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Colorado Oil and Natural Gas Severance Taxes, Initiative 58 (2008)

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The Colorado Severance Taxes on the Oil and Natural Gas Industry Initiative, also known as Initiative 58, was on the November 2008 ballot in Colorado as an initiated state statute, where it was defeated. The measure was among a handful of similar initiatives that were filed for 2008 that were designed to make changes in the severance tax. This version would have increased the severance tax, eliminated a property-tax deduction against the tax, retained an exemption for smaller wells, and directed most of the new revenue to college scholarships.[1]

Election results

Colorado Initiative 58 (2008)
ResultVotesPercentage
Defeatedd No1,306,78258.05%
Yes 944,191 41.95%

Election results via: The Colorado Secretary of State

Text of the measures

The language appeared on the ballot as:[1]

SHALL STATE TAXES BE INCREASED $321.4 MILLION ANNUALLY BY AN AMENDMENT TO THE COLORADO REVISED STATUTES CONCERNING THE SEVERANCE TAX ON OIL AND GAS EXTRACTED IN THE STATE, AND, IN CONNECTION THEREWITH, FOR TAXABLE YEARS COMMENCING ON OR AFTER JANUARY 1, 2009, CHANGING THE TAX TO 5% OF TOTAL GROSS INCOME FROM THE SALE OF OIL AND GAS EXTRACTED IN THE STATE WHEN THE AMOUNT OF ANNUAL GROSS INCOME IS AT LEAST $300,000; ELIMINATING A CREDIT AGAINST THE SEVERANCE TAX FOR PROPERTY TAXES PAID BY OIL AND GAS PRODUCERS AND INTEREST OWNERS; REDUCING THE LEVEL OF PRODUCTION THAT QUALIFIES WELLS FOR AN EXEMPTION FROM THE TAX; EXEMPTING REVENUES FROM THE TAX AND RELATED INVESTMENT INCOME FROM STATE AND LOCAL GOVERNMENT SPENDING LIMITS; AND REQUIRING THE TAX REVENUES TO BE CREDITED AS FOLLOWS: (A) 22% TO THE SEVERANCE TAX TRUST FUND, (B) 22% TO THE LOCAL GOVERNMENT SEVERANCE TAX FUND, AND (C) 56% TO A NEW SEVERANCE TAX STABILIZATION TRUST FUND, OF WHICH 60% IS USED TO FUND SCHOLARSHIPS FOR COLORADO RESIDENTS ATTENDING STATE COLLEGES AND UNIVERSITIES, 15% TO FUND THE PRESERVATION OF NATIVE WILDLIFE HABITAT, 10% TO FUND RENEWABLE ENERGY AND ENERGY EFFICIENCY PROGRAMS, 10% TO FUND TRANSPORTATION PROJECTS IN COUNTIES AND MUNICIPALITIES IMPACTED BY THE SEVERANCE OF OIL AND GAS, AND 5% TO FUND COMMUNITY DRINKING WATER AND WASTEWATER TREATMENT GRANTS?[2]

Details of the measure

This measure would have:

  • Ended property-tax deductions for the oil and gas industry that allowed producers to take a credit of up to 87.5% of the prior year's property tax liability from their severance taxes
  • Directed the new revenues as follows:
    • 60% to the Colorado Promise Scholarship Fund
    • 15% for local impact of the oil and gas industry on transportation and water quality
    • 15% for wildlife habitat
    • 10% to clean energy projects.

College scholarships would have been based on a family's adjusted gross income and on the number of students a family has in college. Students would have been required to maintain a 2.5 or better grade point average.[3]

Pollster Floyd Ciruli said the scholarship approach, as opposed to boosting funding of colleges and universities, means "less downside risk" and would create a positive voter impression in the face of what is likely to be major opposition from the oil and gas industry.[4]

Support

Gov. Bill Ritter was the major force behind the measure. Ritter said it would bring in more than $200 million a year,[3] with some estimates as high as $321 million.[5] The Colorado Legislative Council projects that the measure will bring in $304 million in new revenues in Fiscal Year 2009-10.[6]

