Ad sponsor: A Smarter Colorado
Producer: The Kenney Group
Type and length: 1-minute radio ad
Airing: Statewide
“Math” and the similar “Mullet” are new radio ads from A Smarter Colorado, a group pushing a proposed ballot initiative that would take away a tax credit for oil and gas companies in Colorado and use the money for a college scholarship program, transportation and water projects in drilling-impacted areas, habitat protection and renewable energy programs.
The tax credit allows the companies to deduct 87.5 percent of their property tax bill from the amount they pay in severance taxes. Severance tax is what energy companies pay when they remove — or “sever” — natural resources from the ground. In the 2006-2007 fiscal year, Colorado collected $117 million in oil and gas severance tax.
Both “Math” and “Mullet” feature two guys in a back-and-forth conversation on what supporters say are the virtues of eliminating the tax credit.
Claim: “Now that tax subsidy adds up to $300 million a year. So, over 30 years, we’ve given oil companies billions in tax subsidies.”
Fact: While the initiative is estimated to bring in as much as $321 million in its first year, determining the actual value of the tax credit is tricky because the state does not track it. Severance tax revenue is also extremely volatile, depending not only on how much oil and gas are produced but also upon how much those resources are worth at the time.
Adding to the confusion is that the estimated $321 million the initiative will generate in the first year includes not just the estimated amount from the tax credit but also from two other smaller changes to severance tax policy.
A draft analysis of the initiative by the state’s non-partisan Legislative Council puts the share coming from the tax credit at $241 million. George Merritt, a spokesman for A Smarter Colorado, acknowledged that estimates on the tax credit’s value vary but said the campaign was simply trying to come up with a “ballpark” figure.
Claim: “Guess how many states do this? … One. Just Colorado.”
Fact: This statement, and a similar one in “Mullet,” has provoked the greatest response from the initiative’s main opponent, an oil-and-gas funded group called Coloradans for a Stable Economy. Dan Hopkins, a spokesman for the campaign, said both Kansas and New Mexico also provide severance tax credits, and Hopkins’ campaign has called for the ads to be pulled as a result. Merritt says both of those tax credits are significantly different from Colorado’s.
In New Mexico, the tax credit applies only to companies that must pay taxes on their production equipment when they drill on Native American tribal lands. In Kansas, the credit is structured similarly to Colorado’s, but the amount of the credit is only 3.7 percent of the property tax bill as opposed to the 87.5 percent it is in Colorado.
Regardless, Merritt says the two guys in the ad are referring to the total value of the tax credit, which he said is unique in the nation.
Claim: “Even without the subsidy, oil companies in Colorado pay less taxes than in neighboring states.”
Fact: With the credit currently, oil and gas companies in Colorado pay an effective severance tax rate of 1.3 percent, which is lower than that in Utah, Kansas, Wyoming, New Mexico and Oklahoma, according to the Legislative Council’s draft initiative analysis.
Eliminating the credit would put Colorado’s effective severance tax rate back to the base rate of 5 percent, with some exceptions for low-producing wells. That base rate ties the state with Utah for the lowest among its immediate neighbors.
But because tax structures differ greatly from state to state, it is important to look at the total effective tax rate on oil and gas companies. Colorado’s total rate of 5.7 percent is lower than in Wyoming, New Mexico and Oklahoma but higher than in Utah, according to a 2006 Legislative Council survey. (That survey did not include Kansas, and the Legislative Council has yet to calculate total tax rates for its draft initiative analysis.)
Merritt said eliminating the tax credit would raise Colorado’s effective rate to 8.9 percent. That is still lower than Wyoming and New Mexico, but higher than Utah and Oklahoma, according to the 2006 survey.
Complicating things even more, a newly-released study commissioned by the Colorado Petroleum Association says the Legislative Council failed to take into account how tax amounts change as the value of oil or natural gas increase. The study says that, as those prices rise, Colorado’s unique tax structure for oil and gas companies causes total tax payments to rise faster than in other states.
That means, according to the study, when prices are high, Colorado ranks in the top four for total tax burden, when compared to the nine main energy-producing states in the country. The study — which came to its conclusions by looking at the tax burden on a hypothetical “average” company — says the initiative would make Colorado second only to Wyoming in total tax burden.
Merritt says the study’s numbers are “funky” and notes that the company hired to conduct the study — California-based LECG — was also hired in 2006 by opponents of a proposal to impose a severance tax in California. The new study’s author says he arrived at his conclusions independently.
In terms of total dollars paid, Colorado companies paid less in 2004 than in Wyoming, New Mexico and Oklahoma, all states that produced more than Colorado, according to the 2006 survey. Companies in Utah, where production is lower than in Colorado, pay less.
Claims are: A MIXED BAG
