Western Wire

The cost in local and state revenues of the proposed oil and gas bill currently speeding through the Colorado General Assembly could be devastating, or it could be mostly unknown, depending on who you ask.

Senate Bill 181 cruised through the Senate Finance Committee on Thursday and the Senate Appropriations Committee on Friday on party line votes and is headed to the Senate floor after a long but quick week that saw hundreds of witnesses testify for and against the bill in marathon sessions at the Capitol.

But in testimony presented on Thursday and Friday, local government officials were already presenting anticipated fiscal impacts that could well spill over into neighboring counties and undercut statewide revenues, while on Friday, a top state analyst said he wasn’t sure what the fiscal impacts might be, as it was not yet clear what regulations could be created by the bill’s authorizing language.

Weld County, the state’s top oil and gas producing county, opposes the bill. Members of the county government testified against the bill Thursday, focusing on financial impacts to the local government and to the state by rules of the Finance committee.

“I am here on behalf of the Board of County Commissioners to oppose Senate Bill 181. We are the largest energy producing county in the state—90 percent of oil and about 35 percent of the gas, we produce from wells within my county,” said Barbara Kirkmeyer, a Weld County Commissioner.

Among Kirkmeyer’s objections was language in the bill that could “require additional local government consultation,” which according to her meant not just the local government in Weld County, but perhaps other local government entities that could flag permits, possibly leading to a moratorium, she said.

“The fiscal problem with Senate Bill 181 on energy producing counties like Weld County will be significant. Not only to Weld County government, but to all local taxing jurisdictions within my county. I’m going to try to summarize this the best I can. [I]n 2019 we’re anticipating that there will be $490 million taxes, ad valorem, [and] property taxes paid by energy companies,” Kirkmeyer told the Finance Committee Thursday.

“Those energy companies will be paying $200 million in property taxes to the school districts in Weld county. Here’s what’s not in your fiscal note—there would be nothing about the decrease in ad valorem property taxes going to school districts across the state,” she added. “We anticipate that at least a third of that would occur in the first year or so that this bill is enacted. The adverse impacts of Senate Bill 181 on known gas production would result in the immediate reduction in property taxes in Weld County.”

Weld County Assessor Brenda Dones also testified against the bill.

“I want to bring to your attention the unintended consequences that I have not heard addressed today. You’ve heard a bit about the impact of the local property tax—especially the impact of this tax in Weld County and on the oil and gas industry,” Dones told the committee.

Dones said the bill may impact residential assessment rates which would have an impact on statewide finances,

“The passage of this bill is likely to slow down or stop oil and gas revenue in Weld County,” she said.

That impact, Kirkmeyer argued, will have a ripple effect across the state.

“When you impact drilling operations in Weld County, you effectively impact the entire state, and we are concerned for a number of reasons that that is going to happen,” she said.

On Friday, Senate Republicans on the Appropriations Committee pressed for more detailed financial, revenue, and expenditure impacts from the legislature’s research arm and the analyst who calculated the fiscal note for the bill.

Josh Abram, a fiscal analyst for the Legislative Council Staff, the non-partisan research office within the Colorado General Assembly, told the Senate Appropriations Committee on Friday that shortfalls to education funding from oil and gas revenues, for example, had been dealt with “only in the most conceptual of ways.”

“I do not believe that in the next year or two, which is the horizon of the fiscal note, that Senate Bill 181 is likely to have any dramatic impact on property taxes collected at the local level,” Abram said, but clarified that a shift down in production would result in smaller revenues.

“To the extent that production is limited or decreased, then indeed, there is less property tax collected at the local level in those areas that have that kind of activity, and as you know very well, the state does have somewhat of an obligation to backfill those dollars,” he said.

Abram said that it was clear the Air Quality Control Division of the Colorado Department of Public Health and Environment would have more work, as well as work on rules from the Department of Natural Resources and the Colorado Oil and Gas Conservation Commission, but that those additional resources—or what the rules might look like—were built into the fiscal note.

“I’m not making any effort to anticipate what those rules would be and what the result of those rules would be in a fiscal impact,” Abram said.

Abram was unable to provide additional information on expenditures the state would undertake to implement the bill’s requirements, due to a lack of certainty over what the new regulatory framework required by the bill would look like.

“Within that two-year horizon of this fiscal note, the first step is adopting rules, and that is an arduous process and that does take a long time—presumably a long time. I have no idea how actual long that will take,” Abram said.

State Sen. Bob Rankin responded, “Well, that implies two-year period of uncertainty, perhaps a drilling moratorium, have we accurately analyzed the impact of that?”