"This is about Colorado's future. It's about developing our economy. It's about enhancing the quality of the Colorado work force. It's about creating opportunities and doing the right thing at the right time," he said.[3]

Colorado Initiative 120, on the ballot as Amendment 52, was being offered by three Colorado state legislators as an alternative to this measure. Under the unlikely scenario that both this measure (Amendment 58) and Initiative 120 (Amendment 52) make the ballot and both pass, Initiative 120 (Amendment 52), a constitutional amendment, would have superseded Initiative 113 (Amendment 58), which was only a statutory change.[7]

A Smarter Colorado had been formed to campaign for the measure. According the to campaign's, prominent supporters include The Colorado Education Association, Environment Colorado, CU President Bruce Benson, Former Lockheed Martin President Peter Teets, Formers CSU President Al Yates, Real Estate Developer Ray Baker, and Former State Senator Polly Baca.[8]

Trustees of Metropolitan State College of Denver unanimously endorsed the ballot measure on Sept. 4, 2008.[9]

The Denver Post editorial board endorsed the measure on April 27, 2008.[10]

Blake Gibson, a Colorado State University student and chairman of the Associated Students of Colorado, said his organization would work to get the initiative passed. "We're fighting for more accessible and affordable education. Something has to be done," he said.[3]

Regarding using the revenue for scholarships rather than directly funding colleges and universities, former Colorado University president Hank Brown said, "My impression would be that would probably be an easier sell with voters than it would be for money going directly to the institution."

Brown, a Republican, and Sen. Chris Romer, a Denver Democrat, said the scholarship money would directly improve the financial picture of the state's colleges and universities by putting more kids in classrooms.

However, in late June 2008, Brown announced that he had declined a request for him to spearhead the campaign to pass the initiative, citing the detrimental effect it could have on the oil and gas industry.[11] (more on this below)

David Kenney, an influential political insider who backed Ritter and worked on Denver Mayor John Hickenlooper's re-election campaign, was set to be the campaign manager for the initiative, leading a group to be called "A Smarter Colorado," funded by conservation, renewable energy, and education advocacy groups.[12]

Kenney called the battle "classic David versus Goliath."[12]

"The oil and gas companies will try to spend $20 million to buy the election," Kenney said. "We're going to get outspent. We will never be able to spend as much money."[12]

Gov. Ritter blasted the oil and gas industry on Aug. 4, 2008, for claiming that this initiative would hit Coloradans with higher utility bills, steeper pump prices, and pit local governments against energy firms. "I know they can say that, but it's not accurate and it's not fair," he said.[13]

Ritter called Colorado's contribution to world oil supplies "minuscule," saying they have no impact on prices in a global market. He said it is the transport of natural gas to markets outside of Colorado via new pipelines that has driven up those prices.[13]

"If you really look at pricing in this industry, removal of this subsidy is not something that's going to impact (prices) in a substantive way," Ritter said.[13]

The University of Northern Colorado Board of Trustees passed a resolution to support the measure.[14]

Opposition

The National Taxpayers Union issued a press release on September 30th, reporting how 90 economists, in an open letter to residents of Colorado, state that the initiative would have negative ramifications for Coloradans and the state as a whole.[15] The letter was signed by economists such as Barry Poulson of the University of Colorado at Boulder, Michael Williams of the University of Denver, Richard Vedder of Ohio University, and Wendy Gramm (former chairwoman of the Commodity Futures Trading Commission). The letter concluded, "If Colorado policymakers want to pursue a sound energy policy, they ought to keep taxes low and reduce government interference in the markets that are capable of delivering innovative energy solutions to consumers. Attempts to punish successful industries and redirect money to programs favored by politicians have failed to solve our energy problems in the past, and there's no reason to think this effort will be any different."[16]

Former Colorado University president Hank Brown announced in late June 2008 that he had declined a request for him to spearhead the campaign to pass the initiative, citing the detrimental effect it could have on the oil and gas industry.[11]

Brown said the proposal's combination with the Colorado Oil and Gas Conservation Commission's ongoing overhaul of drilling regulations forced him to turn down the offer. "I guess my own sense is that when you combine the severance tax (increase) with the effort to restrict permits that you create a climate that is very anti-fuel production," he said. "And I just don’t think doing both of them at one time makes any sense."[11]

