To cover an anticipated budget shortfall of nearly $4 million, the Colorado Oil and Gas Conservation Commission is proposing a higher mill levy on companies.
Julie Murphy, the newly appointed director, said Tuesday that the COGCC is looking at raising the current levy of 1.1 mills to 1.7 mills. The increase would keep the budget at current levels, a little more than $13 million, in the new fiscal year, Murphy said.
The goal is to keep the agency’s revenues at about the same level in the face of low oil and gas prices and declining production, Murphy added. “With the drop in commodity prices leading to a likely drop in production, the mill levy rate we had established will not generate the same number of dollars.”
The oil and gas industry is reeling from low prices, driven by a dramatic drop in demand due to the coronavirus-related economic downturn. An oversupply of oil and a price war between Russia and Saudi Arabia at the start of the pandemic further repressed prices.
And now is not the time to raise taxes on anyone, said Dan Haley, president and CEO of the Colorado Oil and Gas Association, a trade group. The industry is going through a number of hearings on an overhaul of regulations mandated by a 2019 law and faces additional fee increases passed by the legislature, he said in an email.
Lynn Granger, executive director of trade organization API Colorado, said the industry intends to work with the COGCC, but urges the agency to involve interest groups to address the budget concerns.
The COGCC declined to estimate how far production is dropping in Colorado, saying there’s at least a 45-day lag in companies’ reports. However, one indicator is the number of working drilling rigs, which was a little over 20 at the start of the year in the Denver-Julesburg Basin on the north Front Range. The current total is about four.
Through June 23, the state had approved roughly 830 drilling permits, compared to 1,321 through June of 2019.
Denver companies Extraction Oil and Gas and Whiting Petroleum recently filed for bankruptcy as they try to restructure their operations. Occidental Petroleum, Colorado’s largest producer by volume, is among the companies that have drastically scaled back spending and decreased production.
The COGCC said it doesn’t believe the mill levy increase would run afoul of the Taxpayer Bill of Rights, a constitutional amendment that, among other things, limits tax increases. The mill levy would keep revenue at the same or slightly lower level, not raise it, Murphy said.
If approved, the mill levy increase would take effect Oct. 1. The COGCC will take public comments and hold a hearing on the proposal.
The mill levy is assessed on the market value of oil and gas sold in Colorado. The revenue covers about about two-thirds of the COGCC’s budget. The levy was last raised in 2018.
Murphy said she understands the financial pressures that the oil and gas industry and other businesses are under. She said the COGCC is cutting its spending, including not filling vacancies, to try to provide the same level of service.
“We’re continuing to conduct the essential duties and operations that are critical to providing public health, safety and welfare protection,” Murphy said. “And on the industry side, we obviously still need people to review the permits and activities that are important for operators to continue their business.”