Wanted: Piece of severance-tax pie
2 amendments propose different ways of using industry money for state projects
October 22, 2008
Craig — Two ballot questions in the Nov. 4 general election present voters with different options for how to use severance taxes to fix the state’s problems.
Between transportation concerns, funding problems for higher education and renewed demands for affordable health insurance, the state has several issues to address in coming years.
Amendments 52 and 58 attempt to address those concerns and others by funneling revenue from severance taxes – which are paid entirely by the energy industry – into different areas.
For 2008, the state collected about $214 million in severance taxes. Existing laws require 50 percent of severance tax revenue to go to the Colorado Department of Natural resources and the other 50 percent go to local communities affected by energy industry development.
58: Raising industry taxes for higher education
Amendment 58 would amend Colorado statutes by eliminating an energy company’s right to deduct property-tax payments from severance-tax payments.
Supporters say this will increase severance tax revenue by about $300 million a year at current production rates.
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Amendment 58 also would radically alter how the state spends severance taxes and add numerous other beneficiaries, mainly college scholarships.
Consequently, shares specifically for the Department of Natural Resources and local communities would be reduced from 50 percent to 22 percent.
Supporters – such as Ken Brenner, Democratic candidate for state Senate District 8 – point out that 22 percent of $500 million is more than 50 percent of $214 million.
Some opposition, however, is concerned with how the amendment could affect average residents. Randy Baumgardner, for one, said he worries about consumers. Baumgardner is the Republican candidate for state House District 57.
“If Amendment 58 passes, it will be passed back to the consumers through heating bills and through fuel, which will change prices for other goods and services,” Baumgardner said.
Brenner said political ads warning of immediate price hikes for consumers are false.
“The cost comes from the national market,” Brenner said. “Eighty percent of the gas from Colorado is consumed outside of the state. They sell it to the national market, they don’t sell it to us.”
He compared the natural gas market to what a rancher may experience selling cattle.
A rancher has to compete nationally when selling his beef, even if local grain prices went up more than elsewhere.
Amendment 58 likely will lower energy industry profits, Brenner said, “but they won’t say that.
Kevin Kerrigan, public affairs manager for Atmos Energy in Colorado and Kansas, supported Brenner’s understanding of the market, but could not say definitively that prices would not go up. Atmos provides natural gas services to Craig and Moffat County.
“We don’t limit our purchases to just Colorado,” Kerrigan said. “There are more markets than Colorado. If (Colorado producers) would remain competitive among their own peers, they would have to price themselves accordingly, I would guess.”
Moffat County resident Marianna Raftopoulos, who works as a consultant for the Colorado Oil and Gas Association, said she couldn’t say whether prices would go up immediately, but a local tax increase could have long-term impacts for consumers.
“At some point, there is a cause and effect,” she said. “If we are not getting our reserves up because companies are not drilling and producing as much, then it’s simply a matter of supply and demand that low reserves can mean higher prices.”
Todd Hagenbuch, Democratic candidate for House District 57, and Rep. Al White, Republican candidate for Senate District 8, question the amendment because it may hurt local communities.
White has decided he will oppose Amendment 58, whereas Hagenbuch is undecided.
Opponents maintain that though the amendment seeks to raise total revenue, there is no guarantee energy companies will keep drilling or expanding operations in Colorado, particularly after a tax increase.
If total severance tax revenue falls, that could leave local communities short and competing with new, statewide interests for the dollars left over.
This opposition raises an interesting point, Brenner said, and reinforces why he supports Amendment 58 as a way to fix severance taxes now, when money is needed, and not wait.
Amendment 58 is a statutory change – that is, a change to Colorado laws, not its Constitution – and the Legislature can fix funding distribution if there are problems.
“Certainly, with 58, if local governments aren’t receiving the money they need, then we must revisit that,” Brenner said.
52: Shifting severance-tax revenue to transportation projects
Amendment 52 is a constitutional amendment to limit the state’s share of severance taxes and funnel extra money into transportation projects.
The amendment would mandate the state cap funding to the Department of Natural Resources at 2008 levels adjusted for inflation, but would not affect the local communities’ share.
Severance-tax revenue that comes in above the state’s capped amount would then be used to fund transportation projects, with preference given to the Interstate 70 corridor.
Republican Rep. Al White, of Hayden, who is running for state Senate District 8 this year, supports the amendment, as does Randy Baumgardner, Republican candidate for state House District 57.
White and Baumgardner said their support is based on a belief that transportation is a “huge” state concern. The Colorado Department of Transportation estimates it could cost $2 billion to fix every issue across the state and maintain existing roads.
Although White said he thinks Amendment 52 would not raise enough money to fix the state’s transportation problems – estimates put the amendment at garnering $50 to $60 million a year – the state could use the revenue stream to borrow a lot more money and pay off a large loan throughout time.
“It might be enough to address the worst problems (on I-70) : and re-engineer those choke points” for traffic, White said.
Baumgardner, however, is concerned about designating funding for I-70 before other projects and said he may withdraw his support before voting.
“I know there’s issues on I-70, but I’m not sure that’s where the money should go,” he said. “I think that money should go back to local communities,” such as Craig.
Democratic candidates for both offices oppose Amendment 52.
Ken Brenner, Democratic candidate for Senate District 8, said work done by the Department of Natural Resources is too important to cut funding and put on life support. He specifically mentioned the agency’s job to fund water projects.
“Water issues are a big part of my campaign and a big reason for why I’m running,” he said. “It’s extremely important that Colorado be proactive with water issues.”
Todd Hagenbuch, Democratic candidate for House District 57, touched on a different point that relates to the Legislature’s ability to govern. He said he cannot support a ballot question that makes budget spending a constitutional mandate.
Such a mandate is almost impossible to change, Hagenbuch said, and will make it difficult to spend money where it may be needed most in the future.
On top of handcuffing the state Legislature, he added setting up I-70 as a constitutional priority over all other projects, including Northwest Colorado roads, is a poor way to approach state planning.
“That is just poor policy-making,” Hagenbuch said.