Rankin added that some of the areas he represents rely on property taxes derived from energy development above 80 or 90 percent.

“I would really like for us to understand those impacts,” Rankin said.

“I agree with you,” said Abram. “There is a gap there that is uncertain. We just don’t have any way of knowing what that will mean vis-à-vis expenditures to the state.”

In the March 5 fiscal note, Abram noted that anticipated unknown effect based on possible outcomes of SB 181.

“The measure’s revenue impact will also depend on the type of regulations, if any, that state and local governments enact, and the effects those regulations have on the overall production of oil and gas resources. For example, an outright prohibition of oil and gas development will reduce overall severance tax revenue and the oil and gas conservation mill levy, since the resource must be removed from the ground before these taxes may be levied. Other state or local restrictions may still allow oil and gas developers to access the resource and will have less impact on state revenue. Since these future conditions are unknowable, the precise change in state revenue cannot be estimated,” Abram wrote.

At the Appropriations Committee hearing, Abram noted that he could not confirm if the bill would permit a moratorium or ban, but that there would be an impact, but that all of it was speculation, calling his choice of words “unfortunate.”

“Certainly regulation is coming. And certainly that will have some impact on production levels,” he added, including impacts on severance and property tax revenues, but that all of those calculations would be “speculative” at this time. “I can’t predict what local governments will do, I can’t predict what those rules that are adopted by Department of Natural Resources or the Department of Public Health, as is require by the bill, we have no ideas what those will look like.”

On Thursday, Fenberg told the Senate Finance Committee that the likelihood of bans on oil and gas activities was not a part of his bill.

“What this bill does not do is allow a de facto ban. It does not speak to bans…It does not say that they (cities and counties) have blanket authority to do anything that they want and that they can just ban oil and gas activities,” Fenberg said.

Western Wire

Former Denver Mayor Wellington Webb, a Democratic icon who also served in the state legislature, wrote that there was no need for the majority party to be “vindictive,” and that allowing input from all stakeholders would make any bill better, calling for a “cease fire” on SB 181.

“While I believe in solar, geothermal and renewable energy, the fact is Americans rely on oil and gas. We cannot become dependent on foreign oil or kill the industry in our state,” Webb wrote in an op-ed published Friday.

“When I was in the legislature I had the opportunity to serve in both the minority party and the majority party. I never liked it when I was in the minority and did not have an opportunity to be heard. When we took the majority, some wanted to be vindictive. But others felt we controlled the majority, so let us provide other stakeholders the opportunity to be heard; it may even make our bills better,” Webb continued.

“Rather than rush to judgment — on an issue Colorado voters have already weighed in on — slow the train down, put down your weapons, and give everyone the opportunity to be heard,” Webb concluded. “This should not be public health and safety vs. jobs and economic growth. In Colorado, we can achieve both, but it requires a cease fire and sitting around a table with open ears to get there.

Other voices, like Ken Salazar, have called the bill “extreme” and said its components would essentially lead to a possible ban on oil and gas development in Colorado.

“This bill is too extreme for Colorado,” said Salazar. “This bill will turn everything on its head.”

Salazar, former Attorney General for the state, a U.S. Senator, and then Interior Secretary, opposed last year’s setback measure and has also pushed back on a number of other issues in the oil and gas arena, including climate litigation and opposition to Bureau of Land Management lease sales.

“I love Jared Polis,” Salazar told the Denver Post. “Part of what I fear here is that the way this bill is written, driven essentially by a Boulder view of the world, that it jeopardizes the Democratic control that we have here in Colorado. And that was not supposed to happen. In my many conversations during the campaign, it was about governing for everybody. Governing for a centrist point of view, bringing people together, solving problems for the long term,” he said.

Western Wire

Salazar offered his views on the centrality of energy development in the state in an op-ed this week.

“Colorado has played a key role in securing that energy independence for our nation. Colorado is a leader of renewable energy. Colorado is also a center of oil and gas. The oil and gas industry in Colorado creates over one hundred thousand jobs for hard-working Coloradans, provides over one billion dollars to fund our schools and roads, and is responsible for 11 percent of the state’s gross domestic product,” Salazar wrote.

“Now SB 181 will wrongly bring our Colorado energy success story to an end,” Salazar continued. He argued that the “bill will give unfettered control to local governments to do what they want, including effectively banning oil and gas development within their jurisdictions.”

“This is an issue that needs to be solved for the long term,” he told the Post. “This bill doesn’t do it.”