There has been a lot of talk lately at the Colorado state capitol about potentially raising severance taxes to account for budget shortfalls.
There have also been some accusations that the oil and natural gas industry in Colorado does not pay its fair share in taxes. Before anyone decides to hastily run legislation or back an effort to put the question before voters this fall, let’s make sure we know the facts. Colorado producers pay severance taxes, which are levied on gross income from natural gas and oil production. The top severance tax rate is 5 percent for production over $300,000 per year.
Unlike many other natural gas and oil producing states, Colorado producers also pay ad valorem taxes, which are similar to county-level property taxes on natural gas and oil production. Ad valorem taxes ensure that revenues stay in the local communities that have mineral development. Producers also pay a host of other fees and taxes to operate in Colorado.
While Colorado is a mineral-rich state, we are not the only mineral-rich state in the United States. When we tax producers into insolvency, they will not just grin and bear it. There comes a point at which it is no longer economically and politically feasible to do business in this state. For some radical environmentalists, that’s a victory. For the vast majority of Coloradans, the natural gas and oil industry’s departure would be devastating.
Colorado’s natural gas and oil industry boosts state and local economies, supports local businesses, and offers high-paying jobs for hard-working Coloradans. To illustrate how great this impact would be, the natural gas and oil industry supports 232,900 jobs in Colorado, according to a recent study commissioned by the Colorado Petroleum Council. This accounts for 6.5 percent of Colorado’s employment. Those workers received $23 billion in wages and added $31.4 billion back into Colorado’s economy.
Even Coloradans who do not directly depend on the natural gas and oil industry benefit from the taxes the industry pays. Denver, for example, produces comparatively small amounts of natural gas and oil, but the county and city employs a large number of natural gas and oil workers and, in 2012, the City and County of Denver received $17.9 million in taxes related to oil and gas activity. Las Animas County is another great example. The county’s annual budget was $19.8 million in 2012, and the county received $2.4 million from severance taxes, despite relatively little development. These funds support school districts, municipalities, and certain districts that are impacted by development, processing, or energy conversion of minerals and mineral fields.
Counties that receive severance funds from natural gas and oil production are better able to fund schools, infrastructure upgrades, community centers, and other amenities that Coloradans value in their communities.
Our government must enact smart policies that advance Colorado’s energy economy and that benefit the consumers and communities that rely upon Colorado’s growing natural gas and oil economy. Colorado plays a big role in our country’s energy renaissance. We have much of which to be proud from more efficient and environmentally-sustainable production to the innovations and improvement in our industry’s processes that have led to the reduction of carbon emissions.
Responsible and safe energy development always has been a critical component of Colorado’s economic engine. The positive impact of natural gas and oil development reaches far beyond those who work in the industry. Natural gas and oil companies continue to pay their fair share and more in taxes and fees. Let’s be thoughtful about how we approach fiscal policy.
Tracee Bentley is the executive director of Colorado Petroleum Council, a division of the American Petroleum Institute.