The severance tax conundrum

Colorado statutes are clear.  Severance tax collected by the state gets divided in two parts – after the Governor’s Energy Office (GEO) takes a chunk off the top. Half goes to the Department of Natural Resources (DNR) to be split equally between the department’s operational account and perpetual base account. The other half of severance tax revenue – the “local severance tax” – flows to the Department of Local Affairs (DOLA).

Within DOLA, 70% of the tax revenue goes to the Energy Impact Assistance Fund (grant fund) and the remaining 30% is directly distributed back to energy-impacted communities based on detailed impact metrics related to employee population, drilling/mining permits, and actual production.  The local severance tax is the only severance tax revenue that is used to mitigate the impacts of natural resource extraction. This is important when considering how the local revenue has been spent in the last decade.


Following the 2007 legislative session, an interim process was established to visit the manner in which the severance tax and federal mineral lease (FML) revenues were distributed. The Colorado Municipal League and Colorado Counties, Inc. worked side by side to ensure that the local distributions were not reduced but that they were distributed to more accurately address impacts.  The result was legislation, supported by CML and CCI, which made changes to severance tax and FML distributions.

The ink was not even dry on the legislation before the recession, which had already been impacting state and local budgets, led the state to begin depleting cash funds to balance the state budget. From 2008-2012 and 2015, around $300 million of local severance tax revenue was swept to backfill the state’s budget – and the sweep in 2015 was actually in a year of dynamic state revenue growth and not a recession. Nearly 100% of the sweeps were from the grant fund, which meant that critical infrastructure related to energy impacts went largely unbuilt, and most of it in economically disadvantaged parts of the state where extraction activity had dropped dramatically.

Considering that municipalities and other local governments match grant dollars as much as 4 to 1, the loss of positive economic impact to mostly rural Colorado was over $1 billon. Jobs went unfilled, materials from local companies went unordered. While commitments have been made to attempt to restore other sources of funds that backfilled the state budget, there has not yet been one penny of local severance tax money repaid to the grant fund.

The question is how can local governments ensure that local severance revenues get to impacted local governments without being subject to fiscal pressures on the state’s Joint Budget Committee (JBC)?

Recent events freeze critical infrastructure projects

At the end of the 2016 session, a surprise decision by the Colorado Supreme Court left the legislature and the Department of Revenue (DOR) scrambling to figure out how to pay potential severance tax refunds to oil and gas companies as a result of the court’s decision.  The decision stated DOR was not interpreting a statute on severance tax deductions properly, which allows for companies to file amended returns to recapture the deduction. Initial fiscal impacts were as high as $400 million, but by the time emergency legislation (SB 16-218) was announced to pay for potential refunds, that amount was down to $115 million.

That same legislation also froze unencumbered funds for local energy impacts and programs in the Department of Natural Resources (DNR). The intent of freezing the funds was to make them available to repay the state’s general fund, and only majority vote of the JBC can unfreeze all or part of the funds. The immediate impact was to place in doubt at least $20 million of critical infrastructure projects awaiting prioritization for DOLA’s August grant cycle.

CML was highly critical of the JBC for not releasing some of the funds when the committee met in June, as industry representatives and others were already saying that the amount of refunds estimated by SB 218 was higher than that which was likely to be claimed. While the JBC certainly has the right and the responsibility to ensure the budget remains balanced, energy impacted communities are once again unsure whether or not revenue intended to directly mitigate the impacts (past and present) of extraction activity will instead be used to plug a hole in the state budget.

One more chance for 2016 grant requests

The JBC will meet once again on August 1 to consider new information from DOR and industry representatives, as well as get the perspective of the Governor’s budgeting office on anticipated refunds and fiscal impacts. Discussions with JBC members led CML to believe that there may be a chance to authorized DOLA to continue with the August grant cycle, and the League would be greatly appreciative of such a decision by the JBC.

However, whether or not all of local governments’ $48 million currently frozen will ever make it to its statutorily designated recipients is not yet know.  Also not known is whether or not the JBC will consider repaying the general fund with other sources, such as the state unclaimed property trust fund.

CML will continue to be strong advocates for municipalities to get back their share of energy impact funds, including the $300 million that was captured to keep the state budget afloat in previous years.

