Severance tax, tax derived from the extraction of minerals and oil and gas, has been one of the favorite sources of income for some of the proposed legislation in 2007. Communities impacted by the latest oil and gas boom depend on severance taxes to help mitigate impacts. The Department of Natural Resources is funded by severance tax and the Department of Local Affairs uses severance tax for grants.
It seems everyone in Colorado has sought to get a piece of the action when it comes to severance taxes this year, and that has spurred Sen. Gail Schwartz, D-Snowmass Village, to propose convening a special committee to study how mineral severance tax dollars are collected, distributed and spent, according to a story by Mike Saccone in the Grand Junction Sentinel.Millions of dollars from state and federal mineral royalties are paid to the state, but the amounts vary from year to year. The Department of Revenue has admitted it does not have an accurate handle on how well the oil and gas wells are metered; it is possible production numbers are under-reported. The Colorado Oil and Gas Conservation Commission has only one inspector for every 2,700 wells. In addition, the amount of severance taxes collected may also be affected by the market price of the product.
Schwartz doesn’t necessarily have the support from legislators in the oil and gas producing counties. Rep. Bernie Buescher, D-Grand Junction, suggested that Gov. Bill Ritter may want to be involved with a severance-tax reform discussion as well as non-profit organizations, but an interim legislative committee would exclude Ritter from the process.
The Donnell-Kay Foundation, an education advocacy nonprofit group, may propose a ballot initiative to divert severance tax revenues to support education.
Sen. Josh Penry, R-Fruita, said he was concerned that talk of this special interim committee may kill current legislative proposals such as his bill to use federal mineral royal funds for the state’s education fund and Rep. Kathleen Curry’s bill to double the severance tax distribution to impacted communities.
No doubt, the discussion of severance tax will heat up as legislators debate several oil and gas bills hitting the floor this week.