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REUTEMAN: Severance tax increase a wild card for Ritter

By Rob Reuteman, Rocky Mountain News (Contact)

Published January 19, 2008 at 12:05 a.m.

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The prime political conflict of 2008 for Gov. Bill Ritter may well be a November ballot proposal to increase taxes paid by the oil and gas industries for the minerals they extract.

I got the clear sense last week, when Ritter visited the Rocky the day before his State of the State speech, that he was leaning in the direction of increasing the severance tax as well as reforming the way severance taxes are distributed.

Late last year, the thinking was that Ritter would put a single tax-hike proposal on the November ballot, one that would target health care, transportation or higher ed. But last week, those notions seemed to take a back seat to a severance tax increase.

No question - higher ed, health care and transportation are in dire straits. Without a cash infusion, things will get worse. Where on earth would such money come from? With a recession almost surely under way, it seems futile to ask voters to increase their taxes - for any reason. Taxing an industry sector would seem a more palatable sell for voters as well as a more Democratic solution.

"We're having stakeholder conversations about increasing the severance tax," he told the Rocky's editorial board last week. On Thursday, he told Rocky reporter Chris Barge he was leaning toward a higher tax on the oil and gas industry as a way to fund higher-education shortfalls.

"We are actively discussing whether it should be on the ballot in 2008," Ritter said. "What I would say is there are not the same active discussions about transportation and health care right now."

Ritter surely has some bare-bones facts on his side. In December, the Rocky produced an 88-page series called "Beyond the Boom," examining the impacts, good and bad, of increased oil and gas drilling in Colorado. Our analysis found that the tax burden for oil and gas companies in Colorado was 5.7 percent of production, compared with 11.2 percent in Wyoming and 9.4 percent in New Mexico. In addition, drillers in Colorado may credit 87.5 percent of property tax they pay to offset their severance tax. That credit was so large in some cases that producers in 25 of the state's 30 energy-producing counties paid no severance tax at all in recent years.

Yet many signs point to an uphill battle. The oil and gas industries in California, for instance, spent some $60 million last year to defeat a proposal to hike their taxes. Clearly, Ritter wants some sort of buy-in from the industry prior to any ballot item. He visited West Slope energy companies Friday as part of his "stakeholder conversations." Ritter doesn't want a pitched media battle with a well-heeled industry in a presidential election year.

And he can't afford to alienate the state's energy industry. According to a Colorado School of Mines study done last June, the state's oil and gas industry is an economic powerhouse, pouring $22.9 billion into the economy, creating 70,000 jobs and adding $640.5 million in taxes.

The study concluded that oil and gas production accounted for 6.1 percent of the gross state product - making the energy industry one of the biggest contributors to Colorado's economy.

Another negative for Ritter: Statewide polling in October indicated an increase in the severance tax would not be popular with voters. Research done for the Denver Metro Chamber of Commerce by Texas pollster David Hill showed that only 6 percent think a severance tax increase is "the best way" to solve any of the state's problems.

"That's because people think that if we stick it to oil and gas companies, they're going to pay for it at the pump," Hill said at the time.

Energy producers are gearing up for a fight. Meg Collins, president of the Colorado Oil and Gas Association, wrote a Jan. 7 letter to legislators that plainly stated the case: "COGA will oppose any efforts to increase severance taxes levied on the industry or the elimination of the . . . tax credit."

To say that battle lines are being drawn is probably premature.

"I would like to get to a place where we have some consensus on how to go forward," Ritter said last month.

Good luck.

Business editor Rob Reuteman can be reached at 303-954-5177 or reutemanr@RockyMountainNews.com.

Comments

  • January 21, 2008

    4:30 p.m.

    Suggest removal

    rreute writes:

    Hi,

    It is interesting to see how a topic I am knowledgeable about is presented. If the topic is not presented accurately, then all other topics presented in a newspaper become suspect. The news industry is further marginalized.

    Taxes on the oil and gas industry vary from state to state which makes direct comparison difficult. All state and local taxes in Wyoming are collected by the State and then redistributed to the various local taxing entities. Colorado uses a different tax method.

