September 20, 2008

Vying for Bigger Slice of Pie Natural Resources Could See Modest Bump in Budget

By Gargi Chakrabarty

The Department of Natural Resources charged, among other duties, with policing Colorado's oil and gas industry will see its budget grow modestly if voters approve Amendment 58 in November.

The ballot measure calls for eliminating an ad valorem tax credit that allows oil and gas producers to reduce their severance tax payments to the state. If the measure passes, the state expects to collect an additional $300 million in severance tax revenue each year.

Under the current system, Natural Resources evenly splits the severance tax revenue with the Department of Local Affairs. The state is on track to collect $214 million in oil and gas severance tax revenue during fiscal year 2009-2010. Of that, Natural Resources and Local Affairs each will receive $107 million.

If Amendment 58 passes, the state will allocate each department only 22 percent of the severance tax revenue. Despite their smaller share, the departments still will end up with more dollars since the severance tax revenue is expected to rapidly swell.

"A rising tide lifts all boats," said state Sen. Chris Romer, D- Denver. "Given that drilling plus oil and gas production in the state will keep increasing, we will have rising severance tax revenue under Amendment 58 and both the DONR and the DOLA will do well under that regime."

Under Amendment 58, the state is expected to collect $518 million in fiscal year 2009 - 2010, or $304 million more than the current system.

And the DONR and the DOLA would end up pocketing $114 million each, $7 million more than what they'd have gotten under the existing system.

"The intent of Amendment 58 is to hold the DONR programs harmless, and our analysis shows the programs would maintain a status quo," said Harris Sherman, director of Natural Resources.

Sherman said he's more worried about Amendment 52, which, if passed, would constitutionally limit his department's budget at the level of fiscal year 2007-2008 and allow it crawl up with the rate of inflation. The remaining amount would be used to fix the state's highways with priority given to relieving congestion on Interstate 70.

"Fiscal year 2007-2008 was an unusually low year for severance tax, largely because of lower natural gas prices," Sherman said. "Unfortunately, Amendment 52 is based on that year."

Amendment 52 would allocate more severance tax money to transportation. It would cut down the DONR's perpetual base fund (which constitutes half the department's budget) by $134 million over four years, reducing the loans it offers through the Colorado Water Conservation Board to build water storage, pipelines, ditches and other projects, he said.

It also would reduce the DONR's programs such as eradication of water-sucking tamarisk vegetation along rivers, species conservation and local water projects selected by the Interbasin Compact Committee by $13 million, or 33 percent, in fiscal year 2009-2010, according to Sherman.

Amendment 52's key backers, state Rep. Cory Gardner, R-Yuma, and Sen. Josh Penry, R-Fruita, say DONR is flush enough and doesn't need additional money.

For example, the DONR is projected to receive $165.3 million from severance tax revenue (excluding interest earnings) in fiscal year 2008-2009.

That's almost $90 million more than the $75.7 million the department received the prior fiscal year.

"For DONR to argue with a straight face they're not doing very well financially, is a difficult argument to make," Penry said. "In a state with legitimate and fundamental needs in transportation and higher education, it's impossible to argue the DONR budget should grow by $90 million."

Originally published by Gargi Chakrabarty, Rocky Mountain News.

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