Two taxes on oil are blocked in Assembly

Times Staff Writer

Assembly Republicans on Wednesday night blocked proposed taxes on oil companies that Democrats said would offset Gov. Arnold Schwarzenegger’s planned cuts to schools.

The Democratic proposal would generate $1.2 billion from an extraction tax on oil companies and a tax on windfall profits, neither of which they say would be passed on to consumers in the form of higher prices.

Republicans dismissed the proposal as a political “drill” and said during a three-hour floor debate that they would hold to their commitment to block any new taxes.

“It will result in higher gas taxes at a time when [they] are already a burden to working families,” said Assemblywoman Jean Fuller (R-Bakersfield), a former school superintendent who represents California’s top oil-producing county.


Fuller, like other Republicans, expressed frustration at the way the Democratic leadership quickly brought the bill to the floor: without the standard committee hearings and with little notice to lawmakers.

Assemblywoman Audra Strickland (R-Thousand Oaks) called the floor debate a “publicity stunt” that was intended to pressure Republicans on their antitax stance at a time when layoff notices were scheduled to be sent to thousands of teachers across the state.

Democrats said they had no choice but to bring the measure to the floor because the state was facing a multibillion-dollar deficit and GOP lawmakers were refusing to discuss raising new revenue. They painted the proposal as a way to fend off what they characterized as devastating cuts to the state’s schools.

“Oil companies in this state aren’t conducting bake sales so they can get by,” said Assemblyman Paul Krekorian (D-Burbank). “Our schools are.”

The bill, AB 9xxx, would hit oil companies with a 6% tax on oil extracted in California as well as a 2% tax on “windfall profits” -- net income beyond $10 million. The bulk of the revenue would come from the extraction tax.

Supporters of the proposal say California, the third-largest oil-producing state, is the only state where oil is drilled that does not have an extraction tax. They point to 21 other states that impose extraction levies on oil companies ranging from 2% to 15%. They say the bill includes provisions that would prohibit the new taxes from being paid for through price hikes.

The extraction proposal is similar to one voters defeated at the ballot in November 2006. Proposition 87 would have imposed a similar tax and used the revenue generated to fund research and development of alternative fuels.

But legislative staff warned in its analysis of the bill that the prohibition against passing on the new tax to consumers “may be both difficult and costly to enforce.” The analysis also noted that companies that violated the prohibition would not necessarily be subject to penalties.


Oil firms and business groups say that although the state does not have an extraction tax, businesses that drill for oil in California pay much higher rates on many other taxes than is typical in other states. They also say more taxes would discourage companies from drilling in California, ultimately increasing the state’s dependence on oil from the Middle East.

Democrats offered the proposal as an alternative to the governor’s plan to cut $4.4 billion in school funding to help close the state’s $16-billion budget shortfall.

Lawmakers and the governor closed roughly half the budget gap earlier this year, mostly through deferrals and borrowing that ultimately will have to be repaid. Budget analysts say legislators will have to close the remaining gap with new taxes, deep program cuts or a combination of both.

Almost every GOP lawmaker has signed a pledge to vote against any proposed tax increase, which cannot be approved without the support of two-thirds of lawmakers.


Under the Legislature’s current makeup, at least eight Republicans must support a new tax for it to pass. None of them backed the oil tax proposal, which failed in the 80-member Assembly by a vote of 45 to 30.

Democrats, for their part, have vowed to delay passage of a state budget until Republicans bend. Said Assembly Speaker Fabian Nunez (D-Los Angeles): “If ‘red’ states like Texas, Colorado and Montana tax oil production to fund the services they value, then so should we.”



Times staff writer Nancy Vogel contributed to this report.