The Denver Metro Chamber of Commerce voted June 12, 2008, to oppose the measure, arguing that it would not solve the core issue of higher education funding in the state. "Unfortunately, this proposal places one industry in the position of fixing a statewide problem," chamber spokeswoman Kate Horle said.[17]

The Colorado Competitive Council, also known as C3, a coalition of businesses and local chambers of commerce, voted May 12, 2008, to oppose the measure. "It's not really about the topic of severance tax," said Jerry McElroy, chairman of C3's investor committee and director of government relations for health care company Kaiser-Permanente. "It's really that we don't support one industry or group of industries being taxed for funding entire state issues."[18][19]

Club 20, the 55-year old coalition of individuals, businesses, and local governments in Western Colorado's 22 counties, came out against the measure on June 8, 2008.[20] Coloradoans for a Stable Economy has been formed to oppose the initiative.[21]

Despite proponents' claims that this initiative would not hurt the local governments that receive part of the severance tax revenue, a recent analysis made by Jim Evans, the retired executive director of the Associated Governments of Northwest Colorado, "kind of blows up the concept that it was all about protecting and accommodating the areas of the state that were experiencing the impacts," said Virginia Love, spokesman for Coloradoans for a Stable Economy.[21]

The Garfield County commissioners approved a resolution on June 16, 2008, opposing the measure.[22]

The Board of Morgan County Commissioners voted June 24, 2008, to oppose Initiative 113, passing a resolution that urged Gov. Ritter to "include Colorado's energy impacted communities in all future discussions on proposed changes to Colorado's severance tax system."[23]

A group called Action 22 released a resolution June 6, 2008, voicing its opposition, saying that "any additional tax burden on the oil and gas industry in Colorado sends the wrong message to the business community in the state during a time of economic uncertainty and may also significantly increase oil and gas prices."[19]

Colorado Consumers for Affordable Energy came out against the measure. The group's chairman, Bishop Phillip Porter of the All Nations Pentecostal Church of God in Christ in Aurora, issued a letter April 30, 2008, headlined "Stop The Ritter Gas Tax" and arguing that the initiative would lead to higher gasoline and natural gas prices.[24]

A spokeman for Gov. Ritter, Evan Dreyer, called Porter's letter "extremely misleading."[24]

Colorado Consumers for Affordable Energy was launched by Rob Fairbank, a former Republican lawmaker from Littleton. "It's a consumer group that focuses its message primarily on the impacts of rules and regulations and initiatives and laws, and the impacts of those on the retail cost of energy," said Fairbank.[24]

CCAE.jpg

"This is bound to have an effect on prices," according to Meg Collins, president of the Colorado Oil and Gas Association. Collins said the state keeps adding regulations and reducing incentives for the industry.[3]

Republicans said eliminating the tax break would close marginal wells, raise prices, and cost jobs in one of the only industries weathering the current economic slump.

"To me, it just shows his economic illiteracy," said Sen. Greg Brophy (R-Wray).[3]

University of Colorado President Bruce Benson was unexcited about a plan to fund scholarships rather than add the money to the budgets of higher education institutions. He said Ritter's plan wouldn't resolve a crisis that has put Colorado near last place in public funding of higher education.[4]

"Referendum C (money) runs out in two years and two months. How do we fill that empty pie?" Benson said. "Where do we get additional funding to operate our institutions?"[4]

He added, "I need operating money. We are still 49th in the U.S. in funding for students."[4]

Benson said that he advised Ritter to include something in the proposal to give the oil and gas industry something in return, such as easing off on new environmental rules being drafted by state regulators.[4]

Benson said he could not back a plan that did not try harder to neutralize opposition from an industry expected to spend tens of millions of dollars to defeat any ballot measure that it sees as a threat. "I don't want to be part of Custer's Last Stand," Benson said. "With ballot initiatives, you always have to ask some key questions: Who's against us; how much money are they going to have?"[4]

