Colorado lawmakers have options for severance-tax water funding, but no chosen fix yet
A draft Colorado Water Center report outlined eight ways to stabilize water and local-government funding now tied to volatile severance taxes. As of a June 25 legislative hearing, lawmakers had not backed a single plan or set a timetable for one.
Colorado lawmakers have a study process and a near-term deadline for reworking water and local-government funding tied to severance taxes, but a June 25 hearing of the Water Resources and Agriculture Review Committee did not produce a chosen policy fix, a sponsor for a new bill or a timetable for moving one.
The clearest next step remains the one lawmakers created in Senate Bill 25-040, which set up the Future of Severance Taxes and Water Funding Task Force and requires a final Colorado Water Center report by July 15, 2026.
At the hearing, Colorado Water Center researchers described their draft as a "sneak preview" of that report. They said the study is aimed at finding alternatives that can more reliably support state water programs and local-government funding, reduce future transfers to the general fund and address money already diverted there.
Researchers told lawmakers severance-tax revenue has been highly volatile over the last two decades, with some years turning net negative after tax credits. They said the money supports Department of Local Affairs grants and county distributions, Colorado Water Conservation Board water loans, and Department of Natural Resources operations, while repeated sweeps to the general fund have made the system less predictable.
The Water Center said it narrowed more than 20 ideas from stakeholder interviews to eight options in three broad categories:
- backfilling money lost to past sweeps,
- preventing future sweeps or adding stronger structural protections, and
- creating new or diversified funding sources.
Options described at the hearing included a revolving loan fund, a school-finance-style stabilization rule, constitutional dedication of revenue, optional utility-bill programs, targeted taxes on water-related industries, fees on sectors such as AI data centers or expanded gambling, and renewable-energy production fees.
The public record reviewed for this story does not show lawmakers or state agencies coalescing around any one of those ideas. SB 25-040 was sponsored by Sens. Dylan Roberts and Cleave Simpson and Reps. Karen McCormick and Matthew Martinez, and Sen. Roberts said at the hearing the draft report was what he and the other sponsors had been looking for. But that reflects support for the study process, not a specific replacement plan.
Public materials reviewed for this story did not show the committee, the Department of Natural Resources, the Colorado Water Conservation Board or the Department of Local Affairs endorsing one option before the final report is due.