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Water conference explores financial solutions

Volatile energy market causes budget crisis
Colorado water managers said Friday that a growing population and shrinking oil and gas revenues will leave the state with a water shortage and too little money to prevent it. In 2016, program budgets for the Colorado Water Conservation Board dropped from $14 million in 2015 to $8 million, wiping out funding for boat-inspection programs needed to stop invasive quagga and zebra mussels at McPhee Reservoir and Totten Lake in Montezuma County.

Colorado water managers said Friday that a growing population and shrinking oil and gas revenues will leave the state with a water shortage and too little money to prevent it.

The state’s 5.3 million population is expected to double by 2050, creating a potential water supply gap of 560,000 acre-feet.

The state plans to fill the gap through storage, water conservation and other efficiencies by 2030, at a cost of $20 billion, but it expects to have just $3 billion in hand.

The Southwestern Water Conservation District hosted a conference titled “Solving the Water Funding Puzzle” at the DoubleTree Hotel in Durango to confront the budget crisis.

Colorado’s overriding challenge lies in how water management is funded, said Bill Levine, budget director for the state Department of Natural Resources.

Much of the state’s revenue stream for water-supply management is tied to federal energy, including severance taxes from the oil and gas industry, which exposes Colorado to the ebb and flow of the volatile oil and gas industry.

“When energy values drop, so does the revenue stream, so it is by nature volatile,” Levine said. “Revenue that is not tied to the energy industry is needed.”

Because of a weak energy market and a costly court ruling, the state’s revenues from severance taxes dropped from $271 million in fiscal year 2015 to $67 million in fiscal year 2016.

And in 2016, the state lost a lawsuit brought by British Petroleum over severance taxes. The state is refunding energy companies ($113 million so far) after the Colorado Supreme Court ruled that the companies qualify for a deduction the Department of Revenue had been denying them.

State and local agencies have paid a price.

The drop in revenues from federal minerals caused program budgets for the Colorado Water Conservation Board to drop from $14 million in 2015 to $8 million in 2016.

The cuts wiped out funding for boat-inspection programs needed to stop invasive quagga and zebra mussels, which has limited boating at McPhee Reservoir and Totten Lake in Montezuma County.

Grant programs of the Department of Local Affairs also were cut, because they too depend on severance tax revenues.

The uncertainty of the energy market makes tax revenue forecast models difficult and unreliable, Levine said, and the state needs a more diverse portfolio to create long-term budget stability.

Finding funding solutions

Several potential sources of revenue for water-related infrastructure and programs were presented at the packed conference.

Emily Brumit, of the Colorado Water Congress, explained legislative funding solutions and a ballot initiative that would support water-related budgets, including the struggling boat-inspection programs.

For example, Senate Bill 259 proposes to replace lost severance tax revenues with $10 million from the general fund to support forest restoration, species conservation and boat inspection programs. House Bill 1321, introduced this week, would create a revenue stream through a sticker fee to fund boat inspection programs.

And Initiative 20 focuses on oil and gas severance taxes. Its primary goal is to increase the severance tax rate, eliminate the severance tax credit that is based on property taxes, eliminate the stripper well exemption and require that a portion of severance tax revenue be paid for specific purposes.

“There has been a lot of talk on aquatic nuisance species this legislative session,” Brumit said. “We need to get innovative and create financial solutions with this severance tax issue and find a funding that is outside of energy production.”

Speakers emphasized efforts to find money to help stabilize the budget.

Legislators are considering asking voters to approve a container tax on beverages to raise $100 million to $200 million per year for water-related needs. A vote could end-run the Taxpayers Bill of Rights, exempting it from TABOR’S revenue caps.

Other ideas presented at the conference included a new water fee paid by residential consumers, new water tap fees and new tourism fees.

Looking at budgets with a longer view also is needed, said lobbyist Dick Brown.

“We need to get away from annualized, episodic pay-as-you-go budgets,” he said.

“The state’s water needs are in perpetuity, so the financing needs to be perpetual as well, but the state constitution does not accommodate that easily.”

Government specialist Christine Arbogast said the idea of private-public partnerships is popular for new money. But she does not believe they are a viable solution locally.

“The expected rate of return of 5-8 percent from private investors is too much for the tax base of smaller communities,” she said.

La Plata County Commissioner Brad Blake urged the crowd to take a long-term vision on solving the budget crisis, like previous generations did.

“We have good water rights, but don’t have a way to move it around well,” he said. “The pioneers built dams, ditches and levees. Now we are tasked with looking ahead to provide water infrastructure in our area. We need more public involvement so we get all the help we need to overcome this monumental task.”

jmimiaga@the-journal.com

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