'Permanent' fund repeatedly tapped for passing needs

By Burt Hubbard, Rocky Mountain News (Contact)

Published December 10, 2007 at midnight

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Photo by Matt McClain

Gov. Bill Ritter, like governors before him, dipped into severance tax revenue to fund a special need: relief for southeastern Colorado counties devastated by a series of blizzards last winter.

Graphic by Michael Hall

Underground riches power Colorado's economy

In the early 1980s when legislators needed money to run the state, they borrowed millions of dollars in mining and energy tax money deposited in a newly formed trust fund. The money was never repaid.

During two more recent recessions, in the late 1980s and early this decade, they again raided the funds to keep the state afloat.

And when the state needed $35 million to settle a water dispute with Kansas, they used severance tax revenue.

Now, while neighboring states have multibillion-dollar trust funds from energy taxes, Colorado has little socked away.

"There's a hunger for money in this state and people are always going to go look at the easiest place they think they can get it from," said Stan Dempsey, president of the Colorado Petroleum Association.

The severance tax on mining and energy exploration was passed in 1977, in part to raise money for a "perpetual fund" to help mitigate impacts when the minerals, oil and gas are gone. But the original legislation did not constitutionally protect it from raids by lawmakers and governors as it is in neighboring states.

As a result, according to a Rocky Mountain News analysis of state spending, the fund is far from perpetual:

At least $150 million has been diverted to the general fund over the years to make up for budget deficits. During the first five years the tax was imposed, the legislature borrowed the money to balance the budget and never paid it back. With succeeding recessions came more raids.

Lawmakers year after year have drawn on the fund to finance pet projects. In the past four years, the legislature has approved 28 bills that have siphoned more than $100 million from severance tax and federal royalty funds for special appropriations.

Those have included a Colorado State University research institute, a $35 million settlement of a water dispute with Kansas and a new state wildfire emergency response fund.

Since 1995, the tax has been used to fund the day-to-day operations of four agencies under the Department of Natural Resources, which last year amounted to $10 million.

The money also has been used to fund special requests by governors. Last year, during his final year in office, Bill Owens used $24 million from the fund for an energy-assistance program for low- income residents. Gov. Bill Ritter in his third week in office this year dipped into the funds to give southeastern Colorado counties $650,000 for blizzard relief.

"(It) has become sort of a honey pot for the legislature to implement its pork. It sounds like such a strong word, but it's not far off," said state Sen. Josh Penry, R-Fruita.

Jim Evans, former director of the Associated Governments of Northwest Colorado, recalls it did not take lawmakers long to find their way into the new source of money after the tax went into effect in 1978.

Evans said for five straight years the legislature borrowed money from the severance tax fund, repaid it and then borrowed it again over the objections of Western Slope legislators whose districts generated most of the money and experienced most of the impacts of extraction.

Eventually, Evans said, lawmakers gave up repaying the money and simply appropriated it since the fund was not constitutionally protected.

Western Slope lawmakers "all protested it, but to no avail," Evans said.

In the mid-1990s, lawmakers revamped the severance tax system to give half the money in grants to cities and counties and half to the Department of Natural Resources.

The DNR's half, in turn, was divided equally between funding four of its agencies, including the state Oil and Gas Conservation Commission, and providing loans and grants for water projects.

It is this money — the DNR's operational slice of the pie — that has been consistently raided by the legislature.

As the amount of money the state collected from the severance tax increased, so did the number of raids on the money, the Rocky's review found. The raids totaled more than $40 million in 2005 and 2006 and $16 million this year.

Even some officials in the energy industry question the way the state has spent money originally designated to deal with the impacts of extraction.

"Our point is no matter what you think our level of taxation ought to be, there is a lot of money leaking out of there, especially on the operational side that is not doing anything to help affected communities," said Dempsey of the Colorado Petroleum Association.

Former Gov. Dick Lamm, however, said that even though the raids left the state without the billion-dollar trust funds that Wyoming and New Mexico have, he really can't blame lawmakers.

"They were in economic crises at various times," he said. "It wasn't spent frivolously. Most of it was spent to maintain a level of services that we all agreed should be maintained."

Harris Sherman, current director of DNR, said many of the bills funded energy-related issues such as low-income energy assistance, water development and endangered species protection.

"For the most part, the legislation has done reasonably well at sticking to the impacts," Sherman said.

Still, there is a move afoot among legislators such as Penry to revive the permanent fund and stop the raids.

"The central failure of our severance tax policy is we don't have a permanent fund," Penry said. "When you study the other states, they are smart enough to sock some away, and Colorado should, too."

The permanent fund clause is still in the severance tax statute, said Evans, the former director of Associated Governments of Northwest Colorado.

"There is hereby created in the office of the state treasurer the severance tax trust fund. The fund is to be perpetual ... " the statue reads.

"They never actually abolished that," Evans said.

• December 10, 2007

  4:58 p.m.

  Suggest removal

  ebmfck writes:

  Bunch of thieves - but then, what do you expect of a group of people who expect to get paid for doing nothing but line their own pockets. I have yet to hear of a legislator who retired with less than he started with in spite of the fact that nobody can live on a legislator's salary.

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