Increased severance tax revenue may go toward TABOR refunds

A drilling rig operates Wednesday in Battlement Mesa, with the screening wall behind it still being built. Communities are concerned about a proposal by the governor’s office to use that energy revenue to offset the effects on the overall state budget of the state Taxpayers Bill of Rights amendment.

DENVER — The Colorado Municipal League is concerned over what Gov. John Hickenlooper wants to do with severance tax revenue this year.

In a letter to the Legislature’s Joint Budget Committee earlier this month, the governor’s office asked lawmakers to take some of the money out of expected severance tax revenue to protect other parts of the budget from additional funding they might not otherwise get because of constitutionally required taxpayer refunds.

The taxes, which come from production of such minerals as oil and natural gas, go to fund a wide variety of things, not the least of which come back to counties and municipalities as direct payments to offset production impacts.

But because the governor’s Office of State Planning and Budgeting is expecting Colorado to collect more overall tax revenue than allowed under the Taxpayers Bill of Rights, and because severance taxes are coming in at a higher rate than expected, Hickenlooper wants to pull some of it out because not doing so would have an adverse impact on other necessities, such as schools and health care.

“State severance taxes, which are collected outside of the general fund, are growing fast ... so in the current year, severance taxes are disproportionately increasing and thus contribute to a refund in the general fund,” Henry Sobanet, director of the governor’s budget office, wrote to the budget committee earlier this month. “We believe it is prudent to account for the potential of a TABOR refund in the current year and adopt a change to the current formula for distribution of severance taxes.”

Sobanet’s office is projecting that severance tax revenue will increase by about 30 percent this year, while legislative economists think it only will be up 19 percent.

Regardless, the amount collected could be as high as $47 million, which Sobanet wants the JBC to take out of the severance tax disbursement mix. He’s also asking the Joint Budget Committee to do something similar with projected recreational marijuana tax revenue, but only to the tune of roughly $27.7 million.

The Colorado Municipal League, however, wants to make sure that shift of severance tax revenue does not take away from current or future direct disbursements to communities.

Under current law, all severance taxes collected by the state are divided evenly between the Colorado Department of Natural Resources and the Colorado Department of Local Affairs.

The Department of Natural Resources uses the money to support parks and wildlife. The Department of Local Affairs disburses the bulk of it in the form of local government grants for such things as water projects or any other projects addressing impacts from mineral development.

Thirty percent of that local affairs money, however, is directly paid to cities and counties to use as they like.

Kevin Bommer, the municipal league deputy director, said his group understands the budget constraints the Legislature is facing, but added that it isn’t fair to make local communities cover that expense.

“CML will not oppose any legislation implementing the request outlined by OSPB, as long as direct distribution is protected and diverted dollars are restored,” Bommer said in a letter to legislative budget writers last week. “We believe this is fair and allows the state to balance the current budget.”

Rep. Bob Rankin, R-Glenwood Springs and a new member of the Joint Budget Committee, said he opposes what the governor’s office has suggested, but said it’s still possible a bill could be introduced to do it.

To date, that hasn’t happened.

“I oppose that, so it won’t be a JBC bill,” Rankin said.

Sobanet said none of the additional severance tax money has been earmarked for anything. But Rankin said next year’s revenue is projected to be below normal by as much as 50 percent because of the drop in gas prices, and that this year’s surplus could be used to help offset that.

House Speaker Dickey Lee Hullinghorst, D-Boulder, said she thinks the idea is worth discussing, but added that a larger discussion over severance taxes needs to be started.

“I want to make sure that those communities don’t suffer if we take funds from what they’re counting on,” she said. “On the other hand, I think it’s worth looking at. What we really need to do is take a good look at the severance tax, and whether it’s effective enough. We have the lowest severance tax rate among the Rocky Mountain states by far.”


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