SACRAMENTO — As oil companies continue to reap record profits amid strained state revenues, a pair of Democratic lawmakers are hoping to tap into their deep pockets by installing an oil severance tax that could relieve growing pressures to cut more state services.
Assemblyman Pedro Nava, D-Long Beach, introduced a bill Monday called the Fair Share Act, that would impose a 10 percent oil severance fee on extractions from California wells to bring in $1.5 billion to the state's coffers.
A similar bill that has already cleared one committee, by Assemblyman Alberto Torrico, D-Fremont, would impose a 9.9 percent fee, but would earmark the revenues to higher education funding.
The attempt to sock it to oil companies is nothing new: lawmakers tried a couple times earlier this year — even with the blessing of Gov. Arnold Schwarzenegger at one point. But Republican lawmakers, who would need to provide three votes in each legislative chamber to reach the two-thirds vote threshold for raising taxes, have refused to consider it.
Nava said that since the impact of this year's budget cuts are just now being felt — with cuts in classrooms across the state, and in services ranging from nursing care to parks — Republican lawmakers will begin to hear more from their constituents. They will consider Nava's bill in a newly ordered special session on tax reform.
"Oil companies are getting a free ride," said Nava, surrounded
California is the only major oil-producing state — including Texas, Louisiana, Alaska, Wyoming and Oklahoma, the states that produce 80 percent of the nation's oil supply — that does not charge a severance tax.
But, a taxpayer group said that oil companies are already paying taxes for producing oil. They pay income tax on their profits, a regulatory fee of 7 cents a barrel that goes to the Department of Conservation; they pay an annual personal property tax on equipment such as oil drills, extraction equipment, pipelines. They also pay a property tax on the value of underground oil and a sales tax when oil producers purchase equipment.
"If you add an oil severance tax, that would decrease the value of oil underground because there's less value for the oil that's taxed," said David Kline, spokesman for the California Taxpayer Association. "And that would mean millions in lost property taxes for local governments."
Nava's $1.5 billion figure is based on a $70 cost per barrel of oil, just under the cost of a barrel of oil in California, which is currently at $76.
Torrico's bill, AB656, is awaiting action in the Assembly Revenue & Taxation committee. It seeks a 9.9 percent extraction fee and would direct all revenues into higher education. He's in the process of collecting 100,000 signatures from students calling for the tax on eight college campuses and expects to present it to the Legislature in January.
"For the first time in history, we'll be spending more money on prisons than higher education," Torrico said. "We're cutting education, raising fees and turning away 30,000 applicants from California State Universities. This says to oil companies that they've had a free ride in California for a long time while we're having state garage sales."
Nava's bill would forbid oil companies from raising gas prices to make up for the losses and requires the Board of Equalization to analyze any price increase at the pump to make sure they are based on other costs. If not, the state's attorney general would be empowered to take action, Nava said.
"There won't be any justification for increasing the price of gas because if you take every drop of California crude, it's seven-tenths of 1 percent of the entire world market," Nava said. "The price of gas has nothing to do with refineries or supplies. It's primarily set by future's traders."
The Securities and Exchange Commission is working on rules and regulations to restrict future's traders from artificially inflating the cost of gas.
The state Controller has estimated that state revenues will be down by another $1 billion by next year, and concern is building among lawmakers that they will have to add to the $60 billion they have sliced out of state spending throughout the past two years.
Reach Steven Harmon at 916-441-2101.