Calif. AG candidates make 'easy target' of oil companies

Chris Rizo Oct. 28, 2009, 12:01am

Alberto Torrico (D)

Pedro Nava (D)

SACRAMENTO, Calif. (Legal Newsline)-Two Democratic candidates for California attorney general are seeking to ease the state's fiscal woes by unfairly collecting billions from oil producers, industry and anti-tax activists say.

State Assemblymen Alberto Torrico of Fremont and Pedro Nava of Santa Barbara have introduced competing measures that would impose a severance tax on the gross value of oil extracted from California's lands and sea beds, saying the state is in a financial crisis while oil companies reap record profits.

Nava, who represents the Central Coast, is seeking to impose a 10 percent oil severance tax to fund an array of general fund programs, while Torrico of the Bay Area wants a nearly 10 percent levy to help fund universities and community colleges.

The chief executive officer of the California Independent Petroleum Association, Rock Zierman, said the two candidates for attorney general have introduced their proposals to garner political support.

"They see us as an easy target," Zierman said in an interview with Legal Newsline. "They feel this is an easy way to beat up on what they see as an unfavorable target."

He said oil companies are in fact paying their "fair share" for the nearly 216 million barrels of crude they extract from California, noting that oil producers essentially already pay a pre-severance tax on the oil while its in the ground, plus the industry pays a high corporate income tax rate a high sales tax rate on its equipment.

"We pay as much, if not more, than other oil-producing states," he said, disputing a claim that California is letting revenues slip away while other states, such as Texas and Louisiana, collect a severance tax.

Nava said Monday that his proposed Oil Industry Fair Share Act is estimated to bring into state coffers $1.5 billion annually, based on a $70 a barrel price. Torrico says his proposal -- Fair Share for Fair Tuition -- would raise about $1 billion a year.

"To say that oil companies somehow are not paying their fair share is very misleading. It ignores all the taxes that oil production companies currently do pay," said David Kline of the California Taxpayers' Association.

What's more, an oil severance tax would be yet another "volatile" revenue source for the state, he said.

"The tax would be based on the cost of a barrel of oil, which has gone up and down like a yo-yo over the past couple years," Kline said. "You would be committing the state to a bunch of new programs based that tax revenue coming in so when that tax revenue didn't come in the programs would still be going on and you would have to find (another) way to pay for them."

In a posting Tuesday on his left-leaning blog Calitics, political observer Brian Leubitz said its high time that oil producers in the Golden State start paying a severance tax.

"If there is going to be drilling in the state, the state should get something back to not only mitigate the costs of that drilling, but to also ensure that there is something left when the drilling is over," Leubitz wrote. "To ensure that when the oil companies leave the state, as is bound to happen, that we are left with an education system that can build innovators for the future."

To pass, the oil severance bills require a two-thirds vote in both houses, meaning that some Republican support would be needed. Passage could be difficult since most Republican legislators have pledged not to support tax or fee increases to help solve the state's budget woes.

In 2006, California voters handily rejected the idea of an oil severance tax. Proposition 87 was opposed by nearly 55 percent of the state.

"It is time for the state to start looking at new revenue options," Nava said Monday. "Seniors, children, local governments and all Californians have paid enough. It is time for the oil companies to pay their fair share."

Zierman said if raising revenues is Nava's and Torrico's goal, then they ought to support proposals to harness the state's natural resources, such as the Tranquillon Ridge plan, which would allow Houston-based Plains Exploration & Production Co. to drill the first new oil wells in 40 years off the California coast.

"It's short sided to be so anti-jobs in this recession economy," he said.

Meanwhile, Kline pointed to a study released in January by Law and Economics Consulting Group, based in Emeryville, Calif., that estimated that the oil producers' tax could lead to steep declines in the state's oil and natural gas production and the loss of nearly 9,900 jobs.

"That is just the wrong way to go when we already have this massive unemployment," he said.

Like Zierman, Kline said oil companies are heavily taxed already, noting that they pay income taxes, a regulatory fee of 7 cents a barrel that goes to the California Department of Conservation, personal property tax on equipment and a tax on untapped oil that goes to local government.

"Everyone says, "Oh, we don't have an oil severance tax,' but we do tax oil -- when it's still in the ground," Kline said. "There are plenty of taxes that oil producers do pay."

From Legal Newsline: Reach staff reporter Chris Rizo at

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