Legislators debate tax allocations for local communities

"Current process is not really fair"

State Senator Gail Schwartz (D-Snowmass) and Representative Kathleen Curry (D-Gunnison) returned to the State Capitol last week for the 2008 session, with new legislation in hand that could change the allocation to local communities of tax revenues generated from the oil and gas industry to offset the effects of mineral extraction.

 The proposed legislation, which would change how tax revenues generated from the industry are collected, distributed and used, is the result of Schwartz and Curry’s work on a special interim committee formed to look at the issue. The committee concluded that the system was broken and change was needed to assist local communities.
During the 2007 session, Schwartz introduced a bill to form the interim Committee to Study the Allocation of Severance Tax and Federal Mineral Leasing Revenues. The committee’s primary focus is studying the impacts on local communities from mineral extraction activities; the collection of severance tax and federal mineral leasing (FML) revenue; and the allocation of severance tax and FML revenue.
Severance tax is money that oil and gas companies pay when they remove or "sever" natural resources from the ground. Colorado collected $221 million in severance taxes in the 2005-2006 fiscal year. FML revenue is money the industry pays when drilling on federal land. Colorado received $143 million in FML revenue in 2005-2006.
The committee’s four senators and five representatives—including Schwartz as chair and Curry as vice-chair—held six meetings during the 2007 interim session. An 11-member working group was also appointed to work with the committee.
The committee heard testimony on the effects of mineral extraction activities from state and local officials, private citizens, industry representatives, and the working group. The committee also devoted an extensive amount of time studying the existing severance tax structure to improve and simplify the current system, according to Curry.
The committee found the current amount of severance tax and FML revenue allocated to local areas is not sufficient to offset the negative impacts of mineral extraction activities. Virtually all of the severance tax and FML revenue generated in the state is estimated to come from 16 counties within Colorado, including Gunnison County.
While the 16 counties produced almost $965 million of revenue for the state from 2001-2005, they were allocated back an estimated $354 million during the same period, according to a committee memorandum dated September 13, 2007.
The committee also found the 16 counties responsible for the majority of revenues received only 55 percent of total Department of Local Affairs (DOLA) Energy and Mineral Impact Assistance Program Grant and Loan awards, compared to the rest of the 48 counties in the state.
Curry introduced HB08-1083 on Thursday, January 10 to address such discrepancies. The bill was assigned to the Finance Committee. According to Curry, hearings on the bill are scheduled for Wednesday, January 23.
HB 1083 would change the statutory formula DOLA uses to allocate severance tax and FML revenues to local governments. Current law requires DOLA to distribute the money to local governments based on the proportion of industry employees that reside in their jurisdictions. The new legislation would add mining and well permits issued in the county and mineral production occurring in the county as indicators.
"The primary goal of the legislation is to create a better process for DOLA to distribute dollars from severance tax in a more equitable fashion," Curry says.
Curry says the legislation is especially important for Gunnison County, where many of the employees live outside of the county, affecting the amount of money the county receives.
HB 1083 "would create a matrix broader than what we have today, and require more than just employees to be used as a standard for distribution," Curry says. "The current process is not really fair."
The bill would also change the nine-member Energy Impact Assistance Advisory Committee, which is charged with reviewing the impacts of the industry and making recommendations on how to assist affected areas. The legislation would expand the board to include more representatives from affected areas and would give it greater authority in allocating funds.
The committee also heard testimony regarding the mineral extraction industry’s impact on the state’s wildlife and outdoor recreational resources. Schwartz’s bill, SB08-013, is the result of those discussions, introduced to the Senate on Wednesday, January 9 and assigned to the Natural Resources and Energy committee. The legislation would earmark some severance tax revenue for the Division of Wildlife and the Division of Parks and Recreation.
Both bills have received bipartisan support and are expected to make it to the floor by February. Curry is also working on a third bill as a result of the interim committee; she plans to introduce the bill to the House by end of the month.
This bill would prevent oil and gas companies from being allowed to deduct property taxes from severance-tax bills. The deduction currently allows three out of four wells in the state to pay no severance tax, according to Carbondale conservationist Randy Udall.
According to Rep. Bernie Buescher (D-Grand Junction), the bill would take the additional revenues and put them in a permanent fund that would then be used to back bonds for local governments and provide funds for higher-education institutions.
Curry says the bill would also streamline and clarify how Colorado’s FML revenues are spread among the state.
For more information about the interim committee or the proposed legislation, visit the Colorado General Assembly webpage at www.state.co.us/gov_dir/leg_dir and click on "interim committees."