Energy, mining tax pie tilted

Front Range gets lopsided share, state audit finds

Laura Frank, Rocky Mountain News

Published August 22, 2007 at midnight

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Some Colorado counties are getting more drilling and mining severance tax money returned than they generate, leaving other, more heavily impacted communities shorted, a state audit has found.

Governments along the Front Range receive about four times more severance tax money than is generated by those industries locally.

But cities, towns and counties in the southwest part of the state - whose industries account for about half the state's total severance tax revenue - keep only about a fifth of what's generated there.

Similar regional disparity is found statewide, the audit says, and the situation will become more pronounced when a new state law goes into effect next fiscal year.

The new law stipulates that the state Department of Local Affairs send 30 percent of all severance tax revenues collected - as opposed to the current 15 percent - directly to local governments to mitigate industry impacts, potentially making a lopsided pie even more so.

The audit is just one piece of information an intense legislative committee will use in the coming months to propose changes in Colorado's severance tax laws. Some lawmakers contend that the current rules were written for a long-ago mining boom, and need updating as the state observes a blossoming natural gas boom.

The direct payments to Colorado communities are supposed to offset the impacts of mining and drilling on such things as roads, schools and public services. The money is distributed based on how many industry workers live in a particular community.

But the law also says the amount of money each local government gets should be proportional to the amount of severance tax that producers within the county pay. And since those figures are difficult to determine, Colorado simply doles out a different amount for different industries: higher amounts for high-tax industries like oil and gas, and lower amounts for lower-tax industries like coal and metals.

Under current law, a community gets more money for a gas driller than a coal miner.

"These outcomes are problematic," legislative auditor Greg Fugate told the Legislative Audit Committee on Tuesday. "It's not clear that an oil and gas worker uses more services or has a greater impact than a coal or metals worker."

The state audit says lawmakers need to clarify the law. But Don Warden, director of finance and administration for gas-rich Weld County, said the task is not that simple.

For example, the state lists Weld County as home to about 400 oil and gas workers. But the gas-booming county has literally thousands of these production workers, Warden said. The current formula doesn't count the producers' contractors. And these days, Warden said, most production jobs go to contractors.

"It's complex," Warden said. "Any formula they come up with is going to have winners and losers."

Many counties, cities and towns in Colorado depend on money they get from severance taxes, paid by producers of gas, coal and other mining operations. Part of that money - nearly $17 million last year - was given to local governments to help with impacts.

State officials said it would be difficult to figure out a county-by-county tax bill for producers who operate in multiple counties, something some lawmakers questioned. Instead, the money is doled out according to industry type in an attempt to account for the amount of severance tax paid by producers in the counties where the workers live.

So, while local governments get about $400 for every gold miner, they get more than $3,400 for every oil and gas worker. Oil and gas producers pay more taxes generally than metal or coal miners.

"We found the current method (of distributing money directly to local governments) raises questions about whether the intents of the law are being achieved," Fugate told the committee.

The committee's eight members are split evenly between senators and representatives, and between Democrats and Republicans.

The Department of Local Affairs, which distributes the funds, pledged to work with lawmakers, local governments and taxpayers to fix the law.

What's a worker worth?

A portion of state severance taxes on drilling and mining operations goes back to local communities, which are dealing with the impacts of workers. But current law says different workers are worth different amounts:

• Coal $481

• Metals $403

• Oil & Gas $3,444

Read the audit here:

www.leg.state.co.us/OSA/coauditor1.nsf/All/60AA97EDE68A9B2987257331006C9258/$FILE/1836%20Sev%20Tax%20Report%20August%202007.pdf

frankl@RockyMountainNews.com or 303-954-5091

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