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In wake of 58's defeat, Ritter puzzles over how to tap state's energy boom

By Todd Hartman, Rocky Mountain News

Published November 6, 2008 at 12:05 a.m.

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Gov. Bill Ritter talks to the media Wednesday about election results, including voters' rejection of Amendment 58. Ritter backed the measure, which would have ended a tax credit for the oil and gas industry. Critics said voters saw the measure as a threat to a big economic engine in Colorado and a source of thousands of jobs.

Photo by Ken Papaleo / The Rocky

Gov. Bill Ritter talks to the media Wednesday about election results, including voters' rejection of Amendment 58. Ritter backed the measure, which would have ended a tax credit for the oil and gas industry. Critics said voters saw the measure as a threat to a big economic engine in Colorado and a source of thousands of jobs.

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Voters' hard slapdown of Amendment 58 raises doubts about Gov. Bill Ritter's efforts to reap greater financial benefits from Colorado's energy boom.

The measure, defeated by a ratio of about 3-to-2, sought to kill a tax credit for the oil and gas industry that saves it some $320 million annually in payments to the state on the fossil fuels taken from beneath the ground.

While proponents framed the debate as eliminating a "subsidy" for wealthy energy companies, the industry-funded campaign against 58 peppered the airwaves with claims - contested by several experts - that the cost would be "passed through" to consumers in higher gasoline and energy bills.

It proved a winning formula for opponents, which leaves Ritter to ponder how - if at all - to position Colorado to better take advantage of a natural gas drilling boom expected to last up to three decades.

Colorado's tax rate on oil and gas companies remains among the lowest in the country, several studies show, and the tax credit Ritter tried to kill has saved the industry some $1 billion over the past 30 years - and it will save it far more as the industry continues to accelerate drilling in the state.

The credit is so big that operators in 25 of the state's 30 production counties have paid no state severance taxes on oil and gas in recent years.

Despite that, voters appeared loathe to tinker with any changes to the state's tax structure Tuesday.

"Clearly, a bad economy made it difficult for all the amendments," Ritter said, referring to the failure of eight of 10 statewide initiatives, including four that dealt directly with taxes and spending.

Amendment 58 suffered from its ballot language as well, with the first several words asking voters: "Shall state taxes be increased."

It also may have suffered from a crowded ballot, analysts said, with voters defaulting to a "no" vote when in doubt.

Critics suggested there were problems with the amendment itself, including the proposal to spend the new state revenues on college scholarships and a mish- mash of environmental and infrastructure programs.

College presidents supported Amendment 58, but the backing was widely perceived as lukewarm. Had revenues from the measure been funneled directly to shore up university budgets, Ritter may have been able to generate more support, said Denver pollster Floyd Ciruli.

"Frankly, most people think he teed it up very, very poorly. He failed to get interest groups behind it that should be behind it," Ciruli said.

Ritter, though, defended his plan to direct 60 percent of the money to scholarships to help families deal with rising tuition costs. He also cited several college boards around the state that supported 58.

"We believed it was the right fight," Ritter said. "Even with losing that, I have to keep my attention on how we ensure access to higher education."

Industry backers said voters saw the measure as a threat to a big economic engine in Colorado and a source of tens of thousands of jobs.

"I suspect the sponsors of the amendment will never acknowledge that our organization helped them from shooting themselves in the foot," said Keith Rattie, head of the energy firm Questar Corp. "Amendment 58 would have driven investment away from Colorado and lowered state revenues."

In a day-after press conference, Ritter suggested he will try a different approach to boosting severance tax revenues, one that will include working harder to get industry executives on board with a compromise plan.

First, he said, state regulators need to finish what has been a contentious effort to draft new environmental and public health rules to ease the impact of drilling on the state's land, water, wildlife and communities.

"If we do that, I think it is possible to sit down with the CEOs and talk about the severance tax picture and see if there's any common ground," Ritter said.

Though the governor has been the target of tough rhetoric from one of the industry's key trade associations - the Colorado Oil & Gas Association - over the new rules, he sees the energy firms' executives as more pragmatic.

There were suggestions earlier this year that Ritter could have struck a deal with industry on severance taxes had he not moved ahead with the new regulations. But such comments have only been rumored and not attributed to any specific industry official.

Trade association officials have said they can't focus on severance tax discussions with their hands full handling the rulemaking.

hartmant@RockyMountainNews.com or 303-954-5048