With government agencies scrambling to pinch every penny, what if an industry came along that would produce millions of dollars in tax revenue?
The oil and gas industry has done that across Colorado, but El Paso County commissioners made a decision years ago that now would shut the county out of a windfall here. Same goes for income from wind farms and solar arrays.
In 2000, under pressure from the Greater Colorado Springs Chamber of Commerce and the Colorado Springs Regional Economic Development Corp., the county abolished the business personal property tax, assessed on things like machinery, equipment and supplies.
That decision has cost the county $25 million in lost revenue in the past five years alone. And because oil and gas rigs, windmills and related commodities are assessed as personal property, the exemption would cost the county many millions more if drilling gets traction here.
Despite that, there's no political will to reinstate the tax, which requires voter approval. So, as Commissioner Dennis Hisey says, "They're getting a pass."
Removing the 'penalty'
In the late 1990s, then-Chamber official Jeff Crank and then-EDC chief Rocky Scott argued that eliminating the business personal property tax would help recruit and retain business and industry. Scott likened the tax to a penalty for investing in equipment.
Whether the move has had the desired effect is hard to say.
"We have not done a scientific survey about how the lack of a county business personal property tax has influenced our ability to attract jobs," David White, EDC executive vice president of marketing, says by e-mail. "I can say though anecdotally that many of our prospects see the lack of a BPP as a positive."
Chamber CEO Dave Csintyan says that the commissioners' decision pre-dated his tenure with the Chamber.
Ed Jones, a county commissioner in 2000, stands by the decision, noting that his vote was cited as one reason the Chamber honored him as Elected Official of the Year shortly thereafter.
"That was during the time, too, that Intel was here," Jones says of the chip maker that pulled out of Colorado Springs in 2007, despite the tax break. "There were a lot of small businesses who were paying on their furniture they already owned. A lot of small businesses were very happy that we [abolished the tax]. Yes, it was a smart decision."
But Jeri Howells, who also cast a "yes" vote back in 2000, says it might be time to rethink that policy.
"In these tough economic times, it sure would be nice to have the county rely on additional revenue," says Howells, now mayor of Fountain. "Maybe it should be voted on in the next election." Reinstating the tax would constitute a tax increase, which requires voter approval under the Taxpayer's Bill of Rights.
Carol Hedges, director of the nonprofit Colorado Fiscal Policy Institute, won't comment on whether the 2000 decision was wise, but she notes that "all decisions need to be made in the context of changing economic circumstances.
"Whenever a local government or taxing unit gives up a source of income, it means they have less revenue to provide basic services to support community."
In April, Elbert County economic development co-director Craig Curl told the Denver Post that the Niobrara geologic formation, which lies beneath eastern Colorado, including El Paso County, is thought capable of yielding up to $250 billion in oil and gas.
El Paso County Assessor Mark Lowderman says that although only a couple of test wells have been drilled here so far, companies have filed 2,200 gas or oil leases with the county since 2009. Many are awaiting the county's adoption of drilling regulations.
"I think the oil companies have a pretty good idea of what they're going to get out there," Lowderman says.
Ultra Resources recently paid $20 million for nearly 18,000 acres of Banning Lewis Ranch in that area. The land, annexed in 1988 as a master-planned community of homes and businesses, was actually owned in the late '70s by Mobil Oil (now Exxon Mobil Corp.); Ultra now plans to drill on the property, and also wants to de-annex it.
Ultra's not talking about its plans in detail, but one thing is clear: If the city holds onto the land, it would receive personal property tax money on rigs and production. That's because only the county gave up the tax; other taxing units did not, including school districts, municipalities and fire districts.
Not that their collections would come with no strings attached. They'd be subject to TABOR revenue limits, meaning that if revenue caps were exceeded, the money would be refunded to residents unless voters give permission for the taxing entities to keep it. Voters already have exempted many districts, including school districts, from TABOR limits.
For Weld County, with 18,000 active oil and gas wells (the highest number in any Colorado county), energy is the mother lode. Roughly 45 percent of all property taxes paid in the county to various governments come from oil and gas companies, says Weld County Assessor Chris Woodruff. Weld County government itself gets $40.3 million of its $97.5 million in total revenue, or 41 percent, from oil and gas personal property taxes.
And the industry is growing. Assessed value of oil and gas in Weld jumped by $600 million from 2010 to 2011, Woodruff says, because production grew when oil prices spiked. "We're expecting we will see another huge increase in next year's valuation from what we're hearing from companies about number of wells," Woodruff says. "A lot of property dropped in value, but the oil and gas [industry] made up that difference."
Hisey notes that El Paso County would receive state-assessed severance taxes from oil and gas. But by comparison, the amount would be piddling, considering Weld County's severance tax totaled only $1.7 million this year.
In Logan County (east of Weld), a bonus comes from wind farms, which paid $1.3 million in business personal property taxes on 300 windmills in 2010, says Brad Hofmeister of the Logan County assessor's office. Total county revenue that year was roughly $7.5 million.
Clipper Windpower wants to build a wind farm in El Paso County and has told county officials it would cost $350 million. If the personal property tax were on the books, Clipper would pay $783,000 in taxes, says Lowderman. Instead, it will pay nothing.
To exacerbate the issue, El Paso County's one-time development fees for subdivisions, which would apply to oil rigs and wind farms, are based in part on tax receipts — handing another break to energy companies.
How much the industry pays to do business here will be decided in coming months, after commissioners adopt oil and gas regulations. They've planned a public hearing in December to discuss possible regulations.
"We can't really establish a fee structure until we know what the regulations are first," Commissioner Sallie Clark says, adding that the county could require bonds to cover road damage, for example. But she and other commissioners oppose reinstating the personal property tax, calling it "double taxation." Businesses pay sales tax to buy equipment and then pay personal property tax to own it — the same as vehicle owners do.
Asked how, then, the energy industry will pay its own way, commissioners can't say. They're not even in favor of letting voters decide. And a ballot measure might not pass, anyway, unless the measure targeted the energy business alone, or exempted small businesses in some way.
Citing the state constitution, TABOR author Douglas Bruce says taxes shall be uniform on all real property (land, structures, etc.) and personal property, except when the constitution grants an exemption. TABOR, part of the constitution, says taxing agencies may reduce or end the business personal property tax but it must be done uniformly.