Editorial: 9.9% Oil Tax Not Okay for California
Editor’s Note: The following editorial appeared in Southern California’s Orange County Register.
Even with the good news about California’s at least temporarily balanced budget, the state’s economic footing is still tenuous. Unemployment remains high, especially in the less-affluent inland areas, and the state has yet to deal fully with unfunded public-employee pension liabilities. There remains much to do on jobs and the economy.
California’s oil industry offers perhaps the most promise among economic sectors for increasing jobs and tax revenue. California is the third-largest oil producing state, and the hydraulic fracturing (fracking) technology creating boom times for oil production in many parts of the nation is coming to California. The question is whether the state’s leaders will embrace it.
As Bloomberg News explained, “California, even as it seeks to be the greenest U.S. state, stands a good chance of emerging as the nation’s top oil producer in the next decade, helping America toward what once seemed an unlikely goal of energy independence.” The news service points to the federal Bureau of Land Management’s sale last month of 15 leases within a massive area near San Francisco where the oil-extraction potential is great.
Certainly, oil can be extracted safely and in an environmentally friendly manner. California has the most stringent environmental regulations in the country, so there is no lack of oversight involving this burgeoning economic endeavor. But there are two problems.
- First, influential environmental groups are committed to stopping fracking here altogether, and they have potentially strong support in the state’s left-leaning Legislature. For instance, one environmental group is urging the governor to halt fracking until the environmental risks can be evaluated, but its literature suggests the group has already concluded that fracking is bad for the environment. This is a common tactic to stop projects – start with a temporary moratorium, then move to a total ban.
- Second, some California legislators, especially now, with Democratic supermajorities in both houses of the Legislature, cannot stop themselves from taxing and spending. Sen. Noreen Evans, D-Santa Rosa, has introduced legislation that would impose a 9.9% tax on every barrel of oil produced in California. Sen. Evans says it brings California in line with some other oil-producing states, but California imposes its share of other costs and burdens – the lack of an oil-severance tax is a key reason the industry continues to thrive here.
As oil industry officials note, the price of oil is set by worldwide markets, so higher costs on oil from one discrete area, like California, cannot typically be passed on to consumers. The only effect will be a decrease in California oil production, which will reduce the many other taxes oil companies pay the state, reduce jobs and harm the overall economy at a time when jobs are desperately needed.
Sen. Evans wants to spend the money on education and state parks. Didn’t state leaders just persuade voters to pass a multibillion-dollar tax that was supposedly earmarked for education? And ironically, Sen. Evans has been one of the biggest critics of the state parks department, which hid $54 million in funds even as the governor threatened to shut down 70 parks. Parks officials were caught granting themselves improper vacation buyouts.
This isn’t an agency that should be rewarded with more money.
Sacramento’s Democratic leadership ought to take its time and consider a grand strategy for encouraging oil extraction in the most environmentally sensitive and economically fruitful ways rather than to clamp down on it before the state has a chance to tap into a gusher of new revenue.