Facing multi-billion-dollar budget shortfalls, the California legislature has warmed up an old proposal to levy a severance tax on oil and gas production to fund the state’s struggling higher education system. The measure, Assembly Bill 656 (AB 656), was voted out of the lower house Revenue and Taxation Committee Monday with a “pass as amended” recommendation, sending the proposal to the Appropriations Committee.

The author, Assemblyman Alberto Torrico, touted his measure as potentially providing more than $1 billion for the state’s community college, state college/university and University of California systems.

Upping the ante from last year’s version, AB 656 now proposes a 12.5% tax on oil/gas production, something that the revenue committee chairman predicted on Monday would keep the proposal from ever gaining the two-thirds majority needed to pass out of the Assembly. Nevertheless, Torrico refused to agree to lower the percentage, although he did agree to various amendments that would exempt small businesses from the measure.

A parade of representatives and citizens connected with the energy industry, many of whom identified themselves as graduates of the state’s university and college system, spoke against the measure, although Torrico reminded his colleagues on the committee that he had obtained more than 50,000 signatures of voters who support taxing oil/gas production specifically to help fund higher education.

Torrico, a Democrat from an East San Francisco Bay district, argued that California was one of the few states without a severance tax on oil and gas production, citing Texas and Alaska as having assessments much higher than what he is proposing in AB 656. Industry representatives strongly oppose the measure, citing competitive disadvantages with other states if the measure eventually is passed into law and signed by the governor.

“No state in America, not one, has a gross revenue tax like AB 656 with no deductions, credits or exemptions,” said Blair Knox, public affairs director for the California Natural Gas Producers Association.

Separately, another Assembly member, Pedro Neva, a Democrat from Santa Barbara, has indicated to news media that he intends to propose a new 10% severance tax on oil production only, claiming that would produce $1.5 billion in added revenues for various state programs, including higher education, but not restricted to it.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.