Severance Tax Committee Grapples with Final Changes

The legislative severance tax committee members may have discovered that talking about problems with the state’s severance tax revenue distribution is easier than deciding on solutions. The committee’s objective has been to compare the structure of severance and federal mineral lease revenue distributions with the needs of the state and of local communities impacted by the energy industry.

“We found that grant money from severance taxes had gone to support projects around the state that had nothing to do with energy impacts,” said committee member Rep. Bernie Buescher, D-Grand Junction.

One of the proposed bills that the committee is still revising outlines new distribution policies through the Department of Local Affairs. It would require DOLA to allocate impact grants on a county-by-county basis, based on the proportion of severance-related employees, mining and well permits issued, and overall mineral production in each county.

Currently, DOLA grants are determined only by employee numbers and that has slighted some small communities like De Beque, which has limited housing for gas workers, but its city streets are being torn up by gas trucks and heavy equipment.

Some committee members are of the opinion that that DOLA has handed out too much money since communities are financially benefiting from the energy boom and therefore can afford to mitigate impacts themselves. Many governmental entities disagreed with that assessment and provided information to prove the opposite.

Hence, determining the new severance tax distribution qualifications and DOLA grant application requirements has been controversial.

A member of the severance tax working group, which was formed to advise the legislative committee, voiced his frustrations at last week’s severance tax meeting. Craig City Councilman Terry Carwile noted that the direct distribution discussion – which he felt was among the smallest portion of the broader severance tax issue – had commanded the most time in committee deliberation.

“It’s been like a trap, a highway with no off-ramp,” Carwile said to the group.

The other three bill proposals include authorizing the state treasurer to issue bonds to pay to fund capital projects for energy impacted state colleges, school districts and other governmental entities; shifting funds in the Department of Natural Resources from the Colorado Oil and Gas Conservation Commission to the Division of Wildlife and state parks and recreation; and adjusting the accrual rate of severance tax credits.

SEVERANCE TAX PRIMER

Taxes are collected on oil and gas, coal, metals, methane and oil shale among other minerals and energy-related products extracted from federal lands. The value of these finite minerals are “severed” from public lands and are taxed by federal and state governments because once these energy reserves are mined or drilled, those resources are gone forever.

State severance and federal mineral lease tax revenues are widely distributed among state agencies, schools, communities, state programs and other entities through the Department of Local Affairs, which is under the Colorado Department of Natural Resources. More information and graphs detailing the distribution of these state and federal severance tax funds are available here and here.

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