The oil and gas industry hired Dan Hopkins, a former spokesman for Gov. Bill Owens, veteran political consultant Rick Reiter, and Phil Fox, a longtime lobbyist in Colorado education and politics, to run the opposition campaign. Reiter led the campaign to pass Referendum C.[12][25]

Because many of the details of the proposal had yet to be spelled out, some have suggested that the measure will be a tough sell to voters. An editorial in the Rocky Mountain News had this to say:

To be sure, Ritter has his priorities. He wants the scholarships means-tested, available only to students from low- and middle-income families. He expects students receiving the scholarships to maintain good academic standing, perhaps a 2.5 GPA or higher. And he would make scholarships available only after other financial aid has been exhausted.



But the parameters for amounts and eligibility won't be spelled out by the governor, or even in the language of the initiative. Instead, the Colorado Commission on Higher Education will set them - and it will be Labor Day at the earliest before even the broadest outlines for the program are proposed. The final rules governing the scholarships aren't likely to be announced until after the election.

This is asking voters to take a huge leap of faith. We can understand why they might pause before embracing a tax increase to fund a scholarship plan with only the vaguest idea of how the money will be spent.[26]

A report by economist Joe Marlow of the Sonoran Institute issued July 24, 2008, concluded that ending the 30-year-old tax break for oil and gas companies would have little impact on gasoline prices and home heating bills—disputing radio ads being run by the oil and gas industry.[27]

The report called Colorado's production minuscule and argued that eliminating the tax incentive would have little or no impact on oil and natural gas prices.[27]

"The factors that drive gas and home heating prices are not local. Contrary to industry claims, if Colorado voters decide to end the tax break for the oil and gas industry, it would not raise prices locally or anywhere else," Marlow said.[27]

Sex scandal

Gov. Ritter said reaction to the sex and graft scandal at a federal agency that collected oil royalties might be used to promote the ballot proposal. Ritter said the pro-58 amendment campaign might refer to allegations that some federal employees in Denver and Washington had sex with energy company employees, accepted gifts, and rigged contracts.[28]

"That really is a black eye on the federal regulators but also on the industry," Ritter said. "People paying attention to this have to be very disturbed that there was this kind of activity on the part of industry and the receipt of those kinds of gifts on the part of government."[28]

Dan Hopkins, spokesman for Coloradans for a Stable Economy, which opposed Amendment 58, said the scandal would be a red herring that voters would not fall for. "If the governor and proponents do sink to that level, I think it would show they're somewhat desperate in trying to get their message across," Hopkins said.[28]

Donors

According to June 30, 2010, reports, the Colorado Secretary of State's records revealed that BP (British Petroleum) North America made two $500,000 donations to Coloradans for a Stable Economy in opposition of Amendment 58.[29][30]

Funding for both sides

Companies including Exxon Mobil, Chevron, BP, ConocoPhillips, Williams, Noble, and EnCana have contributed $1 million each toward the $10 million raised to defeat Amendment 58, according to August campaign finance reports, a record for a single issue campaign.[31]

Two other firms, Pioneer Natural Resources, and Questar Exploration and Production Co. gave an additional $600,000.[32]

Proponents raised $1.63 million to support the measure, according to August campaign finance reports. The Nature Conservancy contributed more than $600,000 of that total.[31]

Denver-based Gary-Williams companies had contributed at least $100,000. Other contributors include the Colorado Conservation Voters Education Fund ($5,000), philanthropist Dan Ritchie ($5,000), and the Kenney Group, the political consulting group organizing the campaign ($26,000).[33]

Polls

October poll

See also Polls, 2008 ballot measures.

A statewide telephone poll of 625 registered voters was conducted by Mason-Dixon Polling & Research on behalf of the Denver Post on October 28-29. It shows a decline in support for Amendment 58.

