Rural Communities, and the Ebb and Flow of Severance Taxes
As a result of Colorado's booming oil production, energy companies are paying more in severance taxes – money they pay the state for taking minerals out of the ground. Half of it is supposed to go to back to local communities, both directly and through grants. But thanks to market forces and political conditions in Denver, it's not always a stable source of funding.
"We were impacted by the energy companies when they were going strong and heavy with all the trucks," said Mike Valentine, the Public Works Director for the city of Trinidad. "The town had to keep up with that. And now the coal mine has shut down and the gas field has slowed down. We're impacted by the loss of employment."
Like many communities, Trinidad relies on severance taxes. City leaders use the money to shore up their annual budget. The southern Colorado city is using nearly $2 million in energy impact grants to revitalize the red brick streets in their historic downtown. The hope is that updating the downtown will attract more tourists. Valentine, who is overseeing the project, called the severance tax money a godsend.
"People actually come to Trinidad to see the brick streets and the Victorian style architecture. We hope to enhance it so they remember us and come back and tell their friends," said Valentine.
The Colorado Department of Local Affairs distributes the competitive energy impact grants. The grants were suspended during the recession, but according to data from Rocky Mountain PBS I-News, more than 500 statewide projects have been funded since they resumed in 2013.
"Some of the things we really look for, is readiness to go, because our goal is to grant this money and really have it go to work in the communities right away," said program supervisor Chantal Unfug, Director of the Division of Local Government.
Cities and towns with the most energy production typically get the most grant money according to Unfug and I-News data. Even areas with little energy production can still qualify, as long as they can match the amount of the grant on their own.
"Our Department feels strongly that every community across Colorado is impacted in some way whether it's historic or current," said Unfug.
But not every project is related to energy impacts. I-News found that some of the money funded libraries, parks, a recreation center and shooting range in Palisade.
"It does not have to be directly 'this truck did this thing to that road and we're paying for the curb.' It can be broader," said Unfug.
Even though a lot of communities use the grants, the pool of money varies from year to year because severance taxes are directly tied to the gross income companies make from oil and gas. The taxes are also a prime target for lawmakers when it comes to helping backfill the budget. Communities played along during the recession, but now that the economy is recovering, there's pushback.
"It's got to stop. It has to stop, because those impacts, water projects as well, they don't get done you just push it off to another day," said Kevin Bommer, a lobbyist for cities with the Colorado Municipal League, or CML.
When the legislature wanted to divert $20 million to the state's general fund from the 2015/2016 budget's higher than anticipated severance tax revenue, CML opposed it. Joint budget committee member Senator Pat Steadman (D-Denver) supported the transfer.
"The spike in severance taxes, it's one of the revenues that's way up this year and it plays some role as to why the state owes the TABOR refund of the magnitude that we do," said Steadman.
The Tax Payer Bill of Rights mandates that Colorado's budget can't increase by more than inflation plus population growth. Any extra money must be refunded to voters. By taking the $20 million, the state was able to shore up other parts of the budget that are tighter because of TABOR.
"Severance tax has always been a huge ebb and flow," said Representative Jon Becker (R-Fort Morgan) who voted against the transfer. "That is going to continue to be a concern. I don't think we should rely on this on anything that should balance the budget. I think that's a dangerous precedent to get into."
While the proposal passed with bipartisan support, a number of lawmakers in both parties also voted against it. Budget committee member Representative Bob Rankin (R-Carbondale) wants to take an even closer look at severance taxes during the 2016 session.
"This is so important to rural Colorado and the counties, we just have to stand up for those parts of Colorado that aren't prospering from the Front Range boom," Rankin said.
Governor John Hickenlooper has even started to weigh in on severance taxes as part of a larger plan to make changes to TABOR and the way lawmakers craft the annual budget. That could prove to be a challenge in the next session though. Thanks to low oil prices the severance tax fund is expected to drop by more than 60 percent in 2016.
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