2016 legislative session – not quite done

Legislators left May 11 but session actually ends on June 10

It is always interesting to read the final review of any legislative session written by legislators, lobbyists, and associations very soon after the final gavel falls. For legislators, their work is done, for the most part, and the campaign season (for many) kicks into full swing. For others, assessments are due to members, constituencies, and clients – and all begin writing reports right away.

That includes CML.  Lobbyists quickly compiled an article for the most recent CML Newsletter quickly summarizing “immediate attention” items have already been signed into law or that will become law upon the signature of Gov. John Hickenlooper. In addition, CML will publish online the 2016 Laws Enacted Affecting Colorado Municipalities once all legislation has been signed or vetoed. Finally, the CML advocacy team will spend time with our members assisting with inquiries about new laws and briefing members at sessions at the CML Annual Conference later this month.

However, all of this reporting and activity trying to let people know what happened often ignores that the legislative session is not over under the final vote has been cast.  Gov. Hickenlooper has the final vote, and the League asked him to cast it in favor of municipalities on two critical issues.

Municipalities in control of municipal streets

The governor has already vetoed HB 16-1231, which was both expected and appreciated. The bill would have implemented a total ban on the use of red light cameras as a public safety tool. The legislature wanted to act like a city council and take away the right of local citizens and their elected leaders to govern local themselves on local issues , and Gov. Hickenlooper correctly and thankfully said “no.” He stated that “the bill [denies] communities the right to decide for themselves based on their own traffic safety needs.”

Still one more vote to cast against a costly unfunded mandate

Both the Denver Post and the Pueblo Chieftain – and CML plus a whole lot of municipalities – have urged the governor to prevent a costly and unnecessary unfunded mandate on municipal courts by vetoing HB 16-1309. The key issues of opposition are in the editorials, as well as CML’s veto request, but essentially the legislation is based on the false premise that Colorado municipal courts are intentionally trying to jail indigent and homeless people or trump the right to counsel of all defendants in court.

These spurious accusations are as inaccurate as they are offensive, especially to dedicated municipal judges and court administrators, and the “solution” offered by HB 1309 is a costly unfunded mandate on municipal courts. It would require an attorney to be paid to be on standby in every municipal court on the offhand chance a defendant requested an attorney for an advisement (first appearance). It far exceeds the constitutional allowance for “reasonable time” to assign a defender, if one is requested. Without state funding to implement the requirement, it violates state law and the Taxpayers Bill of Rights prohibiting unfunded mandates.


An otherwise productive session

While the fate of HB 16-1309 will not be known until June 10, at the latest, all but one other bill supported or opposed by CML have been acted upon. The goal is to defeat 100% of oppose bills and pass as many support bills as possible. Depending on the outcome of this week, between 92-100% of the bills CML opposes will have been defeated and nearly 70% of the bills CML supports will be enacted.

Broad(band) Disappointment

Promises made

In the speeches made by legislative leadership in the first days of the session, as well as the State of the State Address given by Gov. John Hickenlooper, there was unbridled support and enthusiasm for expansion of broadband service in rural areas of the state. Yet, given all the hoopla and all the bipartisan support for doing something, the General Assembly will adjourn in 2016 without passage of meaningful legislation to address the significant shortfalls in broadband availability and speeds throughout Colorado.


There is no more direct evidence of the reality of broadband gaps in rural Colorado than the overwhelming approval by voters 45 municipalities and 21 counties that voted to exempt themselves from statutory prohibitions on provision of broadband services. Each vote is a referendum on the lack of availability and quality of broadband service. Citizens have expressed, in no uncertain terms, that the private sector is unwilling or unable to provide broadband infrastructure and service that allows schools and businesses to compete in the global economy. All of these communities – and all of the people within them – have a link to Colorado’s economy, educational system, and health care system.  Each one of them has the right to be as connected to the world as their counterparts in the larger cities along the Front Range.

The only answer from the General Assembly to this crisis is SB 16-067. The legislation does nothing to tackle substandard broadband service, but it does suggest that the private sector companies failing to provide better service might consider it if rural counties and municipalities give them a tax break on their business personal property. This – and apparently nothing else – is the barrier to private sector deployment of infrastructure and service.

We don’t agree.

Besides violating constitutional requirements for uniform taxation on all real and personal property, the bill does not do anything to improve service. The bill does not even require the company that would get the tax break to put new or improved infrastructure in the jurisdiction(s) asked to give the tax break. The legislation represents another missed opportunity.

