Impact of severance tax ruling is uncertain
The most recent session of the Colorado General Assembly may have ended about a week ago, but state officials still lack a complete understanding of impacts to an issue near and dear to communities on the Western Slope: severance tax.
It remains unclear how much money from the severance tax, which is levied on mineral and natural resource extraction and production, will have to be repaid due to a Colorado Supreme Court ruling in late April.
The ruling concluded that severance taxpayers could deduct capital costs associated with investing in transportation and processing facilities — money that the Colorado Department of Revenue had not considered deductible.
The tax is divided among several state agencies, with the Department of Local Affairs administering 50 percent of the money to local governments through grants and direct distribution.
In Rifle, the money is used to leverage grant funding for capital projects, such as the recent improvements on Whiteriver Avenue, said Matt Sturgeon, city manager.
The court’s decision and delayed notice at the Capitol sent legislators into a scramble in the final days of the session to come up with a solution to pay the unknown amount of refunds. The bill passed on the final day and awaits Gov. John Hickenlooper’s signature.
The governor intends to sign the bill, said Kathy Green, communications director.
A worst-case scenario from the Department of Revenue pegged total refunds as high as $115 million, said state Rep. Bob Rankin, R-Carbondale. So far, about $25 million in refunds have been filed with the state, he added.
“The actual impact is uncertain,” Rankin said. “We don’t really know how much it’s going to cost us.”
Rankin, who sits on the Joint Budget Committee, sponsored the last-minute bill to appropriate money for reimbursements without pulling dollars that were already allocated — mostly by using reserves and restricting specific amounts of severance tax dollars that have not been dedicated.
The bill will not impact direct distributions for the time being, and the same goes for grant funding already awarded. The impact likely will be felt at the local level later this year during the regular fall grant cycle. Barring unforeseen progress, the grant cycle will probably be delayed, or possibly canceled altogether, Rankin said.
“This is a significant negative impact to the counties I represent because we depend on those monies,” he said.
That concern especially extends to Garfield County, which received $2.8 million in federal mineral severance tax from direct distribution in 2015.
With declining property tax revenues, the county’s budget is already tight enough, Commissioner Tom Jankovsky said earlier this week. A future cut to severance tax dollars, which are already declining due to the ongoing slump in the oil and gas industry, would further hinder the county’s ability to fund capital projects.
Rifle estimated $314,063 in direct distribution from severance tax in 2016, according to the adopted budget. Industry decline has already caused that forecast to decrease significantly, but the overall amount is expected to be offset by an increase in Federal Mineral Lease District dollars, Sturgeon said.
However, the revenue from both of those streams is expected to decline even further in 2017. News that the city and others will largely be held harmless in 2016 as a result of the recent Colorado Supreme Court ruling is a relief for the time being, but officials are closely following how the fallout from the ruling will play out through the remainder of the year.
Rankin said the Joint Budget Committee intends to study the long- and short-term impacts, as well as take a look at the overall tax policy. As things stand, it is clear the ruling will cause a decrease in severance tax dollars in the future.
“It’s a very important issue and of concern for all of western Colorado,” he said.
Outside of the Legislature, the governor is considering options for a possible task force focused on the issue, Green confirmed.
County officials were notified earlier this week about the talks of a task force. If such a group was convened and an invitation were extended, Garfield County would not hesitate to fill a seat at the table, Jankovsky said.
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