Gov. Brown summarily rejected the notion of a per-barrel tax on California oil as it comes from the ground, a move that sharply limits the political options of the tax’s backers who hoped to get a bill through the Legislature to raise perhaps $2 billion annually.
“I don’t think this is the year for new taxes,” the Democratic governor said after releasing the proposed 2014-15 state budget. “When I went up and down the state campaigning for Proposition 30, I said it was temporary and it is going to be temporary. I just think we need everything we can to live within our means before going back again to try and get more taxes.” Gov. Brown’s Proposition 30, approved by voters in November 2012, temporarily raised sales and income taxes to help balance the budget.
Brown’s comments drew support from the petroleum industry and raised questions about the chances of an oil severance tax making the ballot this year. But supporters of the levy were pressing ahead.
Tom Steyer, a wealthy hedge-fund founder and environmentalist, announced last month that he would seek an oil severance tax this year in the form of a bill approved in the Legislature, which has Democratic two-thirds majorities in each house. The measure would require two-thirds votes on the floors, then the governor’s signature.
Steyer has a track record in California political circles: He backed Proposition 39 in 2012, which closed a $1 billion corporate tax loophole and sailed through with little opposition after he brokered an agreement with rival interests. Those negotiating talents may be put again to the test: He has to persuade the suspicious governor to sign the bill and convince enough lawmakers to move the measure out of the Senate and Assembly. Absent that, he can try the ballot box in the form of a constitutional amendment, which requires two-thirds votes in the Legislature — but not the governor’s signature — to go on the ballot. Another option: An initiative that qualifies for the ballot through signature gathering. Placing the severance tax on the ballot, whether through an amendment or an initiative, is a politically daunting prospect — and one that supporters hoped to avoid by going through the Legislature and governor.
“The issue here is not more taxes—the issue here is who is paying their fair share. We need to look for ways to reduce the tax burden on hard-strapped Californians and we can do that by making sure those oil companies—who are reaping billions by exploiting resources that belong to all of California—are treated the way they are treated in almost all the other states in our union,” Steyer said in a written statement released by his office.
“There is no economic justification for continuing to be the only major oil-producing state in America without a statewide oil extraction fee,” he added.
Going to the Legislature for a bill as opposed to going to the ballot for voter approval is a strategic departure from the last major push for an oil severance tax. That was a levy of 1.5 percent to 6 percent in Proposition 87, which was rejected by voters following a bruising, costly campaign. Of some $157 million spent, a record $49.5 million came from one person, Hollywood producer Steve Bing. Much of the $100 million-plus balance came from the industry and its allies. The measure was defeated by more than 773,000 votes.
“I certainly agree that there shouldn’t be any general tax increase, but a tax that hits only oil companies might be called an exception, when you see that California is the only oil-producing state that does not tax companies on oil taken from the ground, and if it was done right and the money put into the right places.” — Bill Magavern, Coalition for Clean Air
In a Dec. 15 opinion piece in the San Francisco Chronicle, Steyer wrote that “even after accounting for property, income and corporate taxes, the combined revenue collected in California is $4.22 per barrel,” he wrote. “By comparison, Texas … charges oil producers a tax rate of 4.6 percent and royalties of 28 percent, and uses the revenues to benefit public education and other services. That amounts to $14.40 per barrel, more than three times what California charges for the privilege of removing its oil from the ground.”
Others were not so supportive.
“We appreciate the clarity the Governor has brought to this issue. California already imposes a heavy tax burden on oil and natural gas production through a variety of state and local taxes. Adding to that tax burden is not in the best interests of the state’s energy security or consumers,” said Tupper Hull, a spokesperson for the Western States Petroleum Association.
As envisioned, the Steyer-backed proposal would levy a 9.9 percent per-barrel tax on oil, raising between $1.5 billion and $2 billion annually – a figure that fluctuates depending on the cost of crude oil in the marketplace.
Others also were supportive of the oil severance tax.
“I certainly agree that there shouldn’t be any general tax increase, but a tax that hits only oil companies might be called an exception, when you see that California is the only oil-producing state that does not tax companies on oil taken from the ground, and if it was done right and the money put into the right places,” said Bill Magavern of the Coalition for Clean Air.
At least two other ballot initiatives seeking an oil severance tax on the November 2014 ballot have been proposed, but both failed to gain traction. number of measures have been introduced in the Legislature over the past decade but either failed to emerge or were approved and then vetoed by governor. In the previous election cycle, 2011-12, at least four oil severance tax initiatives were proposed, one as high as 25 percent.
Ed’s Note: Updates 4th graf to include option of constitutional amendment, which doesn’t require governor’s signature, and adds attribution, 14th graf.