A proposed tax increase on oil producers failed March 12 on the Assembly floor, but Democratic leaders promised to continue introducing taxes to generate more revenue to address the gap between proposed state spending and expected revenue.
"We're going to keep putting (tax proposals) up for a vote until such time as the voting public knows very clearly, and can distinguish, between those that stand with them and those that are totally out of touch," Assembly Speaker Fabian Nunez said during a press conference.
The oil tax, AB 9XXX (Nunez), failed on a 45-30 vote, nine short of the two-thirds majority needed. The vote was split down party lines, with the exception of Assemblywoman Nicole Parra, a Democrat from oil-producing Kern County, who joined Republicans in opposing the bill. Although the outcome was widely anticipated, the floor debate lasted 3½ hours, and more than half of the members of the Assembly spoke on the issue.
Cal-Tax President Teresa Casazza, in an Associated Press story carried in newspapers throughout the state, noted that AB 9XXX would have made California the highest oil-taxing state in the nation.
The legislation would have imposed a 6 percent oil severance tax on oil producers for removing oil from California's earth or water, along with a 2 percent personal and corporate income tax on the portion of taxable income that exceeds $10 million on a taxpayer engaged in the petroleum industry. The anticipated $1.2 billion in revenue from these taxes would have been allocated exclusively to fund K-12 education.
According to the Assembly Revenue and Taxation Committee analysis of the bill, the severance tax would generate $970 million a year, but also would lead to a $10 million annual loss to local governments, because the tax would reduce the value of the oil in the ground, which is subject to property taxes. The tax on "windfall profits" would generate about $220 million a year, according to the committee's analysis.
"While oil companies are posting record profits, California is the only oil-producing state in the nation that does not tax oil that is owned, leased, or extracted within its boundaries," Speaker Nunez said.
The bill included a provision banning oil producers from passing the tax along to consumers, and giving the Board of Equalization authority to monitor and investigate any instances where the cost was thought to have been passed along. BOE Member Bill Leonard, responding to an online post by Speaker Nunez's aide, Steve Maviglio, said this provision would not work. "Mr. Maviglio's boundless faith in government auditors being able to tell how gasoline prices are determined is naοve," Mr. Leonard wrote.
A hearing in the Rev & Tax Committee was held the same day as the floor session both coming just one day after the tax provisions were amended into the bill. At the committee hearing, Speaker Nunez repeatedly referred to the assessment as a "fee."
Cal-Tax Vice President and General Counsel Michele Pielsticker led the testimony in opposition to AB 9XXX, noting that California already taxes oil producers quite heavily. Oil producers pay income tax, regulatory fees of 7 cents per barrel, personal property tax on the value of equipment, property tax on the value of oil in the ground and sales tax on machinery and equipment, she noted. "Currently, with regard to our level of oil taxation, we are in the middle of the top 10 of oil-producing states," Ms. Pielsticker said. "This proposed new tax would put us in the dubious position of being the number one oil-taxing state."
Ms. Pielsticker noted that voters rejected an oil severance tax (Proposition 87) less than a year and a half ago. She also criticized the lack of public notice about the amendments to AB 9XXX, and said, "The legislative process, we believe, should be respected, with adequate notice to all parties."
Opposition also was voiced by the California Independent Oil Marketers Association, California Independent Petroleum Association, California Manufacturers & Technology Association, Western States Petroleum Association and California Chamber of Commerce.
Supporters of the tax hike included Lenny Goldberg of the California Tax Reform Association, Superintendent of Public Instruction Jack O'Connell, the California Teachers Association, the California Federation of Teachers, the California School Employees Association and other unions and school groups.
Most Republicans characterized the floor vote scheduled on a Wednesday, when the Assembly typically does not meet as a political stunt designed to generate media stories saying Republicans were choosing to support oil companies instead of school children. Assemblyman Chuck DeVore called the session "a good old-fashioned political drill I guess you can call it an oil drill." He predicted that the same routine will be used to vote on tax hikes on tobacco, alcohol, property and high incomes.
Republicans said the tax would lead to higher gas prices, and that the provision attempting to ban companies from passing the cost to consumers was not feasible. Assemblyman Anthony Adams said the bill is "a disgusting attempt to hurt working families at a time when they just can't afford it." Assemblywoman Jean Fuller, of Bakersfield, cited Cal-Tax research during her floor speech, and said AB 9XXX would put California "way above the highest in the nation" in terms of taxing oil producers. Assemblyman Cameron Smyth, who said he once was laid off by an oil company because "the cost of doing business in California was too great," said it would not make sense to fund education with a tax on fossil fuels while simultaneously pushing to reduce the state's use of fossil fuels.
Most of the Democratic speakers defended AB 9XXX as a genuine policy proposal, and said it offered a stark choice between "Big Oil" and school children. Assemblyman Charles Calderon, chair of the Rev & Tax Committee, said: "We have to decide tonight what kind of California we want. Whether or not we want a California that offers quality education for our children, or whether or not we want a California that allows a free ride for oil companies. Do we spare our children, or do we support special privileges for oil companies?"
Several Democratic speakers discussed the pink slips that have been handed out to school employees in many areas of the state notices of potential lay-offs later this year and many repeated Speaker Nunez's claim that oil producers are not taxed in this state. Assemblyman Jared Huffman said: "We appear to be the only government on the planet earth that does not collect taxes or royalties on oil production. California has really been a cheap date when it comes to Big Oil."
Assemblyman Sandre Swanson said Republican opposition to tax increases will lead to a long stalemate over the 2008-09 budget. "Let's just plan to be here until we celebrate Kwanzaa, Christmas and Hanukkah," he said.
(Cal-Tax: It is unclear whether the Democrats will get the positive publicity they are seeking with their tax proposals. While they framed the oil tax issue as a choice between rich companies and poor students, comments from readers on newspaper websites indicate that many taxpayers strongly believe the Democratic plan would have increased the price of gas, and that a better budget solution would be to dramatically cut back on government spending, including salaries for school administrators. Also, Assemblyman Doug LaMalfa, in a post on the FlashReport blog, noted an often-overlooked cost to taxpayers: "We all know going into this debate that the bill will fail and that it will cost Californians tens of thousands of dollars to process and run this bill through committee and on our floor. Since this is ostensibly a bill to help fund education, how many teachers could be paid instead of the cost for this bit of theater for this sure-to-fail bill?") (Sources: Cal-Tax coverage of committee and floor hearings; The Associated Press, March 13; The Sacramento Bee, March 13; FlashReport blog, March 12.)
Cal-Taxletter March 14, 2008
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