Oil severance tax at center stage

It has been killed repeatedly in the state Legislature or at the ballot box, but the backers of an oil severance tax hope 2014 is the year to get it done.

History is not on their side.

A succession of Assembly speakers, lawmakers, environmentalists, tax activists, even students, have unsuccessfully sought a statewide tax on California oil as it comes out of the ground. California, fourth in the nation in oil production, is the only one of 10 oil-producing states that does not have such a tax, although it collects other levies, fees and royalties. Support has come almost entirely from Democrats.

The latest attempt by Sen. Noreen Evans, D-Santa Rosa, would establish a 9.5 percent severance tax on oil and natural gas and raise perhaps $2 billion annually, with half the money going to public universities, community colleges and the other half divided equally between parks and social services. Her bill, SB 1017, needs a two-thirds vote in the Legislature and the governor’s signature to become law.

But the obstacles are daunting.

“I don’t think this is the year for new taxes,” Gov. Jerry Brown, up for re-election this year, said on Jan. 9 in unveiling the state budget. “When I went up and down the state campaigning for Proposition 30 (a hike in sales and income taxes), I said it was temporary and it’s going to be temporary.”

During his earlier stint as governor, Brown and others favored an oil severance tax to raise money for bus and rail projects, but voters in 1980 rejected it handily as Proposition 11. Twelve years later, voters turned down Proposition 167, which would have imposed a 3 percent oil severance tax, among other levies.

Another effort in 2006, Proposition 87, was rejected by voters following one of the costliest campaigns in the state’s history, in which both sides spent a total of more than $154 million, with about $94 million from the petroleum industry and its allies and $60 million from the proponents. The latter included Hollywood producer Steve Bing, who spent nearly $50 million of his own money in the fruitless effort.

The petroleum industry in California says it already pays perhaps $5.6 billion annually in a variety state and local taxes — a figure that includes levies on refineries, pipelines, gas stations and jet fuel, among other sources…

Bills have been carried by legislative leaders — such as former Speakers Antonio Villaraigosa and Fabian Nunez — and by rank-and-file lawmakers. The bills were defeated or stalled in committees, including Evans’ bill last year, SB 241. At least two bills in recent years — one authored by Evans — emerged from the Legislature. One made it to then-Gov. Arnold Schwarzenegger, a Republican, who supported an oil severance tax in hopes of getting money to help balance the budget and then vetoed it in 2009. The other was retrieved from his desk.

The petroleum industry in California says it already pays perhaps $5.6 billion annually in a variety state and local taxes — a figure that includes levies on refineries, pipelines, gas stations and jet fuel, among other sources — and supports an annual payroll of $39 billion for some 332,000 workers.

Advocates of an oil severance tax, such as Lenny Goldberg of the California Tax Reform Association, say the core issue is the level of extraction taxes per-barrel. In California, that comes to $4.22 per barrel, a figure that includes “corporate, property, sales and other taxes and fees,” according to data compiled by the Franchise Tax Board and the state Board of Equalization.

“An apples-to-apples comparison shows that Texas currently collects $14.40 per barrel,” Goldberg said. noting that if California’s crude-oil taxes were at the same level as those of Texas, California would collect about $2.8 billion annually. “It’s ridiculous that California doesn’t have an oil severance tax.”

Even if lawmakers approve the bill and the governor signs it, the petroleum industry could finance a referendum campaign to overturn it at the ballot box.

Another supporter is Tom Steyer, a billionaire hedge-fund founder, who took a lead role earlier in pushing for an oil severance tax. He supports Evans’ latest bill.

As the year began, passage of an oil severance tax appeared to depend on wooing a handful of Democratic swing votes in oil-producing areas to attain a two-thirds majority.

But in the 40-member Senate, that fragile calculation already is compromised. Two Democratic senators are on leave and likely won’t be voting. Sen. Rod Wright, D-Inglewood was recently convicted of eight felony counts of perjury and voter fraud, and Sen. Ron Calderon, D-Montebello, has been indicted on 24 federal counts, including bribery and money laundering.

In the Senate, that leaves 26 Democrats, one shy of the two-thirds majority. Will any Republicans support the bill?

“Nope,” said Beth Miller, a veteran GOP strategist and a spokeswoman for Californians Against Higher Taxes, which includes oil producers and business interests that oppose an oil severance tax.

“The governor has already indicated that he is not going to sign any new taxes in an election year, where many incumbents are in close races, especially those members in swing districts,” she added. “We’re sitting on a $7 billion surplus, so it’s not time to increase taxes that will directly impact household budgets.”

Even if lawmakers approve the bill and the governor signs it, the petroleum industry could finance a referendum campaign to overturn it at the ballot box. But before it gets that far, as the measure moves through the Legislature, the bill is all but certain to face intense lobbying from oil interests, similar to the industry’s past efforts on legislation it opposes, including Evans’ bills.

The top-billing lobbying firm in Sacramento is KP Public Affairs — it earned $6.2 million last year — and KP’s clients include the Western States Petroleum Association, which spent $4.67 million on lobbying during 2013, the most of any lobbyist employer in Sacramento.

Evans, who successfully headed the effort to get the earlier bill, AB 2, to Schwarzenegger’s desk, realizes that it is an uphill battle.

“We knew it was hard fight from the beginning,” said Teala Schaff, a spokeswoman for Evans. The petroleum industry is “one of the most powerful interests in the state but that’s not a reason not to push the policy forward.”

Goldberg, a proponent of Evans’ bill and a long-time supporter of an oil severance tax, believes the Democratic two-thirds majority ultimately will be restored, lending some hope to the proposal’s prospects.

“There’s always next year,” he said.
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Ed’s Note:  Corrects bill title to “SB” in 4th graf,  instead  of  “AB.”