September 20, 2008

Blowout Brawl Over Oil Money Amendment 58 Pits Ritter, Energy Firms in Tax Battle

By Gargi Chakrabarty

An epic battle is brewing between Gov. Bill Ritter and Big Energy, and come November it will be up to voters to settle the matter.

The warring parties have raised more than $12 million in the increasingly belligerent fight over Amendment 58, a ballot measure that six weeks before the election is already the costliest issue campaign in state history.

Ritter is leading a coalition of environmental groups, led by the Nature Conservancy, and higher education backers to kill a tax credit for oil and gas companies and generate more than $300 million for state coffers, the bulk of which would pay for college scholarships.

On the other side stand energy companies and their extraordinary economic clout. Giants such as Exxon Mobil, Chevron, BP, ConocoPhillips, EnCana, Williams and Anadarko have spent $1 million apiece - part of $10 million overall contributed by energy firms - in a massive effort to defeat the measure.

Amendment backers targeting those companies say the "world's richest industry" can afford to give up a lucrative tax loophole found in almost no other state. Opponents say the measure, combined with an ongoing overhaul of Colorado drilling regulations, amounts to a tax increase that will push up energy prices and hurt local economies.

Political analyst Floyd Ciruli calls the high-profile showdown part of an unfolding conflict pitting powerful energy companies and record fuel costs against a resurgence of Democratic politics and green concerns pushing for cleaner power.

Ritter "is taking on a huge interest group . . . a group that feels somewhat embattled and has made it clear they'll fight back," Ciruli said. "On his side he has this growing strength of the Democratic Party, large legislative majorities . . . and an empowered environmental community."

Cash-strapped state

Debate over whether to increase state revenues from energy drillers has been percolating for at least 12 months, as an oil and gas boom has erupted in the state, with drilling permits more than tripling since 2003.

Higher education groups and environmental activists were among those eyeing the money piling up as more and more fuels were pulled from the ground. The money also has been viewed by many lawmakers, and Ritter, as a key source of revenue for a cash-strapped state where constitutional provisions make it hard to find new funds.

Battle lines were formally drawn April 24, when Ritter, a Democrat, announced at a news conference that he would ask voters to approve higher tax revenues from the multibillion dollar industry to fund college scholarships for tens of thousands of undergraduate students.

"The best way to grow the economy is to invest directly in the students going to college," he said to applause from his backers in the crowd.

What Ritter proposed that day is now Amendment 58, a measure that aims to change how Colorado's oil and gas industry pays its state tax.

Under the plan, industry would lose a tax credit that allows it to deduct most of what it pays in local property taxes from its severance tax bill it pays to the state. Severance taxes are paid on minerals "severed" from the ground.

The 30-year-old property tax exemption is so substantial that companies operating in 25 of the state's 30 oil and gas-producing counties paid no severance tax in recent years.

Critics call the credit an outdated subsidy and say that energy companies, enjoying record profits linked to record-high gasoline and increasing natural gas prices, no longer need it.

But drillers respond that the credit is important because it evens out disparate property tax rates. Without it, they argue, energy companies might opt out of working in areas where local property taxes are higher and favor regions with lower taxes.

The No campaign has built a broad coalition of its own, as well, made up of numerous chambers of commerce, rural county commissions and some local school districts wary of losing property tax revenue from companies if they leave the area.

Industry: Tax hurts jobs

At the heart of the fight are clashing philosophies.

Ritter and his backers see the oil and gas industry as an important one. Indeed the governor is always careful to praise its impact as a job machine and a source of tens of billions of dollars in economic impact to Colorado.

But Ritter told the gathered crowd in April that oil and gas "are called nonrenewable resources for a reason," noting that some day the fuels will be gone. He argued that taxes on those resources should be invested for the future, on educating students who would constitute Colorado's workforce in the coming years.

The measure calls for dividing new revenues this way: 60 percent to college scholarships, 15 percent to road and water projects, 15 percent for preservation of wildlife habitat and 10 percent to renewable energy programs.

Backers look to New Mexico and Wyoming, which have developed permanent funds now swollen with billions of dollars in socked away severance tax revenues. Those states will have something to show for themselves when the gas runs out, the argument goes.

"Do we continue to give this money away or invest this money in Colorado families?" said David Kenney, the campaign manager for A Smarter Colorado, which is backing the amendment.

Critics also note that Colorado's tax burden on industry, now among the lowest of several Western states, would still be less than two of its three neighbors.

The new rate, if Amendment 58 passes, would be at about 9 percent, supporters say. That's still lower than Wyoming's 11.2 percent and New Mexico's 9.4 percent. It's higher than Utah's 4.5 percent.

But industry has denounced Ritter's view, warning against tinkering with taxes on an industry that has helped sustain Colorado through difficult times.

"Since when did raising tax create new jobs?" asked Meg Collins, president of the Colorado Oil and Gas Association. "It's awfully risky to raise taxes, particularly when it looks like the economy nationwide and in Colorado could be slipping toward a recession."

Industry repeatedly points to a $300,000 study paid for by the state legislature that found the oil and gas industry poured $22.9 billion into Colorado's economy in 2005 - accounting for 6.1 percent of gross state product.

The study, conducted by the Colorado School of Mines, also found that the industry paid $640.5 million in taxes to state and local governments and $870.5 million in business and personal income taxes to state and local governments.