Beyond the 2016 legislative session

Local governments working directly with interested citizens and the private sector will be the most promising avenue for providing fast, available broadband to all corners of Colorado. The General Assembly, by comparison, continues to be a vessel of disappointing rhetoric.

Municipalities and counties will continue to tackle this issue collaboratively and on the local level, along with a strong partner in the Department of Local Affairs (DOLA). DOLA has been a critical element in local governments’ development of plans to build broadband infrastructure. Local governments largely plan to make the investment in infrastructure the private sector does not want to make, and then open it to private sector to offer high speed broadband to schools, businesses, and private citizens. The public/private partnerships (P3’s) are often the best model for public investment that benefits the private sector and those that subscribe to their services.

But meaningful assistance via the General Assembly?  Maybe in 2017.

A Better Alternative to Workers’ Comp?

Firefighter cancer and heart attacks in the spotlight

2007-2013: Unfunded mandates

Back in 2007, the General Assembly passed and Gov. Bill Ritter signed legislation strongly opposed by the Colorado Municipal League (CML) that reversed the standard for determination of workers’ compensation (WC) benefits for firefighters with certain cancers. Known as “presumptive eligibility,” the law reversed the standard WC practice of requiring the employee to demonstrate that an illness or injury occurred on the job to a presumption that it did and an accompanying requirement for the employer to prove that it didn’t. At the time, proponents claimed overwhelming evidence of the connection of employment in the fire service and the incidence of certain types of cancer. Ironically, truly overwhelming evidence should actually negate the need for a presumption. Proponents also essentially said the CML was full of beans with our assertion that the costs of WC insurance (or direct costs to self-insured employers) would rise dramatically. Despite bipartisan opposition, the bill carried the day.

It is important to note that there is a right to a process to determine compensability of workplace illnesses and injuries, employees are generally much better served by their employer-sponsored health care coverage and death and disability (D&D) coverage provided by the Fire & Police Pension Association (FPPA). Navigating the WC system is often lengthy and arduous, even for “easy” claims.

Fast forward to 2013. Firefighters and their representatives often stated that the law was inadequate, mostly because they mistakenly believed that “presumptive eligibility” meant “automatic eligibility” and claims would be immediately approved and paid. Just as CML told legislators in 2007, the cost of insuring for WC coverage increased dramatically for municipalities and fire districts, eating into budgets for personnel and equipment. In spite of the reality CML told legislators in 2007 would occur, firefighters began to discuss presumptive eligibility for hearts attacks and coronary events.

That push was met with resistance from fire chiefs, particularly from fire districts that had seen their budgets for the provision of their sole service of fire prevention and control impacted heavily by the cost of cancer presumptive eligibility. Knowing the cost impacts would be replicated for heart attacks, the fire district chiefs, Special District Association, and the firefighters pivoted toward a requirement for employers to provide heart attack insurance that would cover firefighters for events, regardless of whether or not they applied for WC benefits, by paying out a level benefit depending on the type and severity of the event.

That requirement was introduced in 2014 as SB 14-172, which the Colorado Municipal League opposed as an unfunded mandate prohibited by state statute. In spite of the good intention of the proponents, a bedrock policy of CML is the opposition to the central government of Colorado requiring municipalities to provide a service without funding the mandate. And state law prohibits unfunded mandates (see 29-1-304.5 C.R.S.) and says that without funding a new requirement, local governments may treat it as optional.

The proponents initially argued a mandated requirement was a reasonable exception because they stated 100% participation in a multi-employer pool was the only way the benefit would work. In the end, The League prevailed and  language in SB 14-172 reaffirms the intent of the statute in the face of a new mandate.  The mandate for a new service was (and still is) accompanied with a continuous appropriation from the state for the costs of providing the mandate and the statute states explicitly that: “If, at any time, the funding provided for the benefit required by this section is insufficient to cover the cost of the benefit, then the requirements of this section to maintain the benefit shall become optional pursuant to section 29-1-304.5.”

A funded mandate and a new way to view the world

A trust was created by the end of 2014 and began operating in 2015. Because the mandate was funded and the bill did not require participation in the trust, many self-insured employers self-insured themselves for this required benefit, the cost of which continues to be reimbursed by the State of Colorado. With less than 100% participation, the pool started strongly and continues to thrive, thus proving that 100% participation is not an absolute prerequisite.

