Lawmakers reviewing distribution of taxes on mineral extraction
August 21, 2007
DENVER ” Lawmakers are reviewing changes in the way the state doles out taxes on mineral extraction after a state audit on Tuesday showed wide disparity in the way the money is distributed.
The severance taxes are collected from oil and gas producers and are supposed to compensate communities adversely affected by oil, gas and mineral extraction. Set amounts are distributed depending on which industry employees live in a community.
However, auditors said the distribution formula, which is intended to give money to communities most impacted by production, often does not fully address the impact the industry has on housing, roads, water and sewerage.
Lawmakers said any attempt to change the formula will have a major impact on local communities that depend on the revenue for local services, and they expect a bitter fight after a task force reviewing the formula completes its work.
Sen. Jack Taylor, R-Steamboat Springs, said the last time the state changed the formula, the mineral extraction industry wasn’t consulted, even though their workers have to live in those communities.
“That just blew the industry apart,” Taylor said.
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However, opponents to changing the formula say almost every county in the state depends on money from the fund because everyone is impacted by the industry, whether from damage to roads or the shortage of workers it causes.
There are an estimated 30,000 active oil and gas wells in Colorado. Including severance taxes on minerals, the state expects to collect about $242 million this year.
Under a law passed this year, the amount of severance funds going directly to local communities was doubled from 15 percent to 30 percent. The rest is doled out as grants.
Last year, under a formula based on the amount of severance tax contributed and the number of employee residents, communities with coal miners got $481 per employee resident, metals extraction got $403, and those with oil and gas workers got $3,444.
Auditors said workers have the same impact on a community, whether they work in coal mining or the oil industry, and suggested lawmakers look at other measurements of impact, including miles traveled, the amount they produce and residency requirements.
According to the audit, communities in the northwest part of the state received 59 percent of the funding, even though they only contributed 33 percent. The southwestern part of the state paid 52 percent of the taxes and only got 10 percent of the revenues because many of their workers work in Colorado and live in New Mexico.
Charles Unseld, deputy director of the Division of Local Government that doles out the funding, said many workers on the Western Slope have post office boxes, making it difficult to determine where they live.
Taylor said the formula also discriminates against some communities that don’t meet requirements that workers live there at least six months, including workers on two gas pipelines in his district. He said those communities still have to be able to meet the needs of the temporary work force explosion.
“This is the type of impact these dollars should be going for or toward,” he told auditors.