Colorado faces a $50 million annual cash shortage for water projects and will need to consider options such as new taxes to fill the gap, a state task force said in a draft report made public this week.
The shortage marks the difference between existing funding for water projects, generated through severance taxes and other sources, and the cost of projects the state has identified as necessary to make sure Colorado has enough water in coming years.
Severance taxes, derived from oil and gas and other mineral extraction, generate roughly $160 million for various water programs, but that isn’t enough to pay for everything that is needed, according to the report.
The task force, created by lawmakers last year with the passage of Senate Bill 40, is charged with finding ways to modify the severance tax revenue and to find additional ways to fund water programs. Severance tax revenues can vary widely from year-to-year and have been diverted from water programs frequently to help cover other state budget shortfalls. Since the early 2000s, more than $400 million has been diverted from water programs, according to the report.
The group must complete its final report and list of recommendations by July 15, 2026, at which point lawmakers can decide what new funding sources could be pursued, according to Nate Pearson, assistant director for water policy at the Colorado Department of Natural Resources.
“The questions we’ve been asked to answer are complicated,” Pearson said at a task force meeting Tuesday.
Colorado last saw a major new infusion of cash for water programs in 2020, after voters approved an online sports betting tax in 2019. That program has grown significantly, generating $23.8 million for water projects during the state’s most recent fiscal year, which ended June 30, 2025. Though revenue from the new tax continues to grow, additional cash is needed, according to the report.
One option would be to create a long-term trust fund that would rely on severance taxes for initial funding and then which could grow, protected from being used for other state budget purposes. New Mexico and Wyoming have such trust funds in place.
Colorado could also consider asking voters to approve new sales taxes or a bottle tax on beverages, the report said.
Eric Bergman, director of the division of local government at the Colorado Department of Local Affairs, said it was important to get the message to the public that more funding and more stable funding for water projects is critical.
“The infrastructure crisis is terrifying. It’s not sexy, but it is a crisis and it’s happening in small communities that don’t have two nickels to rub together,” Bergman said.
Print