Before the ink was dry on the paperwork creating the trust, proponents began discussing creating a similar trust for cancer.  Initially, they started down the same road as they did for SB 172.  The League staff said there would be no more mandates because heart attack insurance experience already showed us that a pool could survive without 100% participation, and there is no excess state revenue to fund a mandate. More importantly, CML argued that if the goal is to lower the utilization and cost of WC, then proponents should want municipalities and fire districts to voluntarily choose to affiliate with a trust, as opposed to trying to make them do it.

This is even more true as employers and taxpayers are still trying to digest the bitter pill associated with the dramatic premiums cost increases associated with presumptive eligibility. Maybe – the League argued – the proponents might cut employers a break if they voluntarily provided cancer coverage similar to the heart attack benefit.

It is hard to pin down precisely when the “a-ha!” moment occurred, but it did. Proponents, fire chiefs, municipalities, and special districts – along with the various experts from each – are now discussing details in a cooperative manner. Cancer is much more complex than heart attack events, which means this program will be trickier to set up in a way to guarantee there is no failure of any trust created to provide the benefits.

The significance of risk managers, pool administrators, fire chiefs, firefighters, CML, SDA and others meeting and discussing a voluntary program that could lower the costs and utilization of WC is clear to all that are participating. While the League still argues that a giant first step in addressing immediate relief for cost and budgeting challenges would be support for repealing the requirement for presumptive eligibility, that is not on the table. However, CML is encouraged that the proponents have talked about incentives for providing the coverage such as scaling back some of the requirements of presumptive eligibility.

Looking ahead

With only 36 days in the 2016 legislative session, there is not time to craft a program that would pass muster. However, people are still meeting, and there is a commitment by all to try to get to “yes” on enabling legislation and implementation in 2017. If successful, the effort will prove that conflict in the capitol that has occurred over the last 10 years – trying to insert the state into what should be handled cooperatively at the local level – is unnecessary.

More importantly, this effort may also be a model for other states that have gone even farther down the road of imposing crushing mandates on employers (and taxpayers) for presumptive eligibility and similar mandates. With little to show for this top down approach, it just might be that Colorado can lead the way with a collaborative approach that reduces costs and more expeditiously addresses health issues of first responders.


Urban Renewal: Consensus*

Months of meetings, and a pending consensus bill – but some issues will still be unresolved

Prior to HB 15-1348 being signed by Gov. John Hickenlooper in June, significant issues with the legislation had already been identified. The bill – completely rewritten in the final days of the 2015 legislative session – contained numerous ambiguities, conflicts, and errors in application of terminology. Although described as “perceived technical issues” in the governor’s signing statement, it was clear there were real and actual issues that began to immediately scuttle financing for projects already underway in existing urban renewal plans, as well as place a chilling effect on the future of new plans. Upon further examination, additional and equally troubling problems were discovered.

Since June, numerous meeting and discussions have been held to parse through the issues, as well as to attempt to reconcile the statute’s new language with intent. Adding to the difficulty were the differing viewpoints between and among all parties. Gov. Hickenlooper appointed a working group to examine the issues. CML, Colorado Counties, Inc. (CCI), and the Special District Association (SDA) also agreed that we should talk to each other and include our respective issue experts. All parties came to the table to articulate our respective positions, listen and learn about those of others, and propose various concepts and language to change the statute.

While there exists a long list of issues to delve into, in the final weeks of 2015 and into 2016, both the CML/CCI/SDA (local government) group and the governor’s working group were focusing on a handful of critical subject areas:

  1. Resolving a TABOR conflict created by HB 15-1348
  2. Clarifying the mediation process
  3. Ensuring that existing contracts were not impaired and that investors were held harmless
  4. Clarifying the applicability of HB 1348 provisions to plans adopted prior to January 1, 2016

The last meeting of the local government group took place on February 9. At that meeting, there was final agreement on the TABOR language and mediation clarifications. The discussions on applicability centered predominantly on persistent attempts add language to the statutes that would create nearly automatic retroactivity of HB 1348 urban renewal plans that were adopted prior to the effective date of the bill – January 1, 2016. CML and others objected, and the discussion on applicability was set aside until a new concept was put forward. New draft language was circulated in the days after the meeting, but discussion on applicability changes ended with proposed edits by counties that would have inserted retroactivity language.

