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Opinion: Time for a severance tax in California: Let’s do what Texas and Alaska do

California stands alone in a way that is difficult to fathom, especially in this time of great fiscal need.  California is the third largest oil producing state and yet it is the only “oil” state that does not charge oil producers a “severance tax” for the extraction of a resource that belongs to the people of California. We need to do what Louisiana, Texas and Alaska do:  charge a severance tax on each barrel of oil extracted from our state lands and waters.

We do not need to open up our coast to new offshore oil drilling.  The oil well blowout in Louisiana has revealed, in case we hadn’t noticed, that oil drilling is an inherently dirty business, that our federal regulatory oversight of oil operations (particularly offshore drilling) is in a shambles, that our technology for emergency response is antiquated and in fact potentially as harmful as the spill itself.  Even after wells are “abandoned and closed,” leaks occur and oversight is practically nonexistent.  So it is critical that we not open new offshore oil drilling in California, which puts our spectacular coast at risk.

But there is an ongoing gusher that needs to be capped and tapped for the benefit of the people of California: the income from California’s oil that now only pads absurd, multi-billion dollar quarterly profit margins of oil conglomerates.  If California charged just a 10% rate on the value of each barrel extracted, it would bring in up to $1.4 billion dollars in general fund revenue, which could restore vital public safety and health programs that Californians need in these tough economic times.  This charge will not affect prices at the pump because the volume of oil produced in California is too small to influence the overall market, where  prices are affected by global factors (political and natural) that are out of our control.

Oil companies may contend that they pay other taxes and fees here in California that they do not have to pay in other states.  But that is a misleading argument.  Legislative committee hearings on severance tax measures show that oil companies are paying less overall for the oil they extract from California than in other states like Texas.  Analysis by the Board of Equalization shows that after accounting for regulatory fees, applicable severance taxes, property taxes, and income and franchise taxes, California’s combined “tax” burden on oil production was $4.22 per barrel in 2008.  In Texas, the combined tax burden on oil was $14.33 per barrel.  Much higher!  If we were to impose a 10 percent severance tax, California’s combined tax burden per barrel would still be less than in Texas.  Each year we are foregoing over a billion dollars that other states collect from large operators.  Small operations, “stripper wells,” can be exempted.  We don’t have to “Drill Baby Drill.” but, given our circumstances, California needs to tap the full value of our public trust resources that already are being severed from the state.  

California’s economic engine depends on a healthy coast.  Our beaches are recognized worldwide as a treasure.  Tourism, which brings in tens of billions of dollars annually, depends on clean, healthy beaches and coastal waters. Millions of people visit the coast as an affordable way to escape inland heat.  Coastal dependent businesses (tourism, recreation and fisheries) are put at great and unnecessary risk by oil extraction, as the heart-rending plight of the Gulf Coast states and their traditional economies makes clear. As leaders in legislation to promote sustainability, we in California know we have to move to renewable and cleaner energy resources, and so we continue to become more energy efficient and less oil dependent. New offshore oil drilling is no longer in the best interest of California’s economy or its environment.

And yet many major oil drilling operations will persist in California’s lands and waters for decades. While the economy slowly recovers, our budget is in a crisis and California can no longer afford to give away our resources at bargain basement prices.  We don’t have to put our coastal dependent businesses and environment at added risk. We don’t have to do anything unusual except what Texas and Alaska have already done:  Pass a severance tax now, and get a fair price for the benefit of all Californians for the resources extracted from the lands and waters that belong to all Californians.


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