Democrats hope to use anger over BP disaster to pass tax on oil production

As crude oil continues to gush into the Gulf of Mexico, many California Democrats are hoping to seize on the public mood created by the crisis to push through a new tax on oil production to help balance the state’s beleaguered budget.

A proposed levy on oil production is at the core of both Democratic budget plans circulating in Sacramento, and thus will be on the table in upcoming budget talks with Gov. Arnold Schwarzenegger. And though the Republican governor has emphatically said he is opposed to new taxes this year, he has supported the oil tax in the past. Perhaps more importantly, his relations with the oil companies — some of which are trying to dismantle his signature environmental achievement — are at an all-time low.

Democrats are confident they have finally hit upon a source of new revenue that voters won’t loathe to help patch the budget shortfall.

“It is the perfect time in every possible way,” said Rick Jacobs, chairman of the Courage Campaign, a 700,000-strong liberal online group that has pushed for an oil tax.

California is the only major oil-producing state not to charge companies for pumping it out of the ground, Democrats are quick to note, though the state taxes the resource in other ways. Schwarzenegger himself endorsed an oil extraction tax in 2008, but he has opposed any new taxes since May 2009. That is when voters, by a nearly 2-1 margin, rejected extending several hikes that lawmakers and Schwarzenegger had approved months earlier to shrink the deficit.

“We’ve done that,” Schwarzenegger has said of taxes.

The oil tax alone would hardly bridge California’s $19.1-billion budget shortfall, which represents roughly a fifth of state spending. But an extra $1.2 billion per year would be enough to stop, for instance, Schwarzenegger’s proposal to eliminate day care for 142,000 low-income children.

Republican lawmakers, however, remain adamantly opposed.

“I get … that oil is easy to beat up on,” said Sen. Bob Huff (R-Diamond Bar), a member of the state’s joint budget panel. But “if we balance the budget with cuts, yes it hurts, but we emerge leaner.”

Democratic lawmakers interviewed were cautious not to frame the debate in Sacramento around the disastrous BP oil spill, though all acknowledged that it helped their cause.

“Oil companies are not in the highest regard right now,” Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills) said. “That’s not a reason to pick on them, but it is a reason for folks to say, ‘Wait a second, there may be something here.’ ”

Democrats insist that consumers won’t feel the pinch of an oil tax because gas prices are set by a global market. Opponents say prices at the pump will invariably rise.

Dave Low, a lobbyist for the California School Employees Assn., said his union has been conducting polls and hosting focus groups to learn what taxes a skeptical public might support. The results, he said, show “a very clear animus … to Wall Street corporations generally and oil companies, specifically.”

The oil industry ranked “below the Legislature, if you believe that somebody can sink that low,” Low said.

Oil tax opponents fear “the daily pictures, the tragic pictures we see from the gulf region,” said Joel Fox, president of the Small Business Action Committee, makes the tax “a more juicy target” for Democrats.

The oil industry, meanwhile, has been among the state Republican Party’s biggest financiers, pouring $800,000 into the state GOP’s coffers in 2009 and 2010.

Legislative Democrats, fearful that they will never get enough support from GOP lawmakers, have devised a maneuver to skirt the need for Republican votes. The move, viewed as something of a “nuclear option” in Sacramento, would require only the support of Democrats and the signature of the governor.

Schwarzenegger has been traveling across the state bashing the oil industry.

“Greedy oil companies out of Texas, they don’t care if anyone dies, they don’t care what pollution they create in the Gulf of Mexico, because they only care about one thing, and this is profits,” he said last month.

The governor’s comments have been spurred by an initiative that would effectively repeal California’s landmark law limiting greenhouse gases. The measure, which the governor views as the centerpiece of his environmental legacy, has been placed on the November ballot on the strength of oil lobby funding.

Some California-based oil companies, including Chevron, the state’s largest, have stayed on the sidelines. That makes a difference, Fox said, noting that Schwarzenegger “lambastes those greedy Texas oil companies, and we’re talking about California oil producers here” that would pay the new extraction tax, he said.

Budget talks in Sacramento, meanwhile, have just begun. Democrats are desperate for more revenue, in any form, to stave off cuts. Schwarzenegger, in his final year, wants to rein in public pensions. The oil tax could emerge as a linchpin to an agreement.

“At this point,” Assemblyman Felipe Fuentes (D-Sylmar), a member of the joint budget panel, said of the oil tax, “it seems to be the most realistic option for us.”

shane.goldmacher@latimes.com