The time is ripe for a tax on oil extraction to pay for California road repairs
California still is the only major oil-producing state that doesn’t tax the goo as it’s pumped from the earth. Yes, high-tax California.
But never has there been a better time to change that and start making the oil companies pay their fair share.
Gov. Jerry Brown and Democratic legislative leaders have the petroleum industry right where they want it even if they did just get rolled by the oil lobby on anti-global warming legislation they sought.
Here’s why the time is ripe for a tax on oil severance — or extraction or depletion, whatever word you choose:
• The governor and legislators are desperately searching for money to repair California’s deteriorating roads and bridges. There’s a $58-billion backlog on state highways and $78 billion on local roads. Why not raise the money by taxing the oil extracted to fuel the vehicles that tear up the pavement? There’s a logical nexus.
• The oil lobby must be feeling pretty smug and invincible after spending millions to block legislation that would have required state regulators to cut petroleum use by half before 2030. Maybe that makes it vulnerable after burning so much political juice. Anyway, the governor and Senate leader owe some payback.
No one in the Capitol, however, is thinking about this seriously.
“It’s something always on the menu,” said a Brown insider who insisted on anonymity. A Senate advisor told me: “We’re going to examine everything, but in the past sponsoring an oil severance bill was like beating your head against the wall.”
I’m under no illusion that an oil severance tax is likely to pass the Legislature. That would require a two-thirds majority vote. Brown and Senate leader Kevin de León (D-Los Angeles) couldn’t even muster a majority vote in the Assembly to cut gasoline use by half.
A two-thirds vote would need some Republican support, and the GOP has evolved into an inherently anti-tax party. More significantly, many Democrats are skittish about taxes and some — they call themselves moderates — are indebted to the oil lobby for campaign fuel.
The oil industry spent more than $17 million on California state races in the last election cycle. The leader of business-friendly legislative moderates, Assemblyman Henry Perea (D-Fresno), for example, has received nearly $100,000 in campaign contributions from the petroleum industry since he was first elected in 2010.
The fact that special interests influence legislators isn’t exactly breaking news, of course. Most Democrats — liberal or moderate — rarely buck big-spending labor, especially public employee unions.
Brown talked a good game on the gasoline reduction legislation, but didn’t confront the oil lobby until it was too late and never did lean on Assembly moderates who opposed De León’s bill. He likes to hover above the fray. And, in fact, he figured the gas reduction was too steep a hill anyway.
“If something’s a lost cause, why send the governor in to mix it up?” said the Brown insider.
The legislation was mishandled from the start by its advocates.
In his January inaugural address, Brown boldly proposed a three-pronged attack on global warming. By 2030, he sought to reduce California’s petroleum use by half. He also advocated generating half of electricity by renewable energy. And he pushed to double the efficiency of old buildings.
He achieved the latter two pieces, hugely important victories overshadowed by the failure on gasoline and diesel reduction.
Brown never specified exactly how he was going to do the gas cutting. He’d leave it to the unelected Air Resources Board, which the governor appoints. That provided an opening for the oil lobby to run disingenuous TV ads claiming the state would ration gas, limit drivers’ mileage and ban SUVs.
De León introduced the legislation without clearing it first with the governor and jointly planning a strategy. That ticked Brown, who might have just allowed the Air Resources Board to figure it out — requiring more biofuel blending, for example — and not even introduce legislation.
In the end, oil companies and their moderate Democratic allies demanded a weakening of the Air Resources Board as their price for the gas-cutting measure. Brown and De León refused. The industry’s main goal, one Brown negotiator said, was gutting California’s low-carbon fuel standards. Forget it.
Afterward, Brown accurately summed up the legislative struggle this way: “No company wants to see its business cut 50% just because some governor of California says, ‘Hey, that’s what we’re going to do.’”
Especially a governor who’s a lame duck. This was the first sign of a natural weakening. Some of these moderate Democrats, however, have been elected under a new law that will allow them 12 years in the Legislature. They’re feeling immortal.
Meanwhile, there’s not much hope for negotiating a gas tax increase to pay for highway repairs. That’s why the oil severance tax looks so tempting. It wouldn’t directly hit the motorists’ pocketbooks. A 9.5% extraction tax on the value of oil and natural gas could raise more than $1.5 billion annually.
California does impose some oil taxes, but they are piddling compared with other states.
The Legislature passed a severance tax in 2009, but Gov. Arnold Schwarzenegger vetoed it. In 2006, the oil industry spent $95 million to defeat a severance ballot measure.
It’s time for Sacramento to rev up this idea again. The oil lobby has to lose sometime. You’d think.
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