Tax Big Oil

Oil-severance tax bill seeks funds for higher education

Assemblyman Alberto Torrico’s A.B. 656 would impose a 12.5 percent severance tax on gas and oil producers in California to raise funds for education.

Assemblyman Alberto Torrico’s A.B. 656 would impose a 12.5 percent severance tax on gas and oil producers in California to raise funds for education.


Assemblyman Alberto Torrico, D-Fremont, does not fear raising taxes to help higher education in California. His Assembly Bill 656 would impose a 12.5 percent severance tax on the state’s gas and oil producers to raise about $2 billion for state colleges, community colleges and universities annually.

California is the only major oil-producing state that lacks a natural-gas and oil severance tax, “giving the energy away for free,” Torrico said. Texas, he added, with the biggest gross domestic product nationally after California, imposes an extraction tax on energy companies to help fund its universities’ operations.

Torrico’s A.B. 656 would change all that.

It would establish the California Higher Education Endowment Corporation, which would provide oversight to the state on investing and spending the new tax revenue, with representatives coming from public postsecondary education (faculty and students), the state Assembly, the state Senate and the state treasurer.

Against this backdrop, lame-duck Gov. Arnold Schwarzenegger and Republican lawmakers oppose new taxes and borrowing to balance the state budget. California has a deficit of $18.6 billion of borrowed cash to operate. That’s 22 percent of the projected 2009–10 general fund budget.

Meanwhile, the shortfall between state tax revenue and spending has shrunk slightly. “May revenues may have been positive, but their small climb represents only three percent of the state’s budget deficit,” said State Controller John Chiang in a statement on his May report for California’s cash balance. “The financial problems before the Legislature and governor remain just as daunting and time-sensitive as they did a month ago.”

Responding to the ongoing state deficit, legislators have cut spending for higher education. That hiked UC and CSU student fees by double-digit rates in 2009. Students paid more as their professors received unpaid furlough days.

Crucially, Torrico’s bill will require an approval by two-thirds of the state Assembly and Senate. A 34 percent minority of lawmakers, i.e., the GOP minority, have the power to checkmate Democrats, who control both houses of the Legislature. That two-thirds rule, enacted with Proposition 13 in 1978, is at the heart of the state’s budget problems, according to George Lakoff, linguistics professor at UC Berkeley. His ballot initiative to end the two-thirds rule with a simple-majority voting requirement may qualify for the November ballot.

A major backer of A.B. 656 is the California Faculty Association, which represents a total of 23,000 tenured and tenure-track instructional faculty, lecturers, librarians, coaches and counselors in the 23-campus CSU system. “Legislators must protect and expand the budget for public education with adequate funding,” said Kevin Wehr, a sociology professor at Sacramento State and campus president of the CFA.

The California Independent Petroleum Association opposes Torrico’s bill. “A.B. 656 would hurt production, cost about 10,000 jobs (of 25,000 energy workers statewide) and reduce investment capital flowing to gas- and oil-producing firms,” said Rock Zierman, CEO of the CIPA. “A.B. 656 would also increase California’s reliance on imported oil.”

Apparently, taxing state energy producers for higher education is gaining popularity, at least with Democrats. In late May, Assembly Speaker John A. Pérez, D-Los Angeles, introduced the California Jobs Budget. His bill takes the gas and oil extraction fee proposed in A.B. 656 and uses this tax revenue to close the cash gap between spending and taxing, propelling the rise in student fees for higher education.

The Senate Education Committee began hearings on A.B. 656 this week. If A.B. 656 goes down to defeat, Torrico will try to qualify it as a ballot initiative.

Meanwhile, higher education costs keep rising. In a June 18 meeting, the CSU Board of Trustees agreed to increase student fees 5 percent for the coming school year.