Walter (Buz) Koelbel succeeded his father as President of Koelbel and Company, one of the longest continually operating real estate development companies in Colorado.  Additionally, the Koelbel’s have distinguished themselves as on of the state’s most generous philanthropists and best citizens.   The following July 18, 2008 letter was sent to business associates and colleagues of Buz.  It is but one example of nearly a year’s worth of research and communications on the general subject of Colorado’s business environment and the critical nature of the energy industry to our state’s vitality.   The letter is published in its entirety with permission from the author. 

Over the past several weeks, I have had the opportunity to participate in some small dialogue sessions with the Governor and Harris Sherman to discuss the rulemaking and severance tax issues.  I have come to a variety of conclusions, but I believe the following are the most important. 

• The Governor and administration are in total and complete denial as to how free markets work. 
• They are in total denial as to how portable the finite quantities of risk capital are for the energy companies. 
• They are in total denial as to the finite quantity of drilling rigs and how portable they are to find the most cost-effective place to drill, and, once gone, will likely not come back. 
• They are in total denial that 43% of our gorgeous and pristine state is already permanently protected, offering great resource value to both our residents and the wildlife.  
• They are in total denial that wildlife adapts to changes to its environs (please see two shots of ANWR and one with a moose at our Rendezvous community in Winter Park). 
• They are in total denial that we now exist in a competitive global and national economy, and, if you don’t compete, you lose.
• The consequences of these denials can ultimately evolve into the most devastating and negative adverse effects on our state’s revenues that we have ever experienced.  I believe this cavalier attitude is playing Russian Roulette with the viable future of our state, dictating the need for an enormous increase in future taxes and that further deleterious effect it would have.

In both sessions, the Governor has stated with great pride his economic development efforts in recent months to both Japan and Spain.  This is attempting to attract new industries to Colorado, generally with people who are already working in other locations.  This is a necessary and commendable effort.  However, it pales in comparison to the job-protection/creation, economic development opportunities, and revenue- generation that exist within our state if properly nurturing the energy industry.
 
It is commendable and enormously responsible to initiate an aggressive pursuit of all measures of conservation and alternative energy.  It is, however, totally irresponsible to deny that fossil fuels are the foundation and centerpiece for the freedoms and prosperity we have in this country, and will continue to do so for the next 20-30 years.   I have had numerous conversations with CEO’s of the top energy companies in Colorado.  I can give you an absolute guaranty that there will be meaningful job losses with the new rules and severance tax when energy companies simply do mathematical calculations of their return on investment in comparative geographic locations. 
 
Our own companies recently went through a workforce reduction, and I can assure you there is nothing more emotionally excruciating than when you personally watch the lives of working families being changed due to adverse economic conditions.  I firmly believe this scenario will play out thousands of times over the next few years as the Governor and COGCC pursue their commitment to the environment and wildlife at the expense of working families and state revenues.
 
We hear on a regular basis how fiscally-strapped our state is and the multi-billion dollar shortfall that will occur for the key economic sectors for our future, including transportation and higher education.  We also hear that this continues to exacerbate when Tabor and Amendment 23 collide with the increasing pot of mandates and entitlements, with less and less for core services, infrastructure, and higher education.  This is most tragically illustrated by the current projection of available funds in the S.B.-1 transportation pot.  This is the construction pot for special projects throughout the state.  Due to significantly reduced revenues and the need to prioritize expenditures in operations and road repair and maintenance, actual available construction dollars could drop as much as 70-80%.  The consequential effect on private sector jobs in design, engineering, and construction will be substantial.
 
Reflect on the following cascade flood of negative unintended (or intended) revenue consequences of not taking full advantage of the single most robust industry in the world and the most identifiable economic development opportunity that will ever exist.

• Fewer wells and less drilling results in significantly less severance taxes to the state.
• Results in significantly less property taxes to local counties and jurisdictions at an 87.5% assessment rate (3.0X commercial and 11.5X residential).
• Results in fewer jobs than we have now and far less jobs than we could have, which results in:

Fewer income taxes for the state.

Less property taxes for the state if they own homes or rent apartments.

Less retail sales tax base for local jurisdiction since there is less people, less income, and less shopping.

Less need for homes, apartments, offices, industrial, and retail, which equates to less building material use tax during construction and property tax base in the future for local jurisdictions, etc.

This collective reduction in need for all real estate, all affects in one way or another the 310,000 jobs in Colorado associated with the real estate industry and the downstream effect of jobs, income taxes, etc. from the largest collective industry in the state.

Less automobile sales and the resulting taxes, registration fees, and license fees, etc. 

Less need for service-providers to the oil fields.

Less need for service-providers to the consuming public, such as restaurants and fast food, beauty parlors, store clerks, accountants, landscape maintenance, IT technicians, etc.

Obviously, this cascade effect would go on, and on, and on. I personally believe this is not the arena where you play Russian roulette and assume there will be no consequential revenue and job devastation to this state.  This is the game the Governor and his administration are playing.  The unfortunate part of this scenario is that you simply can’t calculate the negative since you will never know what was forever lost that you could have had.