    In Colorado local taxing entities collect both a tax on the percentage of gross sales and the oil and gas equipment. The focus of this e-mail is on the percentage of gross sales of oil and gas sales. The local taxing entities are numerous including counties, cities, library districts, school districts, water districts, hospital districts, conservation districts, fire districts, transportation districts, weed control districts and others. Each taxing entity taxes a small percentage of gross revenues which typically add up to over 10% of the gross revenue. Then the State allows a deduction of a percentage of these taxes, but not all. Generally all the taxing entities and the State taxes add up to about 12% of the gross production revenue. If the local taxes on oil and gas production are low then Colorado taxes at a rate up to about 6%. If you are on Federal or Indian land in the state, you pay the Federal or Indian portion of state taxes local taxes, in addition to paying your percentage.

    Oil and gas equipment are taxed the “new” value even if the equipment was bought used, bought new at a lower price and is not depreciated over time.

    In am not a tax expert, but any accounting firm knowledgeable in oil and gas taxes can verify the discussion above. In fact I’d advise you to become more knowledgeable and regain your position as a trusted source of information.

    Taxes are an integral part of social policy. Maybe a reduction in governmental spending would be in order. The USA is energy self sufficient for the most part except for motor fuels. A direct tax on motor fuels would reduce our use of mostly foreign oil, deny some countries hostile to the US revenue, keep our children out of hostile areas and even help the environment. Taxes have to be arcane and necessarily confusing for them to be enacted, so a tax on motor fuel most likely will not be discussed.

    Two words that should never be used in the same sentence are fair and taxes.

    Bill Donovan, PE

    Petroleum Engineer

    Donovan Brothers Inc.

    Littleton, CO 80122

    9:42:26 AM Saturday, January 19, 2008

  • January 21, 2008

    4:33 p.m.

    Suggest removal

    rreute writes:

    Enjoyed your column...can we tax during a recession?
    Jan V. Rigg
    Public Issues Management

    FYI of interest...
    Father of Bush tax cuts: Recession likely
    Harvard economist Martin Feldstein says more tax relief, deeper Fed rate cuts needed if U.S. is to avoid recession.
    By Chris Isidore, CNNMoney.com senior writer
    January 8 2008: 5:46 AM EST
    NEW YORK (CNNMoney.com) -- Martin Feldstein, the Harvard economist credited with being one of the fathers of the Bush administration tax cuts, says the U.S. economy is now likely to slip into a recession, and that avoiding one will take a new round of tax cuts and interest rate cuts from the Federal Reserve.

    Feldstein is president and CEO of the National Bureau of Economic Research (NBER), the organization charged with determining when the economy is in a recession and when it is growing. He told CNNMoney.com that he had thought the chance of a recession was about 50-50 even before last week.

    But he said he now believes a recession is likely, as he pointed to both a report from the Institute of Supply Management showing manufacturing activity in decline for the first time in almost a year, and Friday's December jobs report that showed a jump in the unemployment rate to a two-year high.

    He did not give a new percentage for the chance of a recession, saying that will depend on what both the Federal Reserve and Congress and the administration do in response to the weakness.

    "It's not just clear that lower interest rates and monetary policy more generally will have enough traction because of conditions in the credit market," he said when asked if the Fed could hold off a recession. "We should have some fiscal stimulus to back that up."

    Feldstein made his remarks the same day President Bush gave a speech in Chicago in which he said that economic indicators are "increasingly mixed," and he acknowledged that many Americans are growing anxious about the economy. But the president argued the economy itself is resilient.

    The president did not propose any kind of short-term economic stimulus package in his comments, as some had expected, although he argued that it was important not to raise taxes and called for making permanent the tax cuts he passed early in his administration that are due to expire after he leaves office.

    Feldstein said he was not surprised that there was no plan laid out on Monday, saying he expects to see it in the State of the Union address. He said an extra $300 tax credit for each tax payer, similar to what was passed in 2001, would only be a good first step this time, and that some kind of deeper cuts might be necessary if the economy starts to lose jobs.