Separately, the governor’s working group had been meeting and had its last meeting on December 22. Its focus has mainly been on language for the bond and finance community that would ensure contracts are not impaired and hold them harmless from anything that would change and the terms and conditions of bond repayment. Recommendations were made by the working group in December.

Consensus legislation

Following the breakdown of attempts to reconcile the applicability language, Gov. Hickenlooper’s office and legislative leadership determined that it was time to move forward with legislation on the items for which there is agreement among the parties. This week, the governor’s working group will convene to update its members on the progress that has been made and to share with them draft language that will become a Senate bill sponsored by Sen. Beth Martinez Humenik, R-Thornton, and Speaker Dickey Lee Hullinghorst, D-Boulder.

It is possible that some discussion on a proposal to enhance the “hold harmless” language may occur. Additional language that would arguably protect the financing of deals outstanding before January 1, 2016 (and the refundings of those deals) was proposed. However, the announcement from the governor’s staff was that only the prior approved “hold harmless” language would be in the bill draft.

CML will support this consensus legislation. There are elements within it that are critical to ensure the proper functioning of existing and future urban renewal plans. A draft is expected to be available very soon.

Future issues and discussion

CML’s support for this necessary legislation does not in any way mean that all of the issues are resolved. The inability to come to consensus on the extent and limitations of the applicability of HB 1348 is clear evidence that work on clarification must continue. It is not the only example of inconsistency and ambiguity in the statute.

The League is committed to continuing to pursue clear outcomes (as articulated best by Gov. Hickenlooper) that:

  1. Respect the will of the General Assembly via HB 1348;
  2. Ensures that plans in existence prior to January 1 are upheld, and;
  3. Ensures existing rights and financial expectations are not impaired.

For now, the focus is (and should) be on support of the consensus bill.

The War to End Homelessness

Solving homelessness remains a top priority for municipalities. However, inflammatory, inaccurate rhetoric continues to portray as cities and towns “criminalizing persons experiencing homelessness.”

A report recently released by  the University of Denver, specifically the Homeless Advocacy Policy Project,  purports that Colorado municipalities spend roughly $5 million enforcing ordinances that criminalize homelessness.

First, CML disagrees with the initial assumption of the study that that these ordinances criminalize homeless. These laws involve time, place and manner restrictions used in every Colorado jurisdiction to protect the public space and to ensure the health, safety and welfare of all residents.  They address behavior and not status, and apply to all municipal citizens. Second, there are a number of flaws with the study that include not taking into account cases that may have been dismissed or ignoring municipal ordinances that set specific guidelines for law enforcement to connect homeless individuals with services. Third, the study does not take into account the millions of dollars in funding municipalities provide in services for persons experiencing homelessness. In Denver alone, $47 million dollars will be spent in 2016 on direct and indirect costs for services, an increase over prior years.  Municipalities like Colorado Springs, Boulder, and Fort Collins also have robust programs to reduce the number of homeless and address their specific needs.

Furthering the false narrative of a “war on the homeless” is legislation continually introduced in the Statehouse.  This year, HB 16-1191 is currently before the General Assembly and would create a “Bill of Rights” for these individuals. There are a multitude of issues with this legislation. Most significantly, the proposed bill does nothing to solve homelessness. It does not provide additional resources nor provides funding so local governments can continue to improve and expand services to those citizens in need.

CML opposes HB 16-1191, “the Right to Rest Act” not because municipalities care less about their vulnerable populations. On the contrary, cities and towns spend millions in services annually. Let’s change the conversation to expanding resources to get citizens housed and ending the cycle of homelessness.

 The Denver Post said it best. “No one is trying to sweep homelessness under the rug — not in Denver nor in many cities that are proud of their own initiatives.”

What Colorado needs are long term, collaborative state and local solutions to this very difficult issue, and Colorado municipalities’ efforts are currently leading the way.

A Perennial Proliferation of Pot Proposals

Nearly 30 days into the legislative session, and there are already at least ten bills that primarily address a proposed change in marijuana policy and another 13 that somehow mention legal marijuana in Colorado. More proposals are expected as the session progresses.

