State lawmakers propose new oil drilling tax

1:27 PM, Feb 12, 2013   |    comments
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A debate that's been raging now for several years in California is headed to the Legislature, as two Democratic lawmakers introduce legislation to impose an oil extraction tax, with the proceeds earmarked for higher education and state parks.

SB 241 by state Sen. Noreen Evans, D-Santa Rosa, and state Sen. Mark Leno, D-San Francisco, brings front and center a long simmering discussion about whether California should impose a tax on oil production similar to other states.

"California is the largest -- and only -- oil producing state in the nation that does not tax its vast oil resources," said Evans in a written statement.

The proposal, a 9.9 percent tax on oil drilled both on land and off the California coast, could generate some $2 billion a year in new state revenue (depending, of course, on the price of a barrel of oil and on in-state oil production).  SB 241 says the money would be earmarked for all three branches of higher education -- the University of California, the California State University, and community colleges -- as well as state parks.  Most of the money (93 percent, according to the legislative authors) would go to higher ed.

But the bill faces some very tough hurdles, not the least of which is the need for a supermajority vote in each house of the Legislature.  It's true that Democrats now exclusively hold that power, and thus the power to tax.  But some Democrats in the statehouse are less likely to support a tax than others, and even then the Legislature's two leaders have insisted that higher taxes are not going to be on their immediate agenda.

The tax would also have to be blessed by Gov. Jerry Brown, who so far has insisted that any "new tax" must be approved by a vote of the people -- in the way voters approved Proposition 30 last fall.

An oil severance tax is a long-running sticky wicket of a debate. It remains wildly popular among liberal activists in California, but is a rallying cry among conservatives of being yet another economic burden.  While it's true that other oil producing states already have extraction taxes, it's also true that some oil production taxes in California are not imposed elsewhere -- including property taxes that boost the coffers of oil-producing counties.

Former Gov. Arnold Schwarzenegger also briefly floated the idea of an oil severance tax in 2008 during the economic collapse.  There have also been a number of proposed ballot initiatives floated on the idea in the last few years, though none ever had enough political and financial backing to qualify.

This proposal will no doubt get a lot of attention in the coming weeks, and will again spark stories about the Democratic dominance of the Capitol... and whether it can actually be used for broad, and sometimes controversial, actions that failed to gain sufficient support in years past.

The bill also comes at an interesting time, as California lawmakers and regulators are engaging in a complex debate over the future of oil production in California through the use of hydraulic fracking, and news that the Golden State has a large, untapped reserve of oil shale that stretches some 1,750 miles from the southern to central part of the state.

Update: A savvy Capitol watcher wrote in to point out that an oil severance tax made its way onto the state ballot in 2006 as part of the clean energy initiative Proposition 87, and was defeated. It's also noted that some states do, in fact, have a property tax that applies to oil like it does in California.  But not all do, which means you can expect to hear that point brought up during legislative debate. --JM


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