State resurrects fund that compensates communities for oil/gas impacts

This map shows all oil and gas permits in the state.
Image courtesy of the Colorado Oil and Gas Conservation Commission

The state has resumed pouring millions of dollars into a 35-year-old fund that aims to offset impacts caused by oil and gas operations and other forms of resource extraction.

The Energy/Mineral Impact Assistance Fund (EIAF), created by the Legislature in 1977, has been dormant in recent years because state officials were raiding its funding to offset budget shortfalls. It has historically been doled out to government entities like counties, cities and school districts to compensate communities for negative socioeconomic impacts caused by activities like drilling and mining.

The three-year funding hiatus, when combined with the recent expansion of oil/gas activity around the state and heightened concerns about hydraulic fracturing, or fracking, has created fierce competition for the restored EIAF grants.

“As you can imagine, the demand now is so great,” says Linda Rice, spokesperson for the Department of Local Affairs, the state agency that administers the fund.

“There’s pent-up demand,” adds Tony Hernandez, director of the department. “It’s very competitive.”

When the first round of grants recipients in three years were selected earlier this spring, the applications far exceeded the number of projects that could be funded. The state had $20 million to distribute and about $36 million in requests, according to Hernandez. The next deadline for applications is April 1, when the department will have another $20 million to hand out. A total of $75.5 million will be granted this year.

Hernandez says natural gas extraction is currently the biggest driver behind the applications his department is seeing.

He explains that the EIAF money is not intended for cleanup activities or mitigating environmental damage done by the extraction of natural resources. It’s aimed at compensating entities for the loss of the natural resource or other negative effects caused by activities like oil/gas operations, he says, citing everything from damage to roads or other infrastructure to social impacts like crime and alcohol abuse.

The EIAF is funded from the severance tax the state collects from energy/mineral operators as well as from the state’s share of royalties that companies pay ating the to Conservation addition charged pay the federal government when operating on federal land. (A percentage of the state severance tax revenue also goes to the Colorado Oil and Gas Conservation Commission, which, in addition to promoting that industry, is charged with protecting the public from health/safety impacts and cleaning up environmental messes when an oil/gas company goes belly up and leaves a well unplugged, for instance.)

Hernandez says that while sometimes an EIAF-funded project directly addresses an impact caused by resource extraction, like the replacement of damaged roads, it’s not a requirement. Between 2008 and 2010, several counties and municipalities received funds that appear to be for projects geared toward heading off negative health effects and public safety issues. Many used the money for upgrades to water drainage and treatment systems, while others applied the grants to new emergency warning and health monitoring systems. The department received proposals for upgrades to hospitals and fire stations, emergency response vehicles, hazardous material identification kits and radiology equipment.

Prowers County used its 2009 grant to buy a wind turbine.

But a government entity can also use the funds for projects seemingly unrelated to oil, gas or minerals, like a new library, school or community center, because the money is intended to compensate the community for a loss by providing an asset, Hernandez says.

Political entities applying for the grants must commit at least 25 percent of the funding for the project, and the applications are rated on seven criteria: demonstration of need, measurable outcomes, relationship to community goals, local commitment, ability to pay, readiness to go and energy/mineral impact.

While Hernandez makes the final decisions on EIAF funding requests, he is assisted by a 12-member advisory committee (seven members are appointed by the governor, while the others are directors of state departments or their designees).

Hernandez says the natural resource extraction industry is not the only business that generates so many negative impacts that the state has set aside millions of dollars a year to address the effects. He points to the gaming industry, which also warrants a separate assistance fund in his department, although that program is financed at a drastically lower level, only $4 million to $5 million a year.

In 2009, when the program was last fully funded, there were 338 grants issued, to the tune of more than $140 million.

That year, city of Longmont applied for about $1 million of that for Quail Road infrastructure improvements, but was denied. Nederland was awarded $600,000 for a water treatment plant project in 2009.