Further, industry officials complain that the measure comes at the same time Colorado's regulators are overhauling environmental and public health rules in response to public concerns about impacts of the ongoing drilling boom.

Tom Clark, executive vice president of the Metro Denver Economic Development Corp., said "regulatory uncertainty" is fueling strong reaction from energy companies.

"When a portion of tax credit goes away when costly regulations go up, its a double whammy," he said.

Boom has ups, downs

Shadowing the debate over Amendment 58 are mixed public emotions about the energy industry generally. While polls show public anger with sky- high gasoline prices and the industry's staggering quarterly profit reports, they also support more domestic production to perhaps help rein in prices.

Colorado is doing its part to satiate the nation's energy hunger. The state hosts 35,606 active oil and gas wells, 33 percent more than five years ago, and regulators are approving, on average, 21 permits a day to drill wells in an energy quest expected to continue, and grow, for perhaps two to three decades.

The boom is evident in many places. Drivers on Interstate Highway 70 see dozens of rigs clustered near Rifle, Parachute and Rulison. Hunters are less and less surprised to find wells on state wildlife refuges, and homeowners and schoolchildren can see drill towers looming over suburban developments in Weld County.

Many are excited about the economic spillover from all the activity - the demand for goods, hotel rooms and restaurant meals. But the same people also despair about the effects: the flood of workers, perceived threats to public health from chemicals in the water and air, and the dust and noise that have altered quality of life.

The growing bustle has sparked conversations about how to preserve the scenery and postcard feel of Colorado while still benefiting from the energy boom.

The governor and others say Amendment 58 is part of a strategy to ensure that the state channels a portion of the financial windfall of the boom into preserving Colorado's future.

That's where severance taxes come into play.

Historically, the state has what many lawmakers admit is a decidedly mixed record on how it spent that money.

A Rocky Mountain News series last year raised questions about how the state spent $2.5 billion in revenues from drilling on state and federal lands since 1980. Some of the money went to bail out budget shortfalls and pay for what critics said were superficial projects, some of them in areas with little or no energy production.

But investing at least some severance tax revenues in scholarships, land preservation and clean energy projects, Ritter argues, would be spending with an eye to the future.

A powerful election foe

Even so, Ritter and other amendment backers face a challenging landscape.

Just two years ago, California asked voters to approve a severance tax on oil and gas, and use the revenue for renewable energy work.

The energy industry plowed nearly $100 million into an effort to beat the plan, and won. Although there are differences between the proposal in California and Amendment 58, the bottom line is that the issue lost in a state far more liberal politically than Colorado.

In one sense, however, Ritter has a blueprint for victory.

In 2004, environmentalists successfully pushed for Amendment 37, a landmark measure requiring that the state generate a set percentage of its electricity from renewable sources. The passage made Colorado the first state in the nation with such a requirement.

Backers focused on liberal and moderate voters in Denver and its suburbs, Larimer and Pueblo counties, and the Interstate 70 corridor through the mountains.

But this fight is also different in one major sense: well- funded foes.

Although Xcel Energy opposed Amendment 37, it didn't mount a massive campaign against it.

The fossil fuel industry's $10 million to date has included the hiring of big political guns for campaign work, and ex-Gov. Bill Owens' former press secretary, Dan Hopkins, as its public voice.

Its campaign is flooding the airwaves with ads attacking Amendment 58 as a "tax increase" and telling voters the measure will drive up energy prices for gasoline and home heating bill.

It's a claim challenged by economists, who say the markets for energy are too big and complex to feel the effects of a change in Colorado tax structures.

Rick Reiter, a top campaign official with the opponents, insists the tax increase will be passed onto consumers. "It's laughable to think that's not going to happen," he said.

There is some evidence to the contrary. For example, severance taxes are higher in Wyoming, but prices to consumers are lower there.

Ritter also has Colorado history against him.

In 1977, then-Gov. Dick Lamm tried to pass a severance tax measure with voters. In exchange, he offer to repeal the sales tax on groceries.

Lamm's opponents spent $350,000, including some for a television ad featuring a chocolate-covered Easter egg that opened up to contain a lemon, representing higher prices if the measure passed.

It lost 2-to-1.


Amendment 58

Ballot wording: "Shall state taxes be increased $321.4 million annually by an amendment to (state statutes) concerning the severance tax on oil and gas extracted in the state . . . (by) eliminating a credit against the severance tax for property taxes paid by oil and gas producers and interest owners."

* Who's for it: A Smarter Colorado. Money raised through Sept. 10: $2,046,755

Biggest donors: The Nature Conservancy, $1.175 million; Paul Tudor Jones, $250,000; The Gary Williams Co., $100,000; Lockheed Martin, $50,000; Colorado Conservation Voters Education Fund, $55,000; Colorado Environmental Coalition, $50,000; The Kenney Group Inc., $26,000

* Who's against it: Coloradans for a Stable Economy. Money raised through Sept. 10: $9,995,000.

Biggest donors: Seven oil and gas companies have given $1 million apiece: Exxon Mobil, BP, ConocoPhillips, Chevron, EnCana, Williams, Noble, Anadarko.

Originally published by Gargi Chakrabarty, Rocky Mountain News and Todd Hartman, Rocky Mountain News.

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