Calif. Bill Taps Oil Industry for Parks Funding

February 13, 2013 by   - () Leave a Comment

Severance tax would help fund California’s state parks.

A new bill authored by Lake County’s representative in the California Senate would fund California’s higher education systems and state parks through a severance tax imposed on oil producers in California.

Sen. Noreen Evans has introduced SB 241, the California Education and Resources Reinvestment Act (CERRA), which would potentially secure billions of dollars during the estimated course of oil production in California, the Lake County News reported.

The legislation is supported by student, education, tax and environmental groups, as well as California economists. The bill is co-authored by Sen. Mark Leno (D-San Francisco), chairman of the Senate Budget Committee.

“California is the largest – and only – oil producing state in the nation that does not tax its vast oil resources,” said Evans. “Those are unrealized revenues we can, and should, use to endow our core services of government by fulfilling our commitment to higher education and similarly, preserve our natural resources in State Parks by funding them.”

The California Education and Resources Reinvestment Act would impose a 9.9% severance tax on the extraction of oil from the earth or water within California’s jurisdiction. The Board of Equalization estimates this bill would generate approximately $2 billion a year in revenues.

Revenues would be reinvested with 93% going to equally fund California’s three higher education systems – University of California, California State University and California Community Colleges – and the remaining 7% to the California Department of Parks and Recreation.

Last year, 70 parks in California were targeted for closure while most others are lacking staff and suffering from more than $1.6 billion in deferred maintenance. Parks are public commons gifted to the people of California and maintained by taxpayer dollars with the intent that they are preserved for future generations.

“It is time for California to join all of the country’s largest oil producing states in enacting an oil severance tax on big oil companies to mitigate the impact of extraction, protect our environment and public health, and strengthen our economy,” said Bruce Reznik, executive director, Planning and Conservation League. “Oil extraction can release tremendous amounts of toxins into our air and waters, and pose serious threats to humans and wildlife.”

Opponents of an oil severance tax have claimed for years that the oil companies will pass any taxes on to consumers, although research suggests otherwise. According to a study by the Rand Corp., which investigated the impacts of a 6% oil severance tax, the tax cannot be passed onto consumers and it will not affect production.

Although that study was done when oil prices were far lower, most economists agree that the world market sets the price of oil, and that underlying taxes whether from Texas, Kuwait or California, are not passed through at the pump.

Just as gasoline prices in California followed the world oil price upward during spikes in 2007 and 2008, and not local production costs, there is every reason to expect that local gasoline prices will continue to be set by global market forces, and not local crude production.

“Gasoline prices in California are driven by world oil prices and the availability of refinery capacity within the state, not by the cost of locally produced crude oil,” said James Bushnell, Associate Professor in the Department of Economics at the University of California, Davis, and Research Associate of the National Bureau of Economic Research. “California currently imports more than 60% of the petroleum it uses, and these imports determine the value of all oil produced and consumed in the state. A severance tax on local oil production would impact the profitability of oil producers but should have little to no impact on the price of gasoline.”

“Sen. Evans’ bill merely does what every other state and country does: tax crude oil modestly as it is produced,” said Lenny Goldberg, Executive Director of the California Tax Reform Association. “We owe our citizens no less.”

“California’s oil resources have made trillions-of-dollars in profits for the oil industry,” continued Evans. “Imagine what mere billions could do for Californians.”


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