Colorado water plan loses out as severance tax funds decline
Author: Marianne Goodland - March 27, 2018 - Updated: April 5, 2018
DENVER — Colorado lawmakers are being forced to get creative when it comes to funding activities that rely on severance tax dollars, which have fallen by hundreds of millions over the last few years.
This year there just wasn’t enough money in the coffers to fund the state water plan at $10 million, which it received last year. For the 2018-19 fiscal year, it’s slated to receive only $7 million. The drop in funding comes just as the water plan’s chief cheerleader, Gov. John Hickenlooper, is headed into the last eight months of his term in office.
Severance taxes are paid by oil and gas and mineral companies when they take those resources out of the land, known as severing. Those revenues pay for some of the divisions in the Department of Natural Resources (DNR), including the Colorado Oil and Gas Conservation Commission (COGCC) and the Colorado Water Conservation Board (CWCB) and are known as Tier I funding.
Tier II dollars, which also come from severance taxes, pay for continuing projects such as water and agriculture-related programs, clean energy development, soil conservation, wildlife conservation, invasive species control and low-income energy assistance.
But the decline in severance tax revenues due to lower oil and gas activity, combined with the state losing a lawsuit filed by oil giant BP over property tax deductions, has wiped out a substantial portion of what the state has to fund those operational activities.
Up until 2014, severance taxes brought in as much as $300 million annually to the state coffers. Since then, however, due to the lawsuit and decline in activity, state severance tax revenues have dropped to $19.5 million in 2016-17, according to a December 2017 revenue forecast from the Office of State Planning and Budgeting.
Those revenues have recovered only slightly since then.
The Joint Budget Committee stepped in with a bill, House Bill 1338, to transfer just under $30 million in general fund dollars (income and sales tax) to ensure those DNR divisions and projects keep going. That bill is one of 17 bills, referred to as “orbitals,” that go hand-in-hand with the Long Appropriations Bill, House Bill 1322. Orbitals are included to ensure sure the budget is balanced.
The House Appropriations Committee approved HB 1338 Tuesday morning, prior to the House breaking into its separate caucuses for a JBC presentation on the budget, and to determine what amendments would be offered when the House debates the Long Bill Wednesday.
What’s left of the severance tax money will fund a variety of projects contained in Senate Bill 18, the annual CWCB projects bill. But with less money to work with, the water plan came out with less money than it got last year. The bill includes $7 million for the water plan, down from $10 million last year.
The $7 million for the water plan includes $3 million for storage work; $1 million for agriculture-water projects; another $1 million for grants that would put into action strategies for conservation, land use and drought planning; and $1.5 million for environmental and recreational projects. Who gets what will be decided by the board of directors for the CWCB.
But there is a light at the end of the tunnel, so to speak, for the water plan. Republican Sen. Don Coram of Montrose told Colorado Politics his signature bill in 2019 will entail finding a permanent source of money for the water plan. He isn’t ready to divulge just what he will tap as a source of funds. But he said it wouldn’t be severance taxes, given the way the severance tax formula currently works. That formula is based on the amount of drilling or mining activity. When those activities decline, such as when oil companies shut down wells or do less drilling, so do severance tax revenues.
The CWCB projects bill also includes $8 million to take care of “Republican River matters.” Half of those dollars will go to Nebraska, due Dec. 31, to pay off a settlement for alleged violations of an interstate compact.
The Republican River has its headwaters in Eastern Colorado, between Wray and Burlington. The river is named for a branch of the Pawnee Indians. The river flows first from Colorado into Kansas at its northwestern border, then to Nebraska and back into Kansas.
Under a 1943 agreement between Colorado and its neighboring states, 49 percent of the river water goes to Nebraska, 40 percent to Kansas and 11 percent to Colorado.
Nebraska accused Colorado of taking more water out of the Republican than it was allowed, and that’s led to years of lawsuits, some which also involved Kansas.
The two parties finally came to an agreement last month, with Colorado announcing it would pay $4 million to Nebraska but not admit to any violations. The settlement clears up at least 16 years of complaints, including one dating back to a 2002 settlement that Nebraska accused Colorado of violating. According to the Associated Press, the settlement terms include a stipulation that Nebraska will not sue Colorado for any alleged violations on or before Dec. 31, 2013.
The other $4 million will help pay for projects in the Republican River basin.