Environmental and conservation programs, including the body that regulates Colorado’s oil and gas industry, may see the cash influx they need to keep operating after lawmakers turned to the state’s main pot of money — the General Fund — to backfill a looming shortfall.
The Department of Natural Resources is facing a shortfall between $5.6 million to $13.8 million at the start of the next fiscal year due to plummeting severance tax revenues, which are notoriously volatile and unpredictable.
But the Joint Budget Committee on Thursday gave initial approval to a plan by the Department of Natural Resources that would transfer about $49 million over the next two years from the General Fund to programs at the agency. Any severance tax money collected during that time that would support the programs would instead go to the General Fund in exchange.
“There is no choice really,” Rep. Bob Rankin, R-Carbondale, who sits on the Joint Budget Committee, told The Colorado Independent. “We should be funding these programs with other money in the first place.”
Among the programs the Department of Natural Resources oversees and in danger of running out of money is the Colorado Oil and Gas Conservation Commission, or COGCC, which is responsible for regulating the industry at a time when a growing population is causing conflict between oil and gas wells and residents.
Without the bailout, the COGCC won’t be able to pay for staff at the agency, officials say. Other programs, such as those that inspect coal mines and control aquatic nuisance species like zebra mussels, would see their budgets slashed if no action is taken.
Lawmakers have set themselves up for this dilemma, Rankin said; during years when oil prices were high and production was up, such as in 2008 and 2014, lawmakers used the money to pay for nearly a dozen conservation programs. And with a drop in severance tax revenue expect this year, these programs are now all at risk.
They now will have to compete with other priorities like transportation, education and public pension reform as lawmakers write a balanced budget.
Rep. Mike Foote, D-Lafayette, does not like the idea of relying on General Fund to pay for these programs. Instead, he believes oil and gas companies should be paying more to the state.
“The oil and gas industry should at least pay its own way in this state. And clearly they don’t,” Foote told The Colorado Independent. “For us then to be expected to take money away from roads and schools and other priorities is unfortunate.”
The severance tax shortfall is mostly due to state’s generous tax refunds for oil and gas companies—Colorado has the lowest effective severance tax rate of all the western states, according to a memo by Legislative Council.
And more recently, a 2016 Colorado Supreme Court decision expanded the types of deductions companies can claim to include the cost of capital. Now, the state is expecting to hand out an additional $66.5 million in remaining refunds over the next 15 months for amended tax returns dating back to 2013, according to the Department of Revenue.
The General Fund transfer is a short- to medium-term fix that will pass the revenue uncertainty onto the General Fund instead of programs at the Department of Natural Resources, according to Bill Levine, DNR’s budget director.
But currently, there is no plan underway to address the long-term issue of severance tax volatility and uncertainty, despite the risk of programs shutting down this year.
Here in the state Capitol, no legislation has been introduced to deal directly with the issue. Lawmakers could eliminate some severance tax deductions; aside from the cost of capital, companies can deduct 87.5 percent of their prior year’s property taxes on their state severance tax, known as the ad valorem tax credit, and low-producing wells don’t pay any tax, saving companies about $214 million since 2008, according to the memo by the Legislative Council. But Republicans, who control the Senate, have said they oppose the idea.
Gov. John Hickenlooper told reporters last month that he is open to looking at some of these deductions but has yet to release any details.
Programs at the Department of Natural Resources that rely on severance tax revenue are paid as the money comes in. This creates month-to-month uncertainty for their budgets as revenue ebbs and flows with the price of oil and gas and other factors.
Rankin wanted to pay for these programs with money the year after it comes in, like most programs in the state budget. But, he said, the committee decided this would cost too much; one year would have to be paid for in advance, costing more than $60 million, he said.
“Certainty costs too much money,” Rankin quipped.
Sometimes the state robs Peter to pay Paul and sometimes it robs Paul to pay Peter; lawmakers have used severance tax money in prior years to patch up deficits in the state budget to the tune of $322 million since 2001, according to a February memo by the Joint Budget Committee.