Location: SCR 357
Severance Tax and Federal Mineral Lease Revenue
WATER RESOURCES REVIEW COMMITTEE
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01:32 PM -- Severance Tax and Federal Mineral Lease Revenue
The committee returned from recess. Bill Levine, Budget Director, Department of Natural Resources, explained the Colorado Water Conservation Board (CWCB) Construction Fund receives revenue from the repayment of loans, interest on the fund in the state treasury, and federal mineral royalty distributions (Attachment G). The CWCB received $14.4 million in federal mineral lease revenue in FY 2014-15 and $8.6 million in FY 2015-16. On average, the CWCB has received $13 million in federal mineral lease revenue over the last 9 years. As of June 30, 2017, the fund's value was approximately $600 million, of which $510 million is authorized for projects or loans in repayment, $10 million is available for new loans, and $80 million in water rights ownership. Mr. Levine explained that severance tax is paid by producers of oil, gas, coal, and other minerals. State law provides that 50 percent of severance tax revenues are credited to the Severance Tax Trust Fund and 50 percent of the revenues are credited to the Department of Local Affairs for grants and distributions to local governments impacted by mining activities. Of the revenue credited to the Severance Tax Trust Fund, 50 percent is allocated to the Perpetual Base Fund of the Severance Tax Trust Fund (or 25 percent of total severance tax revenues) for use by the CWCB to build water projects. The other 50 percent of Severance Tax Trust Fund revenues (or 25 percent of total severance tax revenues) are allocated to the Operational Fund to fund programs that "promote and encourage sound natural resource planning, management, and development related to minerals, energy, geology, and water." The CWCB is authorized to issue loans for water projects from moneys in the Severance Tax Trust Fund Perpetual Base Fund. As of June 30, 2017, the fund's value was approximately $410 million, of which $375 million is authorized for projects or loans in repayment. Approximately $35 million is available for future projects.
Mr. Levine identified the factors behind fluctuations in severance tax revenue including the price of oil and gas and the property tax offset for oil and gas producers. He also explained Senate Bill 16-281 addressed a severance tax refund obligation related to the Colorado Supreme Court's 2016, decision in BP America v. Colorado Department of Revenue. The act creates a mechanism for refunds of severance tax revenue to businesses, including businesses that revise their severance tax returns to claim additional tax deductions for tax years 2012 through 2015. The act established a reserve in which all severance tax revenues were set aside in order to make severance tax refunds prior to allocation to the Severance Tax Trust Fund and the Local Government Severance Tax Fund. The act also placed restrictions on several cash funds that received severance tax revenue until released by the Joint Budget Committee. None of these restricted funds were needed to pay refunds, and all restrictions have since been released by the Joint Budget Committee. Instead, severance tax moneys transferred to the General Fund were used for the refunds. As of March 2017, $110.1 million has been transferred from the General Fund for severance tax refunds between FY 2015-16 and FY 2016-17.
Mr. Levine explained that a law enacted in 2008 divides programs funded from the Operational Fund of the Severance Tax Trust Fund into two tiers. The tier 1 programs support the operations of the Colorado Department of Natural Resources, including paying salaries for employees. The tier 2 programs support grants, loans, research, and construction. Tier 2 programs are subject to proportional reduction if mid-year revenue projections indicate there are insufficient funds. The distribution of funding for tier 2 programs is staggered over the course of the fiscal year with 40 percent released July 1; 30 percent released January 4; and the final 30 percent released April 1. Mr. Levine estimated that Tier 2 programs will receive $14 million in FY 2017-18 under the current forecast.