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SB 25-040

Future of Severance Taxes & Water Funding Task Force

2025 Regular Session Introduced by Judy Amabile and 33 co-sponsors

A temporary task force will study how to maintain water funding as severance tax revenue declines and identify ways to reduce reliance on severance tax transfers to the General Fun

Governor Signed
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Bill Summary · SB 25-040

Summary — SB 25‑040: Future of Severance Taxes & Water Funding Task Force (Governor Signed)

Status: Governor signed (May 15, 2025). Effective 90 days after final adjournment of the General Assembly unless a referendum is filed. Repealed December 31, 2026.

Purpose / Intent

Create a short‑term, policy‑focused task force to study the outlook for severance‑tax revenue and recommend ways to continue funding Colorado’s water needs and related local grants as severance tax receipts decline — and to identify ways to avoid or replace past and future transfers of severance tax revenue to the General Fund.

Key provisions

  • Creates the Future of Severance Taxes and Water Funding Task Force in the Department of Natural Resources (statute: C.R.S. 37‑98‑106).
  • Membership (10 members): DNR executive director (or designee), Colorado Water Conservation Board director (or designee), Commissioner of Agriculture (or designee), Executive Director of Department of Local Affairs (or designee), and seven appointed representatives (environmental advocacy, oil & gas industry with severance tax experience, water conservation district, agriculture sector with relevant experience, a county commissioner from a county with oil & gas operations, and an affected municipal official/manager). Appointing authorities must make appointments no later than September 1, 2025.
  • DNR must hire a third‑party contractor to conduct a study and develop recommendations focused on:
    • Maintaining funding for water needs and energy‑impact grants (39‑29‑110(1)(b)(I)) as severance tax revenue decreases;
    • Identifying ways to reduce reliance on severance tax transfers to the General Fund and to replace previously transferred severance tax revenue.
  • Reporting deadlines:
    • Draft contractor report to task force: by January 15, 2026.
    • Final report to the Water Resources and Agriculture Review Committee: by July 15, 2026.
    • Task force presents a summary to the Committee during the 2026 legislative interim.
  • Meetings: open to the public; task force members serve without compensation but may be reimbursed for expenses.
  • Funding and sunset:
    • Statute states the task force “shall be funded solely with money from the Severance Tax Perpetual Base Fund.”
    • The enacted fiscal plan and appropriation used Severance Tax cash funds (see Fiscal Impacts).
    • The statutory task force is repealed Dec. 31, 2026.

Fiscal and timeline impacts (from Legislative Council Staff / JBC fiscal notes)

  • Appropriation: FY 2025‑26 appropriation of $198,592 to the Department of Natural Resources for contractor, meeting and administrative support.
    • Contract estimate: $200,000 total ($175,000 FY25‑26; $25,000 FY26‑27).
    • Meeting/admin support: $23,592 FY25‑26; $4,718 FY26‑27.
  • State revenue effect from delaying implementation of a previously enacted modified severance tax ad valorem credit:
    • The bill shifts implementation of the modified ad valorem credit from tax year 2026 to tax year 2028.
    • Estimated increase in severance tax cash‑fund revenue (because the modified credit is delayed):
    • FY 2025‑26 (half‑year): $2.8 million to $13.1 million
    • FY 2026‑27: $5.9 million to $27.7 million
    • FY 2027‑28 (half‑year): $3.0 million to $13.9 million
    • Fiscal note assumptions: the modified credit would reduce severance tax revenue by roughly 3%–14%; there is significant uncertainty and year‑to‑year variability.
    • TABOR: increased cash fund revenue increases the TABOR refund obligation (refunded from the General Fund).
  • Administrative impacts: Minor workload increases in DOR (data/programming), Governor’s Office of Boards & Commissions (appointment staffing), all manageable within existing resources; DNR provides staff support.

Who is affected

  • State agencies: Department of Natural Resources (hosts task force), Department of Revenue (data/programming support), Governor’s Office (appointments).
  • Severance‑tax recipients: state severance tax cash funds, water programs, local governments and energy‑impact grant recipients.
  • Stakeholders represented on task force: oil & gas industry, agriculture, water conservation districts, environmental organizations, impacted counties and municipalities.

Notes / Uncertainty

  • Revenue estimates are broad ranges and dependent on future oil & gas production, tax policy interactions, and how the modified ad valorem credit would operate once implemented. The task force study is intended to produce policy recommendations for addressing these uncertainties.

Compiled from official sources — confirm details with the bill’s official record.

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