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Renewed Effort for Oil/NatGas Severance Tax in California

A former hedge fund billionaire and environmental activist is attempting to stir new life into a so-far failed state legislative and ballot initiative effort to impose a severance tax on oil and natural gas production in California, the only fossil fuel-producing state without some sort of production tax.

Tom Steyer alleges that oil/gas producers in the state pay less than $5/bbl in taxes overall, while in other big oil-producing states such as Texas, producers pay about $15/bbl in taxes.

Steyer is helping support state Sen. Noreen Evans' efforts to get an initiative on California's ballot next year, the "Modernization and Economic Development Act," to impose a 9.5% levy against all oil and natural gas produced in the state (see Daily GPI, April 29). A bill to do this last spring failed to get out of committee and another bill to impose a 9.9% tax in 2009 passed the legislature but was vetoed by then-Gov. Arnold Schwarzenegger.

The oil/gas industry is responding to the latest political push by arguing the proposed tax is based on false information and would eventually hurt statewide efforts to create good-paying jobs in California. The head of the Western States Petroleum Association (WSPA), Catherine Reheis-Boyd, published an opinion column in the San Francisco Chronicle Monday challenging Steyer's claims that California is not getting an meaningful return for its oil production.

Steyer used a $4.22/bbl estimate on the total taxes paid on oil/gas production, noting a severance tax would produce an added $2 billion in revenues for the state. Reheis-Boyd argues that California oil companies already generate $6 billion in tax revenues for state and local governments.

"We have no idea where the $4.22 number came from -- that’s a number that was in Steyer's op- ed column," WSPA spokesperson Tupper Hull told NGI's Shale Daily Monday.

"Our most recent economic impact analysis showed the petroleum industry in California -- including production, refining and other downstream activities -- generates around $6 billion annually in state and local taxes. If you divide that number by the 214 million barrels of oil produced a year, it’s something like $28/bbl."

Political commentators are noting the odds are against an oil tax being imposed in the coming year, a statewide election year. For Evans to get her measure on the ballot requires a two-thirds vote by the state legislature, which would be difficult to obtain. In addition, in an election year, lawmakers are unlikely to want to pass any tax increase.

Early this year, the ballot measure was subject to a grass roots approach, led by a University of California, Berkeley-inspired group called Californians for Responsible Economic Development. They had five months to gather signatures, but the measure is not listed on the California Secretary of State's website as pending or qualified at this point.

Steyer is reportedly pursuing a strategy in which organized college students will be turned loose to lobby state lawmakers for the ballot measure next year.

"Rarely a year has gone by since 2006 when a severance tax has not been threatened or proposed for California," Reheis-Boyd said in her opinion column. "Fortunately, after considering the facts and full implications, those proposals all have been defeated."

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