Direct Distribution Federal Mineral Lease: Frequently Asked Questions

The Direct Distribution of Federal Mineral Lease proceeds and State Severance Tax revenues is mandated by Colorado statute and conducted by the Department of Local Affairs (DOLA). Two separate statutes allocate state proceeds generated from the production of mineral resources in Colorado to local governments. Portions of the distribution are allocated based on formulaic calculations and result
in the “Direct Distribution” to Colorado counties, municipalities, and school districts.

C.R.S. Sections 39-29-110(1)(c); 34-63-102(5.4)(c)

County and Municipal governments located within counties that have resident energy industry employees, mining and well permits, or mineral production, receive individual distributions from both Federal Mineral Lease proceeds and State Severance Tax revenues.

Counties may elect to create a Federal Mineral Lease (FML) District to receive their Direct Distribution payment instead. A separate FAQ is available for FML Districts.

School Districts located in counties with resident energy industry employees or mineral production from federal lands may receive distributions from Colorado’s Federal Mineral Lease proceeds.

From the DOLA’s Federal Mineral Lease and State Severance Tax Direct Distribution Program Guidelines

State statute directs DOLA to distribute by August 31st annually.

C.R.S. Sections 39-29-110(1)(c)(V); 34-63-1025.4(c)(I)

Counties and Municipalities generally may use the Severance Direct Distribution for the purposes of capital expenses and general operating expenses and Federal Mineral Lease Direct Distributions for planning, construction, and maintenance of public facilities and for public services.

C.R.S. Section 39-29-110(1)(c)(V); 30 USC Section 181

The formulas for the Direct Distribution are complex. For an illustration of the formulas and a presentation of the “flow” of funds, please see DOLA’s Direct Distribution website.

Generally described, the factors used in the distribution are measures of resident energy industry employees, mining and well permits, amounts of mineral production, population, and miles of road. For more details please see the Direct Distribution website.

DOLA does not know what your county, municipality, or school district is going to receive. We are receiving and processing the data used for the factors in July and August before the August 31st distribution. In addition, because the Federal Mineral Lease proceeds and State Severance Tax revenues to be distributed are for the State’s fiscal year, the accounting end-of-year statements determine the
dollars to be distributed and the accounting statements are not made final until approximately the 2nd week of August. There is some information from last year on the Direct Distribution website that may help you estimate.

DOLA provides 5 years of trend data for some of the factors used for the Direct Distribution found on the Direct Distribution website. However, because of the complexity and variability of the data used for the factors, budgeting for these revenues is expected to be difficult.

DOLA will provide the factor information on the Direct Distribution website when the funds are distributed at the end of August. Past data used for prior distributions are also available.

Energy industry companies considered “reporting parties” under state statute are required to annually report information regarding the residence and counts of eligible Colorado employees. Reporting parties may report any qualifying subcontracting employees but are required to submit subcontractor reports at the same time as their report. Each subcontractor report shall be completed in the same manner as the reporting party’s report is to be completed.

C.R.S. Section 39-29-110(1)(d); 34-63-102(5.4)(c)(I)(B)

The counts of the qualifying employees reported on the CERR are used as one of the factors used to calculate the Direct Distribution to impacted communities and are therefore important to the counties and municipalities in which these employees reside.

The Reporting Party (company) information is public. The employee information is not public except in aggregate totals listed by local government, not by Reporting Party.

Reporting parties of crude oil, natural gas or oil and gas operations should report their employees and contracted employees who were employed for at least 500 hours of work in any six months in Colorado during the calendar year of the report year and who also worked for purposes of extraction at the site in Colorado. Extraction may be considered to include gathering to the point of first sale but not distribution.

C.R.S. 39-29-110(1)(d)(II)(B)

As cited in statute, residence is the “actual residence as reported by the employee.” DOLA understands this is the physical address as reported by the employee while working for the Reporting Party.

C.R.S. 39-29-110(1)(d)(I)(B)

Temporary living quarters are accepted if the reporting party reports that address as the employee’s address.

from DOLA’s instructions for the CERR form.

Once a report has been accepted by DOLA, you will need to call DOLA for specific instructions.

from DOLA’s instructions for the CERR form

P.O. Boxes are discouraged. If you can not obtain an address, submit the P.O. Box in the address field of the report, HOWEVER, the report must still identify a municipality or county of residence for the employee. If only a PO Box is available, the CERR reporting system will allow for the entry. However, a review by the Executive Director’s CERR Committee will be required to either accept or exclude each from the distribution counts for the previous calendar year.

from DOLA’s instructions for the CERR form

The employee address may be reported as Deemed Confidential; however, the report must still identify a municipality or county of residence for the employee. If reporting a Deemed Confidential address, entry will be allowed. However, the employee will be reviewed by the CERR Committee for recommendation for inclusion in the employee counts.

If a community is not an incorporated municipality then the address is attributed to the county of residence. Some unincorporated places are listed in the reporting form and if selected will be assigned to the appropriate county of residence.

A current map or property tax record showing the address is within the municipal limits or located in unincorporated county territory may be used. In addition, a letter from both the municipality and the county agreeing to the address location may be used.