Personal Action Plan

Amendment 58 providing for the state

Richard McSwain

December 2008

University of Colorado, Boulder

Introduction

Colorado is one of the nine major oil and natural gas production states, but it has been a battle ground over the state’s oil and gas industry severance tax. Thirty years ago the state congress passed legislation that allowed a tax break to the oil and gas industry through the severance tax. The severance tax was and still is used across the country as a way for a state to tax an industry that extracts nonrenewable natural resources from the earth including gold, molybdenum, coal, natural gas, and crude oil. Thirty years ago Colorado was attempting to draw more commerce into the state, especially in the oil and natural gas production and extraction industry. Since Colorado had lower taxes than neighboring states (because of a break on the severance tax) it was a successful business tactic to move commerce to the state and begin drilling and pumping. This commerce boom helped provide jobs for thousands of Coloradoans as well as help pay for the state’s infrastructure with the added tax revenue.

Currently the tax revenue is distributed to state programs to pay for water projects, programs related to mineral extraction, clean energy development, low-income energy assistance, and wildlife conservation. Local governments receive the remainder of the revenue to be distributed to communities affected by mining. In 2007 the state collected $140 million in oil and gas severance tax, but mine clean-up estimates alone are over $315 million alone, and that does not include stream detoxification, community health, community education, or preservation. The severance tax is intended to help protect the people and environment from irresponsible industries that do not pay for their ecological disaster.

Many people ask “why don’t the corporations pay for the clean-up?” A good example of corporations paying for pollution clean-up is ASARCO, ever heard of it? The American Smelting and Refining Corporation began refining heavy metals in the late 1800’s in Globeville, (north of Denver) Colorado. The company changed process several times until 2006 when it was abandoned and forced to pay for contamination clean-up by the EPA. A several-mile radius had been contaminated by ASARCO and the surrounding neighborhood was listed as a Superfund site. Since ASARCO ended operations there have not been any clean-up operations because the company filed bankruptcy, much like the 23,000 abandoned mines in the state. Now the people are trapped by toxicity in what had been a vibrant center of commerce and diversity. Now only two sources can pay for the remediation of the site: 1-private developer, 2-the government.

Not only is Colorado feeling the affects from pollution and uneven taxation, but the state is also heavily lacking in funding for higher education. Compared to its counterparts across the country, Colorado students are two to four times under-funded by the state. Colorado is now dropping below proficient standards on standardized tests, funding has drastically cut teacher employment, programs have been cut, and class sizes have continued to increase. It could possibly be a link between the state focus on “industrializing” and the state’s record on education.

On the 2008 Colorado elections ballot Amendment 58 was a measure to eliminate the tax break on the severance tax to the oil and gas industry. The measure was estimated to increase the severance tax revenue from $140 million annually to $320 million annually with increases over subsequent years. The revenue increase was intended to be distributed again to local governments and communities, state programs and projects, and the remainder to be setup for the failing higher education system, energy efficiency and renewable energy projects, transportation projects, and water projects.

Justification

Under current law the oil and gas industry is unevenly taxed wells as well as it receives a $140 million tax break. The initial reasoning for the tax break was to draw commerce into the state, but now the industry is spread across the state from the eastern plains to the Roan Plateau, yet the tax break is still in place. The government has lost its power over the oil and gas industry because the industry lobbied the state legislation to continue the break. There is no punishment for damage done by the industry to the environment or communities, and there is little source of remediation for the state to draw upon.

Amendment 58 was a measure to establish accountability for industries and a source of remediation for the communities that have been affected by the negative conditions from the oil and gas industry. Community health and education has been compromised because of the pollution from the drilling activities and the lack of funding for higher education in the state.

Research

US oil consumption continues to increase; in 2007 it averaged to 20.7 billion barrels of oil per day (MMbd), the world’s largest consumer of petroleum. The US only produces 5.1 MMbd of crude oil ranking third in the world for production. That leaves about 13 MMbd of crude that is imported, 50 percent of which comes from Western Hemisphere countries, 17 percent from the Persian Gulf and the remainder from Africa. The US produces 10 percent of the world’s oil yet uses 24 percent, therefore making domestic oil production a topic of increasing importance (Department of Energy).