The poll found:

Month of Poll Pollster Yes No Undecided
Oct 28-29 Mason-Dixon 36 percent 45 percent 19 percent[34]

In May and June, two different pollsters hired by different groups had come to opposite conclusions about the popularity of the Scholarship Fund ballot initiative.[5][35]

Washington, D.C., pollster Andrew Myers said in June that his poll showed that voters overwhelmingly supported the measure. But a poll from Texas pollster David Hill, commissioned by Coloradans for a Stable Economy, a coalition organized to oppose the initiative, and conducted the last week in May, indicates that only 38% of voters supported the measure, with 44% opposing it and 19% undecided.[5][35][36]

With neither pollster releasing sufficient details on margin of error, samples, and other factors, some observers labeled both polls as "suspect."[35]

Tax payer money

Is taxpayer money being spent on proposed measure?

Former Sen. Mark Hillman (R-Burlington) filed a complaint July 7, 2008, in Denver District Court, alleging that the Colorado Commission on Higher Education was unlawfully using state money to push for the Scholarship Fund Initiative.[37]

At a meeting in June 2008, the higher education commission told its staff to draw up some specifics on how the scholarship program would work. Critics have attacked the initiative on its lack of specifics on how the scholarship program would work.[37]

"The CCHE's rule making process is designed to increase support for the proposed initiative," the complaint states.[37]

Hillman had filed an open records request in late June for correspondence between the Colorado Department of Higher Education and the governor's office to see if taxpayer funds were improperly used for this proposed initiative.[38]

"My concern is this," Hillman wrote in the request. "Is it an appropriate and legal use of state tax dollars to have state employees working on rules for a proposed initiative that may not even be on the November ballot?"[38]

The governor's spokeman, Evan Dreyer, said state officials have been "very cognizant" of the line between official business and campaigning for the severance tax ballot question. Dreyer said he is confident Hillman will find no evidence of wrongdoing.[38]

The Denver Post editorialized against the complaint on July 8, 2008:[39]

The oil and gas lobby—which originally attacked Gov. Bill Ritter's severance tax proposal by claiming it wasn't specific about how the money it would raise for college scholarships would be spent—is now attacking that initiative because the governor's team is trying to work out those very details.



Talk about trying to have it both ways.

An initiative that might affect, for instance, the Colorado Public Utilities Commission would be analyzed by that agency's staff—as happened with a 2004 citizen initiative, Amendment 37, that required most large Colorado utilities to get 10 percent of their electricity from renewable sources by 2015.

Obviously, it would have been irresponsible for the PUC to have totally ignored the renewable energy plan until after the voters approved it. But nobody claimed, nor should they have, that such neutral analysis was an attempt to pass or defeat the bill.

Likewise, for the oil and gas lobby to now attack the CCHE for doing what the oil and gas lobby just a few weeks ago was attacking the CCHE for not doing, is obviously just cheap politics. The voters won't be fooled.

In a guest column in the Journal-Advocate, Hillman wrote:

If Douglas Bruce authored a ballot initiative that simply said, "Taxes shall be reduced by $300 million a year," but couldn't explain which programs should be eliminated or scaled back, pundits would ridicule his half-baked scheme and scold him for wasting the public's time.



That's the treatment Gov. Bill Ritter should be receiving for his hastily proposed $300 million oil and gas tax increase—money to be showered on various programs with few specific instructions.

Perhaps because he's the governor, some editorialists have suggested that state bureaucrats should flesh out the details of his proposal, specifically his vainglorious "Colorado Promise" college scholarships.

There's just one problem: State law frowns on commandeering government workers at taxpayer expense to do homework for a ballot campaign that hasn't even qualified for the ballot, much less been approved by voters.[40]

Path to the ballot

The measure was certified for the November 2008 ballot on Friday, Aug. 29, 2008, as Amendment 58.[41]

Supporters submitted 137,000 signatures on Aug. 4, 2008. 76,047 of those signatures were required to bevalid for the measure to earn a spot on the November 2008 ballot.[42]

