Calif. AG candidate's oil severance tax bill clears committee

Chris Rizo Jan. 12, 2010, 2:00am

Alberto Torrico (D)

Pedro Nava (D)

SACRAMENTO, Calif. (Legal Newsline)-A proposal by a Democratic candidate for California attorney general that would raise money for California college classrooms by taxing energy producers on Monday cleared its first legislative hurdle.

The $1.3 billion plan by state Assembly Majority Leader Alberto Torrico seeks to enact a 12.5 percent severance tax on the gross value of the oil and natural gas that producers take from the Golden State's lands and sea beds.

The severance tax, the Fremont Democrat said, is similar to what is levied by other oil-producing states, including Texas and Louisiana.

"The other states seem to recognize that the oil is a natural resource that belongs to the state and the people of that state, and shouldn't be given away for free. So, this bill says to oil companies no more free ride," Torrico said Monday.

A candidate for state attorney general, Torrico wants the revenue to go to classroom instruction at the state's colleges and universities, as a way to overcome recent budget cuts and tuition increases.

The Fair Share for Fair Tuition bill is outlined in Assembly Bill 656. The proposal was approved on a party-line vote by the Democratic-led Assembly Committee on Revenue and Taxation, chaired by state Assemblyman Ron Calderon, D-Montebello.

A competing bill, by fellow Democratic AG candidate Assemblyman Pedro Nava of Santa Barbara, would impose a 10 percent oil extraction tax that would flow into the state's general fund.

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

Under Torrico's proposal, as currently written, government entities would be exempt from the severance tax.

Also exempt from the severance tax would be oil or gas produced by a stripper well that is incapable of producing an average of more than 10 barrels of oil per day during the entire taxable month.

Companies subject to the 12.5 percent severance tax would be prohibited from passing on the tax increase to consumers - or risk investigation by the state attorney general's office.

Torrico has pointed to profits that major oil companies have made in recent years, saying the tax would not hurt their bottom lines, but the wider economic effects of an oil severance tax could be widespread, according to a study by Law and Economics Consulting Group, a respected global consulting firm based in Emeryville, Calif.

The LECG report, released a year ago, estimated that the oil producers' tax could, among other things, cause steep declines in the state's oil and natural gas production and the loss of nearly 9,900 jobs.

"California's oil production is already among the most heavily taxed in the country. This new oil tax would make California's combined taxes on petroleum the highest in the nation by far," the LECG report said.

To pass, the bill will require a two-thirds vote in both houses, meaning that some Republican support would be needed in the Assembly and state Senate, where Democrats have hefty majorities. Passage could be difficult since most Republican legislators have taken strong stands against raising taxes and fees to help raise revenue.

In an earlier interview, the chief executive officer of the California Independent Petroleum Association, Rock Zierman, said oil companies are paying their fair share for the nearly 216 million barrels of crude they extract from California.

Energy producers essentially already pay a pre-severance tax on the oil while it is in the ground, plus the industry pays a high corporate income tax rate a high sales tax rate on its equipment, he said.

"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 collect a severance tax.

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