Proponents of legalized marijuana are often fond of saying it is supposed to be “treated just like alcohol.” (In truth, Amendment 64 declared that recreational marijuana is to be treated in a manner similar to alcohol)  And then the legislature has spent most of the last three years dealing with bills and proposals to treat it differently in nearly every phase from production to consumption.

Marijuana is most certainly similar to alcohol in one regard. Liquor legislation has been a regular feature in almost every legislative session since prohibition. Now, only a little over five years after the legalization of licensed medical marijuana and barely two years since the first retail store opened, there is significant pressure on legislators to continue to change the implementation of both in Colorado.

No place to go

Prior to Amendment 64, which passed in the November 2012 general election, it was generally understood (by most) that the consumption of medical marijuana, purportedly for medicinal purposes, was a private matter. There was little to no pressure to create legalized social structures for group consumption.  In their infinite wisdom, the drafters of Amendment 64 legalized possession, growth, and private use of marijuana, but created a constitutionally enshrined system that provided for retail sales that the whole world was invited to partake in. We built it and they came – but even before the first legal transaction at a retail store, people were already asking where they could congregate with other likeminded consumers.

Under the banner of private use, “private clubs” began to pop up in commercial settings, as local governments struggled to react to the issues instantly created: open and public use, zoning and land use conflicts, illegal transactions, and impaired driving. More recently, proposals among some around the Statehouse are to create a new, legalized method for public consumption, while trying to determine how such scheme would coexist with the prohibition in the constitution (left undefined) of open and public consumption. As of yet, there are no bill on this issue, but one legislator has contemplated the notion of “tasting rooms” appended to existing retail stores. Municipalities may have more to say about that if it is introduced.

Great American Beer Marijuana Festival?

In liquor law, special event permits are issued by local governments and the state for events at which alcohol will be served. The applicant must be of a non-profit nature, a political candidate, local government, higher education institution, or any number of other types of applicants that will not receive any “pecuniary gain.” Legislation introduced this session (HB 16-1092) would create a “special event permit” for marijuana, but the name was about the only thing similar to its counterpart in the liquor code. The legislation has a lot of problems, as introduced, but the goal of the proponents is to create a legal status for licensed retail stores to participate in a convention-style event, at which their product may be sold and consumed. Specifically, they want to create a legal path for the Cannabis Cup held at the Merchandise Mart in unincorporated Adams County at 58th Avenue and I-25. Municipalities are opposing the bill unless a number of changes are made, including a requirement that events are not allowed unless a municipalities specifically approves them.  And then there is that whole open and public consumption thing…

Protecting kids

Thanks to legislation last year that finally gave definition to the constitution requirement that personal growth of recreational marijuana allowed by Amendment 64 must occur in an “enclosed, locked space,” law enforcement has a means to help reduce diversion to young people, as well as theft or similar crimes. SB 16-080 would extend that same provision  to medical marijuana personal grows. Examples from law enforcement show open grows of medical marijuana just yards from schools, and there have been problems with theft and diversion.  Some municipalities require enclosed, locked spaces by ordinance, but a uniform statewide standard is appropriate in this case.

Protecting public health and other proposals

There is also a lot of chatter in the lobby about how to ensure that pesticides, otherwise prohibited and regulated by the state, are not used in a manner that endangers public health. While law allows for licensed testing facilities, they have been slow to start and the state has been woefully slow in getting rules and regulations in place. Local governments have been stepping up to fill that void, and some segments of the industry don’t like it. Unfortunately, they have spent the better part of the first quarter of the legislative session trying to figure out how to preempt local authority instead of moving the state more quickly to fulfilling its responsibilities.  Whether it be red tape or a lack of resources, the bottom line is that the state must move more quickly if people do not want local governments to take more immediate action to protect the public. While there is legislation that touches on the pesticides issues, none of it directly addresses the problem of lack of speedy implementation by the state.

Other legislation will correct an oversight in last year’s creation of a state license for medical marijuana testing facilities by ensuring that local governments will also be able to license the facilities, just like every other medical and retail license type. A recently introduced bill would add a new type of state and local license for “marijuana transporters.”  In this case, it is difficult to contemplate how a local license for a transporter would work if the deliveries are going across municipal and county lines. More investigation of this brand new bill will be necessary.