Colorado jurisdictions again get boost from severance tax

Katie Kuntz
Rocky Mountain PBS I-News
Construction crews rebuild a downtown street in Trinidad on April 17 that was paid for with money from a state "impact grant" generated by severance tax revenue and aimed to offset the effects on Colorado towns and cities of oil, gas and other mineral extraction.
Joe Mahoney / Rocky Mountain PBS I-News | Rocky Mountain PBS I-News

After a four-year hiatus when the cash-starved state used the money for its own budget needs, Colorado’s local jurisdictions are once again enjoying the Energy Impact Grant program.

More than $150 million went to 515 infrastructure and economic development projects in 2013 and 2014, according to an analysis of state records by Rocky Mountain PBS I-News.

And while some of these projects don’t appear to relate to an energy impact — including $2 million for a new shooting park and education center in Palisade endorsed by Gov. John Hickenlooper — that isn’t the point, said state and local officials.

“Our department feels strongly that every community in Colorado is impacted in some way,” said Chantal Unfug, the director of the division of local government in the Department of Local Affairs (DOLA).

The General Assembly shut down the grant program during the recession-pinched years of 2009-2012 and used the money, about $280 million, to balance the state budget.

Now, the tap is open and cash is flowing. During the last two years, $39.8 million went directly to road repairs, with $42.8 million being allocated to sewer and water projects. Boulder, Larimer, El Paso and Weld counties combined received $7 million for flood recovery efforts.

Local governments in Garfield County received $4.3 million in direct distributions from Colorado’s Energy and Mineral Impact Assistance Fund last year.

Including the Palisade shooting and education center, 34 grants worth $9.71 million over the two years funded a variety of recreation and tourism projects, including recreation centers, parks, cultural centers, a whitewater park in western Grand County and a playground in Durango.

Trinidad has received a $1.7 million in grants to renovate the “historic downtown,” including $750,000 in 2013.

“We are able to recognize an awful lot of improvements to our city because of those grant funds,” said Audra Garrett, Trinidad assistant city manager. “Without the funding, I don’t know that we would have tackled this large scale of a project.”


Such grants do not always relate directly to energy impacts — as the program’s name might imply — but they are calibrated to account for impacts, DOLA’s Unfug said.

“We have a rating system based on a very complex criteria, and you can see with our ratings – the higher percentage of grants are going to places with higher impact scores,” she said.

The grants are funded by the state severance tax and the federal mineral lease fund. The severance tax, established in 1977, is designed to “offset the impact created by nonrenewable resource development,” but also “for public purposes.” The latter has been interpreted to mean almost any project.

“The statute that governs this program says that ‘the grant funds shall go to communities for the planning, design and construction of public facilities and the provision of public services,’” Unfug said. “So it can be broader, which I think is a really valuable thing across Colorado, because every community has a unique need.”

The severance tax revenues are divided in half. One half goes to DOLA — where it is again divided between the grant program and “direct distributions,” both of which provide funding to local communities. The other half funds the state Department of Natural Resources.

While the last two years experienced high energy production rates, and high severance tax revenues, oil and gas production is cyclical. With declining oil prices, severance tax revenues are projected to be more than 60 percent lower in fiscal year 2016 than in fiscal 2015.


Chris Monks, a road maintenance foreman in Lincoln County, said roads and bridges in his county have been impacted by the oil and gas boom.

“Out on route 26 there, we’re seen that field develop in the last six, eight years, from you know, about nothing — it’s changed the scene of Lincoln County forever,” Monks said, speaking of oil fields and wind farms. “We went from seeing four or five pickup trucks a day, to seeing about 2,600 vehicles a week — it’s a drastic change.”

Lincoln County applied for a grant to repair roads in 2014, but was asked to withdraw the application.

“Sometimes a project will come in and we have more demand than we can provide for,” said Unfug. “So we work with the communities — often for years — to make sure they are identifying the right projects, because our goal is to support as many projects as possible.”

Next year, competition for the grants is expected to be even tighter, in part because of decreased production, but also because of legislative action this term to reallocate $20 million in severance taxes to the state budget.

The bill passed both houses and was signed by the governor on May 1. Not everyone was happy about it.

“We’re talking about $3 million in direct distributions and another $7 million of grant program money that won’t go out to communities to build infrastructure, such as roads, landfills, waste facilities,” said state Rep. Jon Becker, R-Morgan County. “That’s a lot of money for small communities.”


But a pittance compared to the recession years.

“What was really troublesome, during the recession, there was a complete elimination of money going into the grant program,” said Kevin Bommer, deputy director of the Colorado Municipal League. “Every grant dollar is worth between 3 and 4 dollars of actual money spent, after local matching, so if you take $250 million out of the program, that’s a $1 billion impact.”

No new grants were funded or approved for four years, but direct distributions continued.

At the outset, Colorado’s severance tax pool is small when compared with that of other mineral-extracting states, including neighbors Wyoming and New Mexico. The Colorado Legislative Council staff analyzed the severance tax in 2013 and found that the effective tax rate, the actual rate after deductions, exemptions and tax credits are considered, is close to 1.5 percent in Colorado, but 4.5 percent in Wyoming and 6.2 percent in New Mexico.

A 2014 report from the Western Natural Resources Law Group LLC, found that “even when accounting for severance, property, income and sales taxes, Colorado had the lowest burden on oil and gas producers.”

The Colorado Legislature has not been supportive of increasing the tax rate, or eliminating some credits, for oil and gas producers. The last time it was attempted, in 2008, under former Gov. Bill Ritter, it was unsuccessful.

“The industry looked at it and they spent a lot of money to try to defeat that — we really went down in flames,” Ritter said. “I think the next person who tries to tackle that issue should really work with industry to look at ways to compromise, and really bring down the tax credit while looking at ways to devote the additional income.”

The Post Independent brings you this report in partnership with Rocky Mountain PBS I-News. Learn more at Contact Katie Kuntz at I-News reporter Burt Hubbard contributed.

Support Local Journalism

Support Local Journalism

Readers around Glenwood Springs and Garfield County make the Post Independent’s work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.

Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.

Each donation will be used exclusively for the development and creation of increased news coverage.