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AG hopeful's oil severance tax proposal held by committee

By Chris Rizo | May 10, 2010

Pedro Nava (D)

SACRAMENTO, Calif. (Legal Newsline)-Legislation by a Democratic candidate for California attorney general to enact a $1.5 billion a year tax on oil producers stalled Monday.

The proposal by AG hopeful state Assemblyman Pedro Nava, D-Santa Barbara, calls for a tax of 10 percent of the gross value of the oil that producers take from the Golden State's lands and sea beds.

The bill was held today by the Assembly Revenue and Taxation Committee, led by Assemblyman Anthony Portantino, D-La Canada Flintridge.

The bill was held because the tax-writing committee previously approved a 12.5 percent oil severance tax to help fund the state's colleges and universities. That bill was carried by Assemblyman Alberto Torrico, another Democratic attorney general candidate.

Nava's proposal has a wider purpose, he says, saying his tax could help bankroll a variety of state programs, including those for schools, social services and public safety amid a historic fall in state revenues.

"California oil companies are getting a free ride," Nava has said, noting that California is the only major oil producing state that does not collect an oil severance tax. "It is time for California to catch up with Alaska, Texas, Alabama, and Arkansas. We need to collect the people's share of this potential revenue source by forcing Big Oil to pay its fair share."

Nava's plan, the Oil Industry Fair Share Act, is outlined in Assembly Bill 1604. He proposed a similar bill last year, and again during a special legislative session called to deal with California's fiscal woes.

The proposal is backed by such groups as the California School Employees Association, Congress of California Seniors and the California Nurses Association. Meanwhile, the California Independent Petroleum Association has been opposed to Nava's efforts to enact an oil severance tax.

Since California only produces less than 0.7 percent of the world's oil, Nava has said the proposed severance tax would not raise gasoline prices. 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.

Enactment of an oil severance tax would require a two-thirds vote in both houses, meaning that some Republican support would be needed in the Assembly and state Senate.

Passage could be difficult since most Republican legislators have taken stands against raising taxes and fees to help the state make ends meet. In 2006, California voters handily rejected the idea of an oil severance tax. Proposition 87 was opposed by nearly 55 percent of the state.

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