Facing down drillers in Boulder County, cities explore tax on impacts

As the oil and gas industry prepares plans for drilling in Boulder County, towns are mobilizing to implement measures that will mitigate its impacts or discourage development altogether. The latest effort is a separation tax, which multiple municipalities are considering for the November ballot.

A separation tax, also known as a severance tax, is so-called because it is levied when natural resources are “separated” from the ground. Its purpose is to offset “community costs” associated with extraction, according to language from city staff presented at Tuesday‘s Boulder City Council meeting.

Council directed staff to begin exploring options for a separation tax, while the body itself passed an emergency ordinance extending the city‘s timeout on accepting new oil and gas applications.

Boulder has not received any oil and gas applications in 10 years. The moratorium has been in place for five, first implemented by city council and then renewed and extended by a significant majority of voters.

Now is the time, said city attorney Tom Carr, because Lafayette and Longmont are also considering separation taxes.

Lafayette spokesperson Debbie Wilmot confirmed the city attorney was “directed to look into the direction the city of Boulder is pursuing.” Officials for Longmont, at an annual retreat, did not respond to requests for comment.

Boulder County, as a statutory county, does not believe it has the authority to implement such a tax, spokesperson Barb Halpin said.

What form a separation tax would take is still uncertain. Staff has just begun its research, said city spokesperson Meghan Wilson, and wouldn‘t have more information “for a few weeks at least.”

It could be a tax on trucks, with revenue going toward mitigating additional wear-and-tear from industry traffic. Or a similar levy on usage of water or electricity, or changes to air quality. A tax is preferable over a fee, Carr argued, because, legally, fees must be tied directly to impacts, whereas taxes offer a bit more flexibility.

A local separation tax, if approved, would be the first of its kind in Colorado, Carr said. A spokesperson for the Colorado Oil and Gas Conservation Commission tentatively confirmed that, saying he was “not aware of any local governments in Colorado that have their own version of a severance tax.”

Drillers in Colorado already pay the state a severance tax, which in 2015-2016 brought in $67 million to the state. But operators are allowed to recoup property tax via credits against the severance tax, reducing their contributions significantly.

A state Supreme Court ruling in 2016 increased the credits such companies could take, and over the past two years, Colorado has had to issue $120 million in refunds. The severance tax is projected to bring in $6.1 million in 2018-2019.

The Denver Post that Colorado‘s effective severance tax rate ranked second-lowest among Western oil-producing states, at 1.7 percent. Including state and local taxes, Colorado drillers and miners pay an effective 5.2 percent tax.

“Drilling is cheap because people don‘t have to pay the true cost of extraction,” said Carr.

Industry group Colorado Oil and Gas Association — which had a representative at Tuesday‘s meeting, though he did not speak — declined to comment on the issue other than to say it was “reviewing and discussing the possible ballot measures (and) will continue to engage on these and other local issues being considered.”

The move is the latest in local pushback to planned development. Lafayette is an extended six-month moratorium, now expiring in August. Longmont earlier this month $3 million to two companies to end drilling in city limits. A final vote is expected Tuesday.

A regional effort such as a separation tax would send a message to oil and gas companies, said city council member Sam Weaver, during Tuesday night‘s discussion. “It‘s more powerful if other communities feel similarly.”