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Written by: Editor

Published: 07 May 2013

SACRAMENTO – A bill to provide $2 billion in new revenues for public education and state parks passed through its first policy committee Monday with unanimous Democratic member support.

The bill, SB 241, would impose a 9.5 percent industry severance tax on large oil companies for the extraction of oil from California’s jurisdiction.

The Senate Governance and Finance Committee passed the bill out with a 5-2 vote and it was supported by student, education, tax and environmental groups, as well as economists. The bill next goes to Appropriations.

“It’s time for California to profit from its limited natural resources and reinvest in our core services,” said the bill’s author Senator Noreen Evans (D-Santa Rosa). “We’ve cut to the bone to balance the budget for the last several years; meanwhile oil companies reap billions of dollars in profits every year. Big Oil’s free ride needs to end and the industry must pay its fair share for the resources that belong to every Californian.”

California is the fourth largest oil producing state in the nation and the only top ten producer that does not impose an oil severance tax. In Alaska, the tax ranges from 25-50 percent, in Texas it’s 4.75 percent and in Kansas, 8 percent.

For years, California has balanced its budget by cutting government spending. As a result, in 2011-12, state spending had fallen to its lowest level since 1972-73. Tuition at the University of California and California State Universities increased 310 percent and 283 percent, respectively, in the last decade. Assistance to the aged, blind and disabled was reduced to 1983 levels. The public education sector alone lost 40,000 jobs in the last five years.

SB 241, also known as the California Education and Resources Reinvestment Act (CERRA), would potentially secure billions of dollars during the estimated course of current oil production in California. If fracking in the Monterey shale region is allowed, those estimates would increase significantly to $1.7 trillion. Revenues would be divided with 93 percent of the new revenues to fund the public education system and the remaining 7 percent going to state parks.

“The CMED team is proud to support Sen. Evans’ effort to pass an oil extraction tax,” said Kevin Singer, communications director for the publicly led California Modernization & Economic Development (CMED) Act which is seeking to qualify a similar policy initiative. “It’s good to know someone is fighting for students in Sacramento, which has failed for too long to do the fiscally responsible thing and end the giveaway of oil and gas in California.”

Opponents of the measure have claimed that the imposition of a severance tax on the oil industry will result in job losses and the industry pulling out of production in California.

However, proponents point to the new jobs that would be created in California’s education and natural resource systems with the new state revenues.

When Alaska increased their severance tax to 25 percent in 2007, their labor department reported direct oil employment increased to an all-time high adding 12,500 jobs.

“SB 241 will help restore the more than $20.8 billion in cuts to education funding that have cut essential school services for our students, increased class sizes, and cost students the services of some 20,000 teachers, nurses, counselors, and other school professionals,” said CTA President Dean E. Vogel. “As of result of these cuts, California provides 28 percent less per pupil than the average state. With SB 241’s passage, we can take further steps toward providing all students with the excellent education they deserve.”

According to a recent report by the Campaign for the Future of Higher Education, in order to return the quality and fees (of higher education) to 2000-01 funding levels, it would cost taxpayers $6.405 billion.

Although opponents of an oil severance tax have claimed for years that the oil companies will pass any taxes on to consumers, research proves otherwise. According to a study by the Rand Corp., which investigated the impacts of a 6 percent oil severance tax, the tax cannot be passed onto consumers and it will not affect production.

Today, most economists agree that the world market sets the price of oil, and that underlying taxes whether from Texas, Kuwait or California, cannot be passed through at the pump. Just as gasoline prices in California followed the world oil price upward during spikes in 2007 and 2008, local gasoline prices will continue to be set by global market forces, and not local production costs.

“Gasoline prices in California are driven by world oil prices and the availability of refinery capacity within the state, not by the cost of locally produced crude oil,” said James Bushnell, associate professor in the Department of Economics at the University of California, Davis, and Research Associate of the National Bureau of Economic Research. “California currently imports more than 60 percent of the petroleum it uses, and these imports determine the value of all oil produced and consumed in the state. A severance tax on local oil production would impact the profitability of oil producers but should have little to no impact on the price of gasoline.”

“California’s oil resources have made trillions of dollars in profits for the oil industry,” continued Evans. “Imagine what mere billions could do for Californians.”

Evans represents the Second Senatorial District, including all or portions of the Counties of Humboldt, Lake, Mendocino, Marin (caretaker), Napa, Solano and Sonoma. Senator Evans Chairs the Senate Committee on Judiciary.