DENVER - Colorado severance taxes on natural-gas and oil production will plunge 84 percent to $40 million in fiscal year 2010, according to a forecast by economists at the nonpartisan Colorado Legislative Council.That compares with $250 million expected this fiscal year, which ends June 30.
A dramatic drop in the price of natural gas and oil is largely to blame for the expected precipitous decline in severance taxes, said Steve Colby, a research contractor with the Colorado Department of Local Affairs, the agency charged with distributing half the state's severance tax.
"This is worse than we expected," he said. "We are being more thoughtful and constrained in our use of funds."
The department distributes 15 percent of the severance taxes, which are paid on minerals removed or "severed" from the ground, to cities and municipalities, and 35 percent in loans and grants to specific projects.
The other half of the severance-tax money goes to the Colorado Department of Natural Resources, which uses it to fund water conservation, wildlife and environmental programs.
The direct payments from Local Affairs to Colorado communities are supposed to offset the impacts of drilling on roads, schools and public services.
"If the projections turn out to be accurate, counties will continue to be in a fiscal pickle,": said Chip Taylor, director of legislative affairs at Colorado Counties Inc. "They may have to look for revenue someplace else, or start to cut discretionary programs."
Plunging severance-tax revenues will hit cities such as Rifle in western Colorado that largely depend on the money to improve infrastructure damaged by energy development.
"It's certainly not a heart-warming projection," said Rifle Mayor Keith Lambert. "I wouldn't have expected that extreme of a drop in 2010.
"But we have always been conservative in our budget because we knew we could not depend on severance-tax distributions."
Rifle received more than $1 million in severance-tax revenue in fiscal year 2008, compared to $405,831 in fiscal year 2007.
The city has suffered the vagaries of severance-tax revenues in the past when an oil-shale bust in the 1980s dried up revenues. Today, the city uses the severance-tax revenues to fund capital projects only and not to run its day-to-day operations.
Even so, the drop in revenues would put plans to replace aging sewer and water lines, build roundabouts to ease traffic congestion and build an entrance to Rifle from Interstate 70 on the back burner.
Garfield County, however, hopes the steep drop in severance-tax revenues will be offset by higher local property taxes in 2010. The county received more than $4 million in severance taxes in fiscal year 2008.
Local property taxes are collected on the value of gas and oil production from two years ago, while severance tax is based on production value just three to six months prior.
So the steep decline in energy prices in 2009 won't be reflected in property taxes until 2011, said Garfield County Assessor John Gorman.
"We will feel a huge impact in 2011, unless something turns around," Gorman said.