Let me start by saying that I have the greatest respect for Gov. Bill Ritter. I campaigned for him and have worked closely with his administration on many issues important to the state and to my constituents. I look forward to campaigning again for him in 2010.
But, in the case of Amendment 58, we are not in agreement. Amendment 58 seeks to increase oil and gas severance taxes by eliminating the tax credit that companies receive for ad valorem taxes paid to local governments and other local taxing districts.
I have an obligation to my constituents in eight southwest Colorado counties to represent their interests and Amendment 58, in my opinion, is not in their best interest.
To understand my position you need to understand the basics of the local ad valorem and the state severance tax. At the county level the value of production, mostly gas in our part of the state, is taxed at 87.5 percent of its value. This contrasts to the property tax you pay on your residence, which is calculated on approximately 8 percent of its value or your business at 29 percent. The same mill levy is then applied to the different classes of property and the tax is paid by the owner of the property. In the case of natural gas the owner of the production is both oil producing companies and royalty owners.
These mill levies support not just county government but also schools and other special districts, such as fire protection and local water districts.
In our part of the state, the ad valorem portion of the property tax is very significant with over 90 percent of one particular school district’s tax base being attributable to this source. When these entities with a high proportion of their tax base attributable to the gas industry have gone to the voters with proposals to increase the mill levy, they have been successful in passing these issues primarily for two reasons. First, the voters realize that they personally are paying a small percentage and second, the industry/royalty owners who pay a large percentage haven’t opposed these increases. The reason the industry/royalty owners haven’t opposed these increases is that under current law they get a credit against their state severance tax for 87.5 percent of the ad valorem tax they pay locally.
For example, if a school district passes an $80 million bond issue to build new schools in an area where oil and gas production accounts for 65 percent of the district’s property values, the industry/royalty owners would be paying $52 million of the total (80x.65=52). They would then get a credit for $45.5 million against their state severance tax (52x.875=45.5).
This is not a loop hole but a mechanism that was put in place when the state Legislature created the severance tax in 1977 as a way to keep tax revenues in the communities impacted by energy development.
It recognized the importance of the oil and gas industry making investments in our local communities and gave them partial credit against their state tax bill for doing so.
Amendment 58 would eliminate this credit. The unfortunate consequence being that it potentially will make it difficult for those paying the ad valorem tax to continue to support mill levy increases in their communities. This is why many governmental entities in the energy-impacted areas are opposed to Amendment 58. School districts, counties, special districts and groups such as Club 20 and Action 22 are in opposition, as well as legislators from the energy producing areas.
One of the primary arguments used by the proponents of Amendment 58 is that our state severance tax is lower that most other states. This is true and I am not opposed to an increase in the severance tax rate. Unfortunately this proposal doesn’t do that. It comes through the back door to raise the severance tax collected through elimination of the credit to the detriment of the communities I represent.
I voiced these concerns to my legislative colleagues and to the governor during the past legislative session. If Amendment 58 fails, I will work with my colleagues and the governor on a severance tax increase and on how the additional tax should be spent.