See also

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External links

References

  1. 1.0 1.1 Colorado State Legislative Council, "Ballot History," accessed February 26, 2014
  2. Note: This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.
  3. 3.0 3.1 3.2 3.3 3.4 3.5 Examiner: "Ritter wants to increase number of college scholarships," April 24, 2008
  4. 4.0 4.1 4.2 4.3 4.4 4.5 Rocky Mountain News: "CU chief tepid to Ritter plan," April 25, 2008
  5. 5.0 5.1 5.2 Denver Post: "Polls are poles apart on oil-gas tax credit," June 11, 2008
  6. Colorado Legislative Council: Ballot Issue Analysis Draft
  7. Face the State: "Lack of Time, Public Support May Mark End for Proposed Ritter Energy Tax Increase," June 10, 2008
  8. A Smarter Colorado: Endorsements
  9. Denver Business Journal: "Metro State board backs energy-tax measure," Sept. 4, 2008
  10. The Denver Post: "Staking a claim on state's future," April 27, 2008
  11. 11.0 11.1 11.2 Grand Junction Sentinel: "Hank Brown declines to spearhead tax campaign," June 25, 2008
  12. 12.0 12.1 12.2 12.3 Rocky Mountain News: "Big guns hired in severance-tax fray," May 1, 2008
  13. 13.0 13.1 13.2 Rpcky Mountain News: "Ritter disputes oil industry claims," Aug. 5, 2008
  14. Northern Colorado Business Report: "UNC Trustees support Initiative 113," Aug. 11, 2008
  15. National Taxpayers Union: "90 Economists Warn Coloradans Against Harmful Effects of Amendment 58," September 30, 2008
  16. "An Open Letter to Colorado Residents: Amendment 58 Will Raise Energy Prices," September 30, 2008
  17. Rocky Mountain News: "Business group opposes severance tax proposal," June 12, 2008
  18. Rocky Mountain News: "C3 drills state plan to up energy firms' tax," May 13, 2008
  19. 19.0 19.1 Face the State: "Lack of Time, Public Support May Mark End for Proposed Ritter Energy Tax Increase," June 10, 2008
  20. Club 20 Opposition Letter
  21. 21.0 21.1 Grand Junction Sentinel: "Club 20: Severance tax proposal would hurt producing communities," June 8, 2008
  22. Post Independent: "Garfield County commissioners oppose severance tax initiative," June 17, 2008
  23. Fort Morgan Times: "Morgan County commissioners oppose Initiative 113," June 25, 2008
  24. 24.0 24.1 24.2 Rocky Mountain News: "Severance tax battle heats up," May 1, 2008
  25. Rocky Mountain News: "Education lobbyist joins group fighting severance plan," May 6, 2008
  26. Rocky Mountain News: Editorial: "Scholarship puzzles," June 14, 2008
  27. 27.0 27.1 27.2 Forbes: "Studies say ending Colo. tax break won't hurt," July 25, 2008
  28. 28.0 28.1 28.2 The Examiner: "Ritter: oil, sex scandal may help initiative," Sept. 13, 2008
  29. The Huffington Post,"BP Donated Heavily To Campaign Aimed At Defeating Ballot Initiatives In Colorado," June 30, 2010
  30. The Colorado Independent,"BP defends Colorado PAC donations, avoids talk of $5.2 million fine," June 30, 2010
  31. 31.0 31.1 Rocky Mountain News: "Money pours into measures on Colorado ballot," Sept. 4, 2008
  32. Rocky Mountain News: "Oil firms pull out big bucks to fight plan," July 4, 2008
  33. Rocky Mountain News: "Drilling tax backers raise $450,800," July 8, 2008
  34. Denver Post:, "Most state measures look poised for a loss," November 1, 2008
  35. 35.0 35.1 35.2 Steam Powered Opinions: "He said, He said over status of scholarship ballot initiative," June 11, 2008
  36. Face the State: "Poll shows Ritter's tax hike on life support," June 9, 2008
  37. 37.0 37.1 37.2 Denver Post: "Initiative foes see misuse of funds," July 8, 2008
  38. 38.0 38.1 38.2 Rocky Mountain News: "Info sought on severance tax issue," June 22, 2008
  39. Denver Post: "Cheap Politics by Oil and Gas Lobby," July 8, 2008
  40. Journal-Advocate: "State workers should not do campaign’s work," June 28, 2008
  41. Denver Business Journal: "Amendments 57, 58 put on ballot," Aug. 29, 2008
  42. Denver Business Journal: "More business measures awaiting Nov. ballot," Aug. 4, 2008