When municipalities in Delta County finalize their proposed 2010 budgets, less revenue will be estimated from severance tax and federal mineral leasing. These revenues usually add quite handsomely to a town’s General Fund.

However, that’s not going to hold true for 2010, and by significantly substantial amounts. While Crawford’s draft budget lists a modest $7,500 from each revenue, Paonia and Hotchkiss budgets are showing zero from each. There is word that perhaps a small percent of the “regular” amount of revenue may come through next year. However, finance officers are being conservative with their revenue figures so as not to overspend from their General Fund next year. If any funds materialize from the severance tax or federal mineral leasing, it will be a bonus.

Estimated 2009 severance tax revenue for Crawford is $21,041 and $28,871 for mineral leasing; Hotchkiss estimates $28,001 from the severance tax and $37,556 from mineral leasing in 2009. Paonia faired the best in the North Fork Valley with severance tax revenue estimated in 2009 at $49,092 and $66,217 estimated from mineral leasing revenue. All 2010 budgets have to be adopted by Dec. 15 along with the mill levy for property taxes. All must be filed with the State of Colorado by Jan. 31, 2010.

The Colorado Legislative Council Staff released the “Severance Tax Revenue by Source” as of Sept. 2009. The forecast for fiscal year 2009-10 shows a sharp downward plunge with a recovery forecast for fiscal year 2010-11.

Their analysis explains the state experienced high energy prices in most of 2008 and with expanded drilling and energy production for the last several years, severance taxes, including interest earnings, totaled $336.9 million in FY 2008-09. That was followed by natural gas prices falling at the end of 2008 due to the economic recession. A steep drop in demand for natural gas and high production levels across the nation caused a large oversupply. Natural gas prices in Colorado averaged $2.75 per thousand cubic feet in the first half of September and the Colorado Legislative Council Staff expects prices to average $3.14 per thousand cubic feet for the year, representing a 55.1 percent price decline from last year.

The analysis states, “The resulting drop in income for energy producers—and thus their severance tax liability—coupled with large severance tax credits based on the higher value of natural gas produced in 2008, will cause a sharp drop in revenue in FY 2009-10. In FY 2009-10, total severance tax revenue is projected to drop to $54.9 million, a decrease of 83.7 percent from FY 2008-09.”

Coal production, the second largest source of severance taxes for Colorado, was down by about 10 percent through the beginning of September compared to this time last year. That will result in decreased revenue for FY 2009-10. The Legislative Council Staff credit this mainly to the weak economy.

“Severance taxes are expected to rebound in the last two fiscal years of the forecast period with an increase in economic activity. However, it will take time to reduce the nation’s oversupply of natural gas, which will prevent severance taxes from reaching the high levels seen in FY 2008-09. Though it is possible that increased pipeline capacity, an increase in the use of natural gas for electric power generation, and a stronger economic recovery than expected will put more upward pressure on prices in the last years of the forecast, causing severance tax revenue to recover stronger than projected,” the report states.

Federal mineral leasing revenue is the amount of revenue the state receives from mineral production on federal lands. Federal mineral leasing revenue is not part of the General Fund and is exempt from the TABOR amendment.

The Legislative Council Staff reports that federal mineral leasing revenue grew from $44.6 million in FY 2001-02 to $227.3 million in FY 2008-09 as a result of increased production on federal lands, primarily in western Colorado. Federal mineral leasing revenue also increased to record-high levels in FY 2008-09 because of the high price of natural gas. The $56 million auction of federal land for mineral production on the Roan Plateau added to the revenue total.

“Reduced demand for energy and the fall in energy prices continues to cause federal mineral leasing revenue to drop sharply,” the analysis states. “The reduction will not be as pronounced as with severance tax revenue, however, because federal mineral leasing revenue is not affected by the tax credit that is allowed against severance taxes. It is expected that federal mineral leasing revenue will come in at $90.6 million in FY 2009-10. As with severance taxes, federal mineral leasing revenue is expected to resume moderate growth in the latter two years of the forecast period as the economy recovers and energy prices begin to improve.”

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