Proposed severance tax funding shift draws fire

Kelly Sloan, The Business Times

Two Western Colorado groups have joined with local government officials in opposing a plan to use severance tax revenues to offset state refunds that could be required under constitutional limits.

“It is a bad idea to take that money away from communities which need it to help with their own economies. It is time that the state planned for these shortfalls in a fiscally responsible manner,” said Bonnie Petersen, the executive director of the Associated Governments of Northwest Colorado.

Representatives from AGNC and Club 20 joined with officials from Mesa County and the Fruita, Grand Junction and Palisade city councils at a press conference in Grand Junction to announce their opposition to a proposal to divert up to $47 million in projected severance tax revenues to the state general fund to offset refunds that could be required under the Taxpayer Bill of Rights.

In a letter to the Joint Budget Committee earlier this year outlining his supplemental budget requests, Colorado Gov. John Hickenlooper asked that higher-than-projected severance tax revenues be directed to the general fund, where the monies would be used to backfill TABOR refunds and higher Medicaid expenses. Severance tax is collected primarily from oil and natural gas production and distributed back to local governments to help them pay for the effects of energy development.

Opponents of the proposal also took issue with the implication higher severance tax revenues are responsible for triggering refunds under TABOR tax and spending limits.

In a letter to the chairman of the Joint Budget Committee, the City of Grand Junction cited documents from the Governor’s Office of State Planning and Budget to point out, “It is clear that severance tax revenues are cash fund revenues and not general fund revenues,” and that “it is the general fund that is estimated by the governor’s office to increase by 8.6 percent in the upcoming fiscal year, triggering the refund.”

In a joint letter to the governor, AGNC and Club 20 stated the most significant contributors to the TABOR refund are sales and income tax revenues that have increased 26 percent and 39 percent over the past five years.

By comparison, severance tax revenues have declined 20 percent from five years ago.

Petersen said local communities are also concerned severance tax revenues will decline in coming years as a result of a decline in production related to lower commodity prices. Meanwhile, “diverted dollars could be sorely needed in the communities from which they came.”

Mesa County Commissioner Rose Pugliese said state officials should look for better ways to backfill the budget than diverting severance tax revenues. “Governor, we would be happy to help you identify some efficiencies,” she said.

Les Mergelman, chairman of Club 20, also said the state should have been better prepared. “We were led to believe that the Medicaid expansion was to be paid for by the hospital provider fee,” he said. “Obviously the Legislature did not identify a funding source before approving the (Medicaid) expansion. This was foreseeable and should have been planned for.”