With a critical source of funding for Colorado’s water projects facing an uncertain future, lawmakers want to task a group of experts with providing recommendations for solutions. 

Severance taxes, which are imposed on nonrenewable energy extraction like oil drilling and coal mining, have long served as a key source of revenue for water-related initiatives. The funding stream, however, is also one of the state’s most volatile due to extreme swings in the energy market. 

Over the past two decades, tax revenue has gone from skyrocketing one year to plummeting the next. The issue has compounded in recent years due to state budget writers siphoning some of the money to help balance the state’s spending plan. 

In response, a bipartisan group of lawmakers is advancing legislation that would commission a study on the future of severance tax revenue and ways the state can better fund its water needs. 

Senate Bill 40 would create a nine-member task force within the Department of Natural Resources to find answers to the question. The measure is sponsored by Sens. Dylan Roberts, D-Frisco, and Cleave Simpson, R-Alamosa, as well as Reps. Karen McCormick, D-Longmont, and Matthew Martinez, D-Monte Vista. 

Roberts said the group will consider any and all ideas, not just around severance taxes, for how to make Colorado’s water funding more stable. The task force would then submit a final report in July 2026 to help create potential bills or recommendations for the Joint Budget Committee in future legislative sessions. 

“Rather than making significant changes unilaterally as a legislature, we want this task force to get together and have really hard decisions, consider all types of potential proposals, and come back to us next year with some solid ideas,” Roberts said. 

Severance taxes remain a chief funding source for the Colorado Water Conservation Board, which implements water policy and projects on a statewide level. 

Over the past decade, around $412 million in tax revenue has gone to the conservation board, though about $57 million has been redirected to the state’s general fund, which is the legislature’s discretionary spending account. 

“Which means less money going to water,” Roberts said. 

Colorado Water Conservation Board Spokesperson Katie Weeman said in an email that while severance tax revenue hasn’t yet declined on average, “long-term expectations are that severance tax revenue will decline into the future.”

Weeman said the conservation board and natural resources department see SB 40 as an important measure to ensure programs that currently rely on severance tax money can maintain funding well into the future. 

“Almost 6 million Coloradans, as well as 18 other states and Mexico, depend on water from our major river basins,” Weeman said. “Population growth, long-term warming, major wildfires, aridification, and multiyear droughts are straining our water system like never before. As these trends continue, the availability and quality of Colorado’s water supply is at risk.”

Roberts said the state has made progress to better fund its water needs, with voters approving a ballot measure in 2019 that imposed a tax on sports betting to help fund water projects. 

“My first couple of years in the legislature, before sports betting went into effect, we were lucky to get $5 million, $10 million a year (for water projects),” Roberts said. 

Last November, voters passed another measure that allows the state to keep excess sports betting tax revenue that would otherwise have been refunded under the Taxpayer’s Bill of Rights. Revenue had previously been capped at $29 million, and the state is expected to take in more than $30 million this year.

Another measure, House Bill 1311, would remove a tax exemption for revenue generated from free sports bets, further bolstering funding for water initiatives. 

Still, lawmakers have continued to fund water projects below the $100 million a year mark that the state’s water plan calls for. This year, the state’s spending package for water projects allocates about $54 million. 

Roberts said the push to find more funding solutions also takes on new urgency as President Donald Trump casts uncertainty over federal spending. He pointed to the Shoshone hydroelectric plan in Glenwood Canyon, the source of a historic water rights deal, as an example. 

Up to $40 million in federal funding that had been awarded to the Colorado River District under former President Joe Biden to help purchase the plant’s water rights along the Colorado River held by Xcel Energy is now in limbo. The funds are part of a nearly $100 million offer to clinch the deal, of which the state issued $20 million in its water projects bill last year. 

“Right now, we can’t count on federal partnership,” Roberts said. “Right now, it’s up to us.” 

SB 40 passed the Senate unanimously last week and is now being considered in the House.