The Severance Split

The Severance Split
Dan Haley, President and CEO, Colorado Oil & Gas Association 

Colorado’s oil and gas industry has become a convenient bogey man when times get tough and the state is overturning couch cushions trying to meet its budget needs.

We may employ more than 100,000 men and women, pay more than $1 billion in local and state taxes annually and help pay for roads, bridges, rec centers, libraries and parks in every corner of Colorado, but when state funds run low, someone always wants to tap oil and gas for more.

Witness the recent Sunday Denver Post story, which raised questions over how much oil and gas companies pay in severance taxes in Colorado as compared to other states and asked why Colorado isn’t doing more to save money for a rainy day.

Rather than take on the complex Gordian knot of amendments such as TABOR, Gallagher and 23, that have tied up the state’s budget and stressed out lawmakers for decades, it’s easier to suggest that the oil and gas industry just pay more.  But that is neither a smart nor fair way to solve our state’s budget problems.

First, it’s important to note, when you consider all of the taxes the oil and gas industry pays in Colorado, we’re smack dab in the middle of 9 Western states when it comes to tax burden.

That’s a reasonable place to be. That’s where Colorado should probably desire to be overall, especially when you factor in the stringent regulatory environment industry has to navigate here compared to other states.

Given the number of regulations in our state — we’ve had 10 major rulemakings over the past six years — it seems like a fair trade-off. Many of those regulations help further protect our air and water, and we’re not arguing to overturn them, but they add to the cost of doing business in Colorado.

Every time we add a regulation, the cost of doing business here goes up more. If our severance and other taxes go up too, you have to wonder why a company would want to do business here.

Wyoming and North Dakota, of course, would love to see us drive business their way.

So, if raising taxes isn’t the answer, why not just close all of those loopholes, some have asked?

The story alleges that a recent court case “expanded even further industry tax exemptions,” and that’s not true.  The state of Colorado was illegally collecting certain taxes on a small number of oil and gas companies for a decade. One of those companies filed a lawsuit alleging improper collection, as is their right, and the Supreme Court agreed with them. The state ended up having to pay back some of the money it was found to have been illegally collecting.  This case was an example of righting a wrong, not creating a tax loophole for industry.

Finally, a former state lawmaker told the Post “we’ve frittered away every penny collected in severance taxes.”

Really?

First, half of all severance taxes pay for four agencies in the Department of Natural Resources and state water projects. The other half, roughly, goes to local impact grants and directly to local governments to help mitigate impacts of oil and gas development.

The author of The Post’s story wrote, rather dramatically, that giving this money to local governments has “fueled massive public works spending sprees.”  Those “spending sprees,” however, have paid for programs that actually matter to local communities.  Like gardens at public schools, fire trucks and broadband infrastructure.

The story also failed to mention the $500 million that oil and gas companies pay to schools in local taxes. That is $500 million the state did not have to backfill out of its own budget.

Colorado’s oil and gas industry pays its fair share of taxes, especially when you look at the entire tax burden. If Coloradans want to spend severance tax money on different things, that’s certainly a debate state lawmakers can have. But it’s a debate that needs some context as to what the industry already pays in taxes, the existing cost of doing business in Colorado, and the state’s other budget constraints.

We should also avoid comparing Colorado’s budget to other energy-rich, but much less populated, states such as Wyoming and North Dakota, which have smaller budgets and thus different spending needs.  It’s not apples to apples and the comparison is very misleading.

Ironically, in a separate op-ed last week, a Boulder congressman said Colorado should be more like California. Now, we’re being told to be more like North Dakota.

How about we just concentrate on being Colorado — a beautiful, politically balanced state, where we protect our environment while remaining open to business? It’s worked for a long time.