In Colorado, oil and gas is a $23 billion-a-year industry that employs 70,000 people from the fields to the refineries (Denver Business Journal), but environmental funding is not keeping pace with the increasing oil and gas industry or its fallout. For example, the Denver Post reported that the Colorado State Patrol still has the same number of HAZMAT teams to contain and clean spills as a decade ago, yet the number of spills is increasing. States like Wyoming and New Mexico have severance revenues of $382 million and $479 million respectively yet the oil and gas industry is not suffering from excessive taxes nor are the residents paying over-premium prices for energy or fuel (Colorado Independent).

The slogan or mission statement on the Colorado Oil and Gas Association (COGA) homepage of their website states “to foster and promote the beneficial, efficient, responsible and environmentally sound development, production and use of Colorado oil and natural gas”. COGA constitutes about 80 percent of the oil and gas in the state and if their leadership lives up to their mission then the majority of oil and gas production should focus on preserving and restoring the environment as well as the people of the communities surrounding the wells and fields. Unfortunately the oil and gas industry spent nearly $10 million on fighting the amendment even though the COGA is determined to promote responsibility and certainly doesn’t want to be responsible to pay the taxes due.

Amendment 58 would have provided $40 million on wildlife habitat alone with the prospect of that amount increasing depending on oil and gas tax filings for subsequent years. The state also would have set aside about $30 million to be held in reserve, which could be used at the House’s discretion with the possibility of it to be used to help supplement environmental efforts. Had Amendment 58 passed it would have allowed the state to undertake environmental projects or help corporations pay for restoration and preservation.

Under current law the projected severance tax revenue is expected to drop over the next four years from $315 million to $245. The drop in four years would equal the total amount of spending on environmental projects or activities in roughly the same time period, and the current severance tax law does not allocate $40 million a year on wildlife habitat or clean-up (Colorado Legislative Council).

Amendment 58 was a measure that was intended to bring taxes that were due into the state. The measure was expected to increase the severance tax revenue by $1.1 billion over the next four years to provide for more programs and services to the residents of Colorado (Colorado Legislative Council).

Framework

The Tragedy of the Commons is the underlying idea of the excessive use of oil in this country. As individuals we use a product in small quantities, but when 300 million people use a nonrenewable product “disaster” results. The consumption of oil may not even appear direct to a consumer but refined oil is used in products like plastic and nylon, tools and clothes. The exploiter of the natural resource is the industry that extracts the product from the earth, and disaster results when there is a lack of checks and regulations by the government or another ruling agency. What appears to be happening in Colorado is that the oil and gas industry has unrestricted access to as much fossil fuel as they can successfully extract, and there are few taxes or penalties if they draw heavily upon the resource.

As consumers who purchase a final product we have the mentality that the over-production of oil is not our fault because it is the oil companies’ liability. In reality the common-pool resource of oil can be over extracted and abused by the people who have the ability to do so, and they continue production as long as consumers demand the products that are made from crude oil. The same idea is illustrated by fresh water in the west where there is a demand for water (although necessary) so it has to be provided; or the textile industry where there is a demand for the newest clothing styles so it is provided.

This country is captured by a cycle of consumption and supply, and as a result it has degraded our ability to distance ourselves from our “need” of oil. Since the cycle is so predominant in our lifestyles we continue to consume more of our resource, and because we are consuming and demanding more the oil producers are supplying our needs. We will continue this cycle until governmental legislation regulates or rations suppliers or consumers.

Why

I wanted to research and follow this amendment through this election year because I thought it was important for the people of the state and because of personal convictions about the issue. I single handedly could not have changed the results of the election because my vote is one vote, nor could I have changed the wording of the legislation, but I could take the time and effort to understand the issue at hand and help inform others.

I am not what one may call an environmental activist nor am I a member of Green Peace, although for many reasons, but I do respect the environment and expect others to take responsibility. I think it is only fair that industries pay taxes due and people pay their taxes because it all counts towards each others’ communities. Without industrial, commercial, and personal taxes there is nothing the government can help with and the structure of government is lost to over-consumptive humans that desecrate the wonders of the Earth that we have been blessed with.

Expected outcome

The outcome of Amendment 58 is difficult to determine because of its convolution of issues. The issues at hand are: 1-raising taxes on oil and gas wells over a certain size, 2-eliminating taxes on oil and gas wells under a certain size, 3-setting a standard tax rate for taxed wells, 4-increase revenue for college scholarships, 5-increase revenue for wildlife habitat, 6-increase revenue for energy projects, 7-increase revenue for transportation projects, 8-increase revenue for water projects. Colorado is typically a more conservative state although it has become more evenly split and maybe becoming a little more liberal in many aspects of government. Since Colorado relies on the agricultural and drilling industries for much of the economy I anticipate the measure will be won by the conservative voters and put to rest because most of the eight issues at hand are more so liberal ideas about government.

Conservative Vote Liberal Vote

Eliminate taxes on small wells Raise taxes on large wells

Standard tax rate Revenue for college

Revenue for transportation Revenue for wildlife habitat

Revenue for energy

Revenue for water

I expect Amendment 58 to be voted down because there are fewer issues in favor of the conservatives in Colorado. There is also a large outcry from consumers on both sides that have expressed their concern for the possibility of rising utility costs. It also appears that many residents are concerned that the amendment will drive business out of the state and close sixty-percent of drilling projects across the state.

The psychology associated with this measure has disturbed many residents and has created a sense of fear of outrageous prices. This election season I have witnessed an incredible amount of advertisements, especially negative ones that are intended to affect the sense of security for the family or homeowner. The $10 million that the oil and gas industry spent to fight the measure has been successful in their sense.

Progress Measure

I am basically following this measure as it goes through the ballot this year, and I my measure of progress will be whether or not the amendment is passed or voted down. Election results are typically counted within 48 hours of the closing of the polls. There have not been sufficient polls to determine how the state is leaning on the measure, so a beginning value of voters for/against is not available.

Conclusion

Now that the elections have passed it was clear how the public felt about the issue at hand. Of the 64 counties in the state of Colorado only 10 voted in favor of Amendment 58, although Denver and Boulder County make up the majority of the votes in favor of the measure. The total votes counted were NO - 1,240,518 (57.9%), and YES – 901,600 (42.0%) (Denver Post). Over fifteen percent of the voters were not in favor of eliminating the severance tax break for the oil and gas industry which would have provided more money for the state and community programs.

After reading some of the opinions posted in the local newspapers it seems to me that the majority of residents were only concerned with fact that the oil and gas industry would have to pay more taxes. The additional $150 million that would have been paid to the state would have been spread over many companies that have operations in the state and other companies that have headquarters outside of the state. The reality is that the increase would have been spread around enough that a pass-through of taxes to the consumer would not have made a difference.

Voters were not concerned with the prospect that the state would have had more money to help their communities, children’s education, and beautiful state. It is evident that this state, and possibly the rest of the country, is scared to put regulations on the oil and gas industry because residents know how desperately they want the resources for energy and products. The goal of the measure was to help move people away from using oil and gas, but the voters spoke and they demand that the industry does not change for anything, at least not yet.

I hope that in upcoming elections there is another move to keep the oil and gas industry accountable by requiring them to pay taxes that were intended to be paid. The economic depression may have been a driving force in this years’ election, but it is uncertain how the results may have turned out had the economy been strong. Hopefully Colorado voters will find it necessary to tax accordingly to help fund, clean, and preserve “colorful Colorado” both socially and ecologically.

Bibliography

Gov. Owens Commission, Colorado lags behind in college spending, Denver Post, November 18, 2008

Thomas, Stephanie, Water Under Pressure, Environment Colorado, 2007

Robinson, Leslie, Severance Tax Could Make Colorado $10 Billion Richer, Colorado Independent, 2007

How dependent are we on foreign oil? Energy Information Administration, DOE, August 2008

http://tonto.eia.doe.gov/energy_in_brief/foreign_oil_dependence.cfm

Proctor, Cathy, Oil and gas industry battling severance tax amendment, October 2008, Denver Business Journal, http://denver.bizjournals.com/denver/stories/2008/10/06/story4.html