Colorado Legislative Council Staff

REVISED NO FISCAL IMPACT

(replaces no fiscal impact dated January 30, 1999)

TITLE:            CONCERNING THE EXTENSION OF THE REQUIREMENT THAT THE AMOUNT OF NET SEVERANCE TAX REVENUES DISTRIBUTED TO THE STATE SEVERANCE TAX TRUST FUND IN A FISCAL YEAR IS REDUCED AS NEEDED TO ENSURE THAT THE LOCAL GOVERNMENT SEVERANCE TAX FUND WILL RECEIVE THE SAME AMOUNT OF NET SEVERANCE TAX REVENUES AS IN THE PREVIOUS FISCAL YEAR.

Summary of Assessment

            NOTE: This revised no fiscal impact statement is in response to a request for a revised fiscal note, pursuant to House Rule 32 A(c).

            Under current law (39-29-108, C.R.S.), for fiscal years beginning on or after June 30, 1995 through June 30, 1999, if the percentage change from the previous fiscal year in net severance tax revenue received from oil, gas, and CO2 is less than the percentage change in a production value index calculated by the Colorado Oil and Gas Conservation Commission from state total production and price data in the previous calendar year, then the Local Government Severance Tax Fund shall receive a percent of the net severance revenues from oil, gas, and CO2 which brings the amount of revenue to that fund up to the level of the previous fiscal year. The Severance Tax Trust Fund shall receive an equivalent reduction in percent received from net severance tax revenues from oil, gas, and CO2. This subsection of current law contains a repeal clause, effective June 30, 1999. This bill, as amended in the House Agriculture, Livestock, & Natural Resources Committee, extends the repeal date until June 30, 2004. The bill would become effective upon signature of the Governor.

            Any elimination of an automatic repeal clause in current law is assessed as having no fiscal impact since it is viewed as a continuation of the provisions of current law. The collection of severance tax revenue has historically been volatile. A forecast of severance tax revenue based on current severance tax rates, and projected production and prices has been provided by the Department of Local Affairs. This forecast shows that if the repeal date is extended until June 30, 2004, the "safety net" that protects the Local Government Severance Tax Fund will be triggered three times between 2000 and 2004. This "safety net" will transfer a combined total of approximately $8.4 million to the Local Government Severance Tax Fund that would otherwise accrue to the Severance Tax Trust Fund during this time period.

            Furthermore, over the next five years, the forecast shows that under current spending plans, the operational account of the Severance Tax Trust Fund will have a flat-to-increasing year-end fund balance, even with the anticipated triggering of the "safety-net" deductions. Over the five year period, and assuming the Department of Natural Resources maintains annual operating expenditures of $4.068 million, the year-end balance of the operational account of the Severance Tax Trust Fund will average 2.74 times the annual average operating expenditures from that account. Given these levels of year-end balances, implementing the "safety net" (by maintaining the percent of the net severance revenues for the Local Government Severance Tax Fund from oil, gas, and CO2 which brings the amount of revenue to that fund up to the level of the previous fiscal year) is assessed as not having a direct effect on the ability to fund current programs from the operational account of the Severance Tax Trust Fund.

Departments Contacted

            Local Affairs              Revenue