The oil and gas industry spent $10.8 million to bring about the Election Day defeat of Amendment 58, a measure that would have dramatically increased the severance tax the industry pays to the state for extracting resources from Colorado soil.
So it seems counter-intuitive that the industry would now voluntarily agree to pay even more severance tax, which in Colorado is currently the lowest among all major energy-producing states. But that’s exactly what key Western Slope lawmakers are hoping to accomplish in the coming months.
Republican state Rep. Al White, just elected to represent gas-rich Senate District 8 in northwest Colorado, said he’s been in contact with industry officials to discuss drafting a new ballot measure for November 2009 that would hike the severance tax, either via a straight increase or by eliminating property tax credits. It may not increase severance taxes by quite as much as Amendment 58 sought, White said, but he’s hoping for industry buy-in.
“We’ve got to look at the industry and say, ‘All right, industry, this is what you’re doing to the state as a whole as well as us [locally],’” said Garfield County Commissioner John Martin, who opposed Amendment 58 but has urged White and other legislators to produce a new measure to increase severance taxes.
“Now we’re asking you to voluntarily increase this through this formula benefiting everyone, including yourselves, and put that legislation forward, and I think we’ll be able to do that this year.”
Colorado voters shot down Amendment 58 by a 3-to-2 margin — succumbing to a barrage of television ads that warned the cost of the tax increase would be passed on to consumers. That ad campaign was paid for by a $11.3 million war chest compiled in $1 million increments from companies like ExxonMobil, Chevron, BP and Conoco.
Currently, Colorado collects about $140 million a year in severance taxes, which are paid when energy and mineral resources are “severed” from the ground. Amendment 58 would have eliminated a property tax credit the industry has enjoyed since its nascent days in the 1970s.
Sponsored by Gov. Bill Ritter, Amendment 58 would have increased the annual severance tax haul to $321 million, which still would have ranked third-lowest among the major energy-producing states. But many local politicians like Martin opposed the measure because only 15 percent of that money would have gone back to local communities impacted by the industry.
“We would have had the greatest impacts and gotten the least back,” said Martin, whose county has nearly 5,000 active natural-gas wells, with another 1,000 coming on line every year. “Why would I have supported that kind of a bill? It just cuts our own throats, increases the impacts and the inability to meet those impacts. I had to oppose 58.”
Ritter has publicly defended his formula for distributing the $321 million — 60 percent of which would have gone toward college and university scholarships statewide — and he is in the process of trying to work with the industry on a voluntary increase as well. But his administration is also focused on instituting more environmentally restrictive drilling regulations, which should be finalized next month.
White said, “Ultimately I hope [the industry] comes to the realization that it’s a livable situation under the new regs and still will allow for some increase [in the severance tax] that hopefully can benefit local cities, counties and communities as well as some other state agencies with those newly created dollars.”
White added he’s put out feelers to industry representatives and hopes to meet with them soon to discuss the state Legislature drafting a measure for the November 2009 ballot — one that has buy-in from big oil and gas and local governments.
“I haven’t had the first meetings yet, but I have had the first conversations,” White said. “Of course I want to create a broad coalition, including the county commissioners in the severance-tax counties and various players throughout the industry. It doesn’t do any good to have EnCana say, ‘Yeah that’s a great idea,’ if the rest of the industry doesn’t support it.”
White said industry representatives may prefer a simple increase in the mineral severance tax instead of an elimination of the property tax credit altogether, but both measures would require a statewide vote under TABOR, or Taxpayer Bill of Rights. Energy companies may also feel $321 million was too big of an increase. Regardless, White said, upping that amount will be much easier with the support of oil and gas.
“With that industry spending $10 million telling voters it’s a bad idea, I think it’ll have a whole lot better chance [if they support the increase],” White said. “But if industry’s going to be out there banging the table, it’s going to have an uphill battle, although I’m not going to tell you it’s going to be insurmountable if industry opposes it.”
Other Western Slope lawmakers say the failure of Amendment 58 and Amendment 52, which would have kept the severance tax at the same level but rededicated funds to transportation needs such as fixing Interstate 70, makes this the perfect time to revisit the issue in a more measured way.
“I think this is a good time to call a time-out on all of it,” said House District 56 state Rep. Christine Scanlan. “The oil and gas companies by and large know they need to step up in a different way. There might be a good conversation to have with them given the failure of both 52 and 58.”