Energy Taxes' Faustian Bargain Hits Colorado

A few weeks back, I wrote a San Francisco Chronicle article about the danger of governments relying too much on fossil fuel taxes as a sustainable and consistent revenue source. Now, that danger is hitting us squarely in the face here in Colorado:

State severance taxes on oil and natural-gas production will plunge 84 percent, to $40 million, in fiscal year 2010, which begins July 1.

That compares with $250 million expected this fiscal year, according to a forecast by economists at the nonpartisan Colorado Legislative Council.

A sharp drop in the price of oil and natural gas this year is largely to blame for the expected precipitous decline in severance taxes.

Of course, this isn't a reason to eliminate or curtail severance/energy taxes - but it is a reason to put the revenues into trust funds (rather than yearly appropriations), and to tap only those trust funds' interest, rather than their principal. Why? Because when programs rely on year-to-year energy tax receipts as their primary source of funding, that makes program funding as inconsistent as energy prices.