Colorado severance tax measure targets Big Oil, gas
DENVER, Colorado ” Big subsidies to energy companies. Consumers struggling to pay for fuel and heat. Redistribution of wealth.
These ad messages may sound like the latest from the presidential campaign, but they focus on one of Colorado’s most contested ballot issues. Amendment 58 would end a property tax credit for Colorado’s oil and gas industry and boost severance tax revenue by $321 million a year.
Supporters, led by Democratic Gov. Bill Ritter, argue the initiative would end a huge subsidy for an industry enjoying record profits and bring Colorado’s low severance tax rate in line with other states.
Opponents, including some of the country’s biggest energy companies, call the amendment a $321 million tax that would be passed on to Colorado consumers.
It’s thought to be one of the costliest ballot issue campaigns in Colorado history. Proponents, including environmental groups, have raised about $4 million. The industry-led opposition has contributed $11.5 million to defeat the measure. Seven companies, including Chevron Corp. and Conoco Phillips, have contributed $1 million each.
One TV ad shows Ritter walking in a field with trees and mountains in the background. He urges viewers to end the “$300 million subsidy” to oil and gas companies and invest the money “to help our kids go to college, protect our land and water and invest in renewable energy.”
The flashiest attack against Amendment 58 ” splashed across TV screens and billboards ” says it’s another tax for consumers. One ad denounces “Ritter’s $321 million energy tax hike,” warning it will drive up prices at the gas pump, boost heating bills and threaten Colorado’s economy.
“It’s the removal of a tax credit,” Ritter said in an interview with The Associated Press. “At the end of the day, will the oil and gas companies pay more in taxes? Yes.”
Ultimately, Colorado consumers will pay the price, said Dan Hopkins, spokesman for the anti-amendment group Coloradans for a Stable Economy.
Two former members of the commission that regulates utilities in Colorado say state rules allow companies to pass through cost increases to customers. “Natural gas prices will go up,” former commissioners Carl Miller, a Democrat, and Polly Page, a Republican, wrote in a letter circulated by Hopkins’ group.
A letter signed by 90 economists and released by the National Taxpayers Union, which advocates lower taxes, said Amendment 58 likely would decrease Colorado oil and gas production and discourage new investment.
Not all economists agree.
“Does it have to be paid for? Of course it does,” private economist Tucker Hart Adams said of the increase.
But Adams, who retired last year as the regional economist for US Bank, said it would be “such a drop in the bucket.”
“The implication by some people is because utilities can pass along costs, this $300 million is going to be tacked onto gas bills,” Adams said. “That is absolutely not true.”
A report by The Bell Policy Center, a Denver think tank, says because about two-thirds of the gas produced in Colorado is shipped out of state, prices in Colorado “will be based on supply and demand in a wide market that stretches from Ohio to California.”
Severance taxes are imposed on minerals extracted, or “severed,” to compensate for nonrenewable resources. Amendment 58 would end companies’ ability to deduct up to 87.5 percent of the prior year’s property tax liability from their severance taxes.
That credit produces a severance tax rate of 1.3 percent, the lowest among the eight major energy-producing states in the West, according to the Colorado Legislative Council, the Legislature’s nonpartisan research arm. The council says the 5 percent rate if the amendment passes would be the third-lowest in the region.
The measure also increases the number of small wells subject severance taxes.
The debate doesn’t stop with headline-grabbing exchanges between the governor and the energy companies. Some cities, counties and school districts in energy-producing areas worry that a change in how the revenue is doled out will shrink their share.
Currently, tax revenue is evenly split between state programs, including water projects and low-income energy assistance, and local governments affected by mineral development. Amendment 58 would evenly divide 44 percent of the revenue between the state and local communities.
The remaining 56 percent would go to new programs: 60 percent to college scholarships; 15 percent for wildlife habitat; 10 percent for renewable energy and energy efficiency; 10 percent for transportation projects in areas affected by energy development; and 5 percent for water and wastewater projects.
Supporters say local governments will get more money because the overall pot will be bigger. Opponents aren’t convinced.
“Theoretically, there will be a bigger pot, but oil and gas is the most volatile revenue stream the state has,” said Reeves Brown, executive director of Club 20, a lobbying group for western Colorado counties.
Fears of the fallout if prices and production drop prompted Club 20 to oppose the measure.
State Sen. Josh Penry, a Republican from western Colorado, said he’s not opposed to raising severance taxes, but believes Amendment 58 is the wrong way to do it. He’s sponsoring Amendment 52, which would maintain the current severance tax rate but cap revenue going to state programs to funnel more money to highways.
“When Gov. Ritter decided to bypass the Legislature and decided to take the severance tax debate to the people, we thought it was important to give voters a choice,” Penry said.
It’s unclear what happens if both ballot measures pass. Amendment 58 would be a law, while Penry’s is a constitutional amendment, which likely would take priority.
“If both pass, we’ll have to look at how we in fact sort out the conflicts that arise,” Ritter said.
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