State senator looks into severance taxes in oil and gas industry
SNOWMASS VILLAGE State Sen. Gail Schwartz, D-Snowmass Village, wants to make sure oil companies are paying their way.And, since convening a special committee on oil and gas severance taxes in 2006, Schwartz, along with other committee members and private citizens, is looking at how oil and gas severance taxes are collected – and where the funds are needed most.The state imposes an annual severance tax on companies extracting nonrenewable resources, based on the company’s income and environmental impacts.Schwartz asked, “Is the industry paying its fair share?””It’s important that we have a high level of accountability for their activities in Colorado,” Schwartz said, adding the state’s economy relies on cooperation among industries such as tourism, hunting and fishing. “We don’t want to destroy those industries.”The committee is busy assessing the impacts on everything from housing to law enforcement, education and social services in areas where oil and gas exploration is booming, Schwartz said.The working group and the interim committee will tour drilling operations near Rifle on July 23. And, on July 24, there will be an open meeting with members of the community and various interest groups – from housing officials to corrections, public works and social services representatives as well as private citizens – Schwartz said.Schwartz called the planned July tour a fact-finding mission.”It’s getting on the ground. It’s hearing from the communities,” Schwartz said.The working group will make recommendations by November that could spawn state legislation for the winter session, Schwartz said.With the boom in oil and gas development in recent years, state severance tax has climbed from $33 million to $200 million annually, and Schwartz said with another boom expected when state officials give the go-ahead to drill the Roan Plateau, it will be important to have a model for how the tax is collected and where the funds go.”We have the opportunity to look how other states collect the revenues and spend their taxes,” she said. “We may not finish this year. We will determine what we know and what we don’t know.”But funds from severance tax are vital to local programs, Schwartz said.”We are really underfunding roads, higher education and K through 12 education and health care,” Schwartz said.”We’re taking dollars from one good idea to fund another idea,” Schwartz said. And while she opposes funding higher education at the expense of local communities, for example, Schwartz said the committee’s goal is to establish a baseline for where funds are needed.
One oil industry representative agrees with Schwartz.”The most important issue is that local communities get the funding they need to offset the impact of oil and gas and companies,” said Stan Dempsey Jr., president of the Colorado Petroleum Association, a trade organization representing mostly the larger oil companies in the region and a “coordinated industry voice” on oil and gas issues.”We’ve been paying severance taxes for 30 years now,” Dempsey said. And, while there is little debate that the severance tax is an “important funding mechanism for local communities,” Dempsey said the money isn’t always spent locally.”I think there’s clearly some debate about the expenditure and the allocation of severance taxes,” Dempsey said.Because after two years in business oil producers can deduct 87.5 percent from severance tax for money going to local ad valorem taxes, counties with a high mill levy and heavy deductions from severance, such as Weld County, generate little from severance tax, Dempsey said.”The industry works very closely with the communities we operate in,” Dempsey said, adding, “Clearly there is a lot of impact” but oil producers are quick to pay.But Dempsey said there are “some things our association doesn’t agree with,” such as severance tax funds going to litigation on the Arkansas River or funding low-income energy assistance.”That’s not money going into impacts,” Dempsey said.”We agree that those impacts need to be addressed,” Dempsey said of issues such as schools and roads in oil and gas boom-towns. “And at the same time, there are folks that want to steel that money. They want to use it for higher education in Denver or low-income energy assistance.”The question, Dempsey said, is whether the current mechanism for collecting and dispersing the funds is working the way it should.”There are counties who are not directly impacted by oil and gas or who have no oil and gas who benefit from these grants,” Dempsey said. “There is a history of boom and bust on mineral extraction. … That’s why it’s so important to ensure these funds are directed into the local community and not on legislators pet projects.”Dempsey said his organization want taxes collected fairly and supports the work of the committee, but said it is a monumental task – like a “master’s thesis” – and he wondered if the group could get all of the information in time.”We’ve kind of been wondering how they’re going to do this tour,” Dempsey said. “It’s not clear how the public’s going to participate.”Charles Agar’s e-mail address is firstname.lastname@example.org
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