The April 25 Colorado Supreme Court decision that found British Petroleum overpaid the state millions in severance taxes sparked whirlwind activity at the Capitol in the final days of the legislative session.

Analysts fear the ruling might put the state on the hook for hundreds of millions of dollars in refunds to oil and gas companies that should have been granted deductions for indirect costs tied to production.

Lawmakers and lobbyists are scrambling to figure out how best to prepare the state to make good on any unpaid deductions and some lawmakers to seek to eliminate the deduction for future years.

Budget committee members Sens. Kent Lambert, R-Colorado Springs, and Pat Steadman, D-Denver, introduced SB 218, which would set aside more than $70 million from three severance tax funds to address the issue.

Rep. KC Becker, D-Boulder, and Speaker of the House Dickey Lee Hullinghorst, D-Gunbarrel, introduced HB 1468, which aimed to eliminate the exemptions at the center of the case. The bill passed out of committee Monday afternoon, but Democrats killed it after Republicans filibustered the bill for hours on the House floor Monday night.

Lambert told The Colorado Statesman on Monday that he sees SB 218 as an “85-percent solution” that addresses money the state would have to pay during 2016-2017 fiscal year.

“It’s multiyear, so we’re looking at mitigating a one-time (payment) that’s coming due on several years of backfill from British Petroleum,” Lambert said. “The BP bill was in the range of about $2 million. That’s not the problem. The problem is any other companies (that might be owed a refund). We really don’t have all the information we need to make an informed decision, so we’re making an educated guess — or as an informed decision as we can make. This just came up and there no instructions (from the court, yet).”

Representatives from Colorado Counties, Inc., and the Colorado Municipal League expressed concern that more than $40 million of the severance tax included in the Lambert and Steadman bill would come from local governments.

“I’m left wondering what we did to end up on the wrong end of this whole business,” said Kevin Bommer, deputy director for the group. “I expect the industry to work with the local governments where they operate to determine whether or not impacts are being sufficiently mitigated. If that means looking at our overall system of deductions and credits and all of that, then that’s something we should do. Not because we have a gun to our head, but because it’s the right thing to do.”

But the legislative session ends Wednesday, so SB 218 is moving through the Capitol at a lightning clip. It was introduced on Monday, approved unanimously by the Senate Appropriations committee and an hour later passed in the chamber on second reading. It passed on third reading Tuesday with only Sens. Morgan Carroll, D-Aurora, and Andy Kerr, D-Lakewood, voting against the bill.

The owed tax refunds might be large enough that they would “wipe out the entire severance tax revenue stream,” Steadman said during Senate floor debate Monday afternoon. “That’s why we’re authorizing the use of general funds. That’s why we’re also with this bill restricting the spending of certain severance tax funded programs for the current and 16-17 fiscal year until we see how many of these refunds come in.”

The House bill seeking to overturn the oil and gas deductions never had much chance of passing into law. Pro-drilling Republicans control the Senate and Gov. John Hickenlooper is a former oil industry geologist who has taken heat on the left for acting as a champion for extraction. Any bill that would aim, even indirectly, to raise taxes on oil and gas companies in Colorado would need more than wide public support, long lobbying time and some luck to pass in the Legislature and be signed by the governor.   

Before they killed the bill, Democrats painted HB 1468 as a way to close a tax loophole, a narrative Republicans essentially laughed off. Becker said in committee Monday that the bill would right the tax code upended by the Supreme Court ruling.

Rep. Cole Wist, R-Centennial, said the bill in fact would take the state back to the improper reading of the tax code set right by the court.

“We (would be) returning the law to what we thought it was, but a unanimous Supreme Court ruled that wasn’t correct,” Wist said.

This piece has been updated to reflect late-night Monday and Tuesday developments.

— ramsey@coloradostatesman.com