy development impacted communities, according to Reeves Brown, executive director of Club 20, a Western Slope political action group.

Taking this severance tax proposal before the Colorado House and Senate may be like opening a Pandora’s Box, however.  Rep. Kathleen Curry (D-Gunnison) estimated that an increase of one percent on the state severance tax could generate up to $100 million in tax revenues. Add that to the current $200 million and that is a pot of gold that no politician or special interest group is going to let slide by in 2007. But, they will have to tussle with the energy impacted government and citizen groups who believe that any increase of the severance tax should go back to their communities to mitigate the negative impacts of energy production.

As mentioned before, “severance tax” is going to become a political household phrase in 2007.

Coming up: Severance tax: Who wants a piece of the action?

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Leslie Robinson

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