Severance cash may be tapped to boost budget

Revenue from energy industry adding to state's refund liability

Severance taxes shouldn’t be used to help defray the costs of a refund to taxpayers, but the “sad reality” is that they are part of the problem, said senators Monday who approved using $20 million for that purpose.

On a 4-3 vote, the Senate Appropriations Committee approved a measure, SB255, to do that on grounds that part of the reason why the state has a $70 million refund liability under the Taxpayer’s Bill of Rights next year is because severance taxes came in much higher than anticipated.

But because TABOR requires that severance taxes, like all other taxes, be counted under its revenue limits, not making such a transfer would be unfair to other government programs — even if, like severances taxes, they are earmarked for specific programs, the senators said.

“The higher the severance taxes that come in right now, the more it’s pushing general fund out the door on the other end with TABOR refunds,” said Sen. Pat Steadman, D-Denver. “Given the spike in severance taxes, its contribution to exceeding our TABOR limits ... you have to acknowledge that it plays some role in the fact that the state owes the TABOR refund of the magnitude that we do.”

Under TABOR, state revenues that aren’t explicitly exempt from its limits, and there are few of those, are counted as part of the amount of money the state is allowed to keep.

But some of that revenue is dedicated to specific uses. By law, half of all severance tax revenues funds the Colorado Department of Natural Resources, while the other half goes to local governments to mitigate the impacts of mineral development, such as natural gas drilling and coal mining.

During the current fiscal year, which ends June 30, severance tax revenues are about $100 million higher than they were the year before, making it one of the largest revenue sources that is contributing to the first TABOR refund in 10 years.

While opponents told the committee that they understood why the Legislature was considering taking some of that money to offset the TABOR refund obligation, they balked at it nonetheless, saying lawmakers have continually turned to raiding severance taxes to help them balance the state’s budget.

Kevin Bommer, deputy director of the Colorado Municipal League, said the state took hundreds of millions in severance taxes during the recession to offset low revenues elsewhere, and has not talked about repaying any of it.

“Not one nickel,” he said. “When times were bad, we saw severance taxes used as a backfill. Now times are robust, but what’s happening? Severance taxes are being used as a backfill. This madness has to stop.”

Steadman and Sen. Rollie Heath, D-Boulder, however, questioned Bommer as to why $20 million out of the hundreds of millions that were collected should be such a big deal, especially when that would mean money would have to be taken out of other important needs, such as education, transportation and health care.

“The spike in the severance tax revenue, one could point at it and say it is perhaps solely, if not in large part, responsible for our TABOR refund liability,” Steadman told Bommer. “So why shouldn’t we look to it for a portion of the relief? Why is your entitlement more important?”

Bommer said that every tax dollar that’s not TABOR exempt contributes to the refund need.

“The General Assembly could have avoided this by, I don’t know, an income tax reduction,” he told the committee. “You can’t pick on any one thing.”

Bommer said that while the state has many places it can go to balance its budget, local governments don’t have that luxury.

Before the hearing began, the seven-member committee received letters in opposition to using the money, including one from Fruita City Manager Michael Bennett.

“By taking severance tax funds to consistently backfill the general fund, the state further disadvantages communities that cannot replace severance tax revenues through property tax measures,” Bennett wrote. “Communities on the Western Slope are facing a potential ‘triple’ dip recession as dynamics in the energy industry are likely to result in less production, i.e., less revenue at all levels including severance tax over the next few years.”

The bill heads to the full Senate, which will debate the measure later this week along with the state’s $28 billion spending plan.


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