New 1.1-mill rate will mean a tax of 0.11 cents on every dollar of oil and gas production – money goes to shore up a COGCC revenue shortfall

From The Grand Junction Sentinel

The Colorado Oil and Gas Conservation Commission on Monday agreed to boost a levy assessed on that production to 1.1 mills, up from 0.7 mills, to head off a revenue shortfall within that agency.

The increase had the support of the industry, which objected to calls from some local governments and conservationists for a larger tax hike they say could help address ongoing concerns about public health and safety issues.

While the commission declined to hike the levy beyond 0.4 mills for now, commission members did voice an interest in dealing down the road with funding concerns including the need for more money to deal with orphan wells that have been left for the state to plug.

Commissioner Howard Boigon said the mill levy issue raised larger concerns for him about the fact that the agency is entirely funded by the industry it regulates.

“It’s amazing to me that the source of funding for this agency is so uncertain, so subject to the vagaries of industry,” he said.

The agency gets its funding primarily from the mill levy and from oil and gas severance taxes. It had been facing an impending funding shortfall because of factors including lower commodity prices that have affected mill levy and severance tax revenues, and a 2016 state Supreme Court severance tax ruling that deemed certain capital expenditures by energy companies to be deductible expenses. That ruling has resulted in refunds for past overpayments and has lowered forecast severance tax revenues.

The mill levy hike approved Monday is expected to generate nearly $5 million in the 2018-19 fiscal year towards the agency’s projected $18.6 million budget for that fiscal year. Otherwise the oil and gas commission was expecting to take a $2.6 million hit to its year-to-year fund balance, and to exhaust that balance by the following fiscal year.

The Colorado Petroleum Council and Colorado Oil and Gas Association both backed the 0.4-mill increase in the levy.

“We’re not doing a happy dance about it but we’re here to support it nonetheless. We see it as our obligation,” James Martin, an attorney representing the Colorado Petroleum Council, told the commission Monday.

A 1.1-mill rate will mean a tax of 0.11 cents on every dollar of oil and gas production. The commission is authorized under state law to raise the levy to as high as 1.7 mills. Boulder County, Lafayette and Longmont all called for the commission to impose the 1.7-mill levy, as did the group Earthworks.

Supporters of the higher levy said it could address heightened public concerns about oil and gas development through means such as boosting safety inspections, funding mapping of oil and gas flowlines to protect the public, and dealing with a backlog in orphan well work due to limited funding.

“More money would allow the COGCC to more aggressively tackle these (orphan well) projects,” Kim Sanchez, Boulder County’s chief planner, told the commission Monday.

But in objecting to the larger tax hike, Martin wrote to the commission that it would need legislative permission to spend beyond its authorized budget and add additional employees, and a higher levy could quickly push it beyond its currently allowed $6 million fund balance cap.

Commission Chairman John Benton, who works in the industry, said another consideration is the potential for driving drilling activity elsewhere if the tax rate goes up too fast, which would make the commission’s funding problems worse. He said it’s better to raise the levy some now with the possibility of considering a further hike later if needed.

Boigon worries about the commission being entirely reliant on industry funding despite the fact that when oil and gas production and prices go down, it doesn’t necessarily mean the agency’s responsibilities go down.

“To me it’s a crazy way to run the railroad. I don’t see this being a long-term model to sustain the way this agency functions,” he said.

Commissioner Erin Overturf shared Boigon’s concerns, including the potential for the number of orphan wells increasing at times when there could be less revenues to deal with them.

Those wells fall to the state to deal with when companies become financially unable to plug them. Commission director Matt Lepore said he will continue to speak up about the need for a growing orphan-well problem to be addressed through a mill levy hike, a voluntary industry-funded approach or some other means.

“It needs to be fixed,” he said.

From the COGCC

The COGCC is funded by the Oil and Gas Conservation and Environmental Response Fund (OGCERF), an annual allocation from the Severance Tax Operational Fund, and a small federal grant.

Download PDF from COGCC that explains annual funding and budget for FY20167-2017 .



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