On Dec. 11 as we once again waited patiently to bring our Broomfield oil and gas development concerns to the attention of the Colorado Oil and Gas Conservation Commission (COGCC), the drone of the usual staff reports began. However, the conversation quickly elevated to an incredulous tone as Bob Randall, the executive director for the Colorado Department of Natural Resources (DNR) which oversees the COGCC, reported what he sarcastically called the “rosy news” that the DNR had an unexpected $6.5 million deficit four months into the 2018 fiscal year. (This report can be found here starting at about 27:50 on the COGCC Dec. 11 hearing recording.)
We wanted to stand up in the small hearing room and scream, “How in the world can the COGCC go forward with permitting 84 wells in Broomfield when you have no budget to provide inspectors for them?” Apparently DNR Budget Director Bill Levine experienced a similar reaction, as he was quoted in a Boulder Weekly article as stating, “In November, we got a memo about [the] outstanding refunds, and I started screaming, almost literally, saying, ‘Oh my god, we’ve got a real problem here.’”
Yes, Director Levine, you have a budget problem. However, we have got the “real problem,” since your budget problem may threaten the very existence of citizens living next to oil and gas developments. How did this budget problem occur and what are the probable consequences for Broomfield?
Background for the COGCC Budget Crisis
Oil and gas operators in Colorado pay severance taxes on what they produce, based on both volume and commodity price. However, oil and gas operators are allowed to claim an 87½% offset (refund) on State severance taxes for local property taxes paid. With an inherent lag, there is usually a two-year delay in the filing of these refunds to the State.
In the 2016-17 fiscal year ending on June 30, the State netted only $11 million from the oil and gas industry since it already saw “$120 million dollars go out the door” in refunds of severance taxes, according to Director Randall. Director Randall said that the large amount of refunds at the end of the previous fiscal year were covered by “the general fund at the end of the legislative session.”
Yet as recently as September 2017, State budget forecasts said Colorado’s total severance tax revenue from all minerals was expected to jump significantly in fiscal 2018, to $150 million, despite only raising $11 million the previous year. Director Randall stated that the DNR had based its incorrect projections on information from the Office of State Planning and Budgeting and “legislative counsel on the legislative side.” Apparently, both offices lack proper financial accounting practices to anticipate accurate accounts payable. This could be enabled by the State communicating with municipalities about property taxes collected from oil and gas operators.
According to a quote in a Denver Business Journal article about the DNR report to the State Joint Budget Committee in early December, “If severance tax revenue does not rebound, the Department of Natural Resources may be unable to meet payroll as soon as February 2018.” This would require a special request to the legislature for extra money in January, the report said.
At the Dec. 11 meeting, we heard Commissioner Overturf ask a reasonable question if the COGCC could revisit charging operators for filing applications at the rate of $200. Director Randall replied that decision could be revisited but that it would only be part of the revenue necessary, in addition to requiring authorization by the General Assembly to spend it. We were left wondering why there was no fee charged all along, and if they had charged this reasonable fee sooner, it might have made a bigger dent.
COGCC Director Matt Lepore continued what he caustically referred to as “good news day at the commission” in reporting on the potential liability of orphan wells. Director Lepore stated that the COGCC “does not have direct meaningful economic information about operators” necessary to predict the “scope of the potential liability” of the State to cover orphan wells. He explained that the COGCC has neither the full statutory authority nor the staffing to look into operator finances to predict the number of orphan wells accurately. When pressed, he stated that the COGCC estimates that 4000 existing wells will be orphaned in the future, at a cost of about $85,000 per well to plug, reclaim and remediate each one. On average, Director Lepore stated that the amount of financial assurance recently available to the COGCC to plug and abandon each orphan well has been $7500. Doing the math, that leaves the State with an estimated potential liability of $310 million to plug orphan wells.
WHAT DOES THIS MEAN FOR THE HEALTH AND SAFETY OF BROOMFIELD RESIDENTS?
Will the Extraction drilling applications be properly reviewed by the COGCC?
Since the COGCC has had a “sharp increase” in recent months in applications and a rise in protests to 34% of all applications, Director Lepore stated at the Dec. 11 hearing that this had resulted in “a heavy workload” and the “late arrival” of packets to commissioners for their review before the hearings. The COGCC is scheduled to fill two vacant hearing officer slots, but the budget shortfall would make that unlikely. Does that mean that oil and gas operator applications will receive even less review than usual as a result of the backlog? Then the Broomfield City Staff and citizens need to be even more vigilant in reviewing the Extraction drilling applications.
Will the Colorado Department of Public Health and Environment’s (CDPHE) ability to study and report on potential health and safety risks be impacted?
According to a February 2017 Town Hall in Broomfield, the CDPHE reported it would publish and update its “Assessment of Potential Public Health Effects from Oil and Gas Operations in Colorado” in summer of 2018. Will that still be published? If the CDPHE’s work remains inconclusive as in the current report, then shouldn’t the State err on the side of safety and not permit the Broomfield wells next to our residences?
What if there were a local disaster?
If there were to be local disaster, the COGCC may not have the personnel to address it. According to the Denver Business Journal, “During incidents, like the recent home explosion in Firestone that killed two people, the COGCC spent over 10,000 hours and half a million dollars in response. It’s unclear in the current climate if such funds could be made available should a similar tragedy occur in the future.”
Shouldn’t there be more local control to protect our health and safety if the COGCC has no funding?
On Nov. 7 Ballot Question 301was passed in Broomfield, stating that “Broomfield shall condition oil and gas development permits to require oil and gas development to only occur in a manner that does not adversely impact the health, safety, and welfare of Broomfield’s residents.” The COGCC may soon approve drilling permits more than doubling the number of wells already in Broomfield and placing an unprecedented number in a dense, residential neighborhood. Given the risk factors of this industrial activity, this nearly guarantees a spill or disaster of some proportion. If the State has no funding to enforce mitigation of these risk factors, that provides even more reason to increase local control through the implementation of the new Charter Amendment to the fullest extent possible.
Will our children’s education suffer because of the COGCC deficit?
According to a DNR report to the State Joint Budget Committee in early December, the budget shortfall may result in a special request to the State legislature in early January for extra money. On Dec. 15 the COGCC filed a notice that it would launch a new rulemaking effort to raise the rate “by at least four mills in order to meet projected revenue shortfalls.”
“Even if they raise the mill levy as high as it can go under current law, it won’t make up for the COGCC operating cost shortfall. So I expect the rest will come from the general fund. That means less money for other budget items like education funding,” Rep. Mike Foote of Lafayette stated in a recent interview in the Boulder Weekly. Education is the largest portion of the State budget at 40 percent. So if you care about your children’s education, you need to pay attention to how the COGCC’s request for additional funding is handled by the State legislature in January.
It is no wonder that “Drillers Flock to Rockies as Sleepiest Shale Corner Awakens,” according to the headline in a recent Bloomberg News report. While oil and gas operator profits soar, the State agency meant to regulate them will no longer have the funding to do so.
By the way, at the Dec. 11 hearing we did not scream, “How in the world can the COGCC go forward with permitting 84 wells in Broomfield when you have no budget to provide inspectors for them?” Maybe it is time to stop being polite in the face of such absurdity.
Judy